I have been looking at a few posts and there is a general theme of FX is too difficult to make money or a damn right scam or some other excuse about the broker. This is actually very disturbing because it highlights the share volume of people who have no intention of becoming traders, rather they are looking for some extra income. Not that it is a bad thing but trading is a profession while it appears accessible you must make this choice based on careful planning.
So hopefully this serves as useful sign post guide by no means should you follow this but I think a lot of people who are thinking about it seriously have some constructive info, I will be as detailed as possible. Some of these steps I circumvented but it made my learning curve steeper and I did make a few mess ups along the way but they are worth considering.
[B]To quit or not to quit your job? [/B]
This is a common question when becoming a trader. I never had to go through this dilemma, I became an enterpreneur in 2006 after working for Accenture. I studied economics but initially never had interest as such in being a trader, didn’t fancy 70hr weeks at JP Morgan, so opted for consulting. I do a lot with properties so I did have a job but not in the sense of a 9-5 and I have been able to trade around my job since 2009. The downside is I traded very little and made on average 30% year on year in FX and about 2-5% in equities. Upside is with that level trading you will always make money. Last year I decided that this year I will go full time and have been trading more or less full time since September, it is going well so far. I think it is worth deciding if you want to be a trader or not before making the plunge because at some point you will start to feel unsatisfied with your day job and spouses and friends will quickly question your new habit this is because the media has programmed them to see markets as difficult, jargon filled, gambling, risky and deceptive, they are even seperate financial channels. So this will be the most serious decision you make aside from your the purchase of your home. To conclude, trading is a profession so don’t quit your job till you have the proper education and money to cover living expenses for 3 months and at least 2-5k for initial account dependent on skill, if you are thinking equities or futures, 10k may be a better idea. Till then hold fire.
[B]Do I need a mentor? [/B]
This for me is the most rediculous notion. The answer is No… If you learn better in the classroom then you should pay for a course, there so many trading firms offering this for all instruments and markets, so that will be an option. If you are like me and can’t stand classrooms then you should get books on trading, Edwin Le Ferve, Jack D Schwager are all excellent authors and a great place start. Technical analysis is really broad, I suggest narrowing your focus price action and volume analysis and if you are good with money management some of the ideas around how to manage a trade will come to you naturally. The rest is down to how much you want to learn, hence it is best to do as your main line of work. This forum and many others are littered with questions on algos that can deliver returns (they don’t exist). Just this week I was having a discussion with an FX Options and futures quant trader who was telling me they no longer trade Euro dollar, Cable or any majors instead they focus on Yeng pairs and exotics…Why? Their million dollar algo stoped delivering a return post 2012. Yet there are thousands selling indicators and algos claiming to deliver gravity defying returns. The truth is algos will never work not now, not in the future. However banks run algos to make the market rather than to trade, it is impossible for people to service all those buy and sell orders that come in at the retail level so algos do it. Humans still process block millions of dollars as an algo cannot process such a large order without crashing. To conclude a mentor is not necessary.
[B]
What kind of broker should I use? [/B]
I had the misfortune of trying all the broker types, I opened an account with easy forex, XM, IG, FXCM and eventually FXPro. I was completely satified with FXPro and XM. FXCM are okay as Jason will swiftly get on issues I mention so they have a good rep around here and FXCM is by far the most popular UK and US broker. I was specifically interested in non-dealing desk, STP and ECN brokers. Cutting through the jargon, dealing desk brokers are easy to spot, they usually have wider spreads, have minimum stop loss levels for e.g. your stops must be 25 pips or 10 pips, etc. Dealing desk brokers essentially market make and the most likely to go bust but this scenario is rear. I would avoid these, it is possible to make money but it isn’t economical for you. Non dealing desk, STP, ECN are all technically the same with minor differences. NDD usually pass your orders on with some minimal dealer intervention (they will however deny it), STP or straight through processing send your orders straight to the bank to be filled so no intervention at all but charge spreads like NDD and DD brokers. The last ECN electronic communication network promises some anonymity in that your orders go into what is known as a dark pool were orders just get filled in blocks. There is normally a major bank at the heart of this but to be honest all of this could be bull, no one knows for sure not even the so called professionals. Truth is you just want your order filled and at reasonable cost. ECN platforms have tight spreads 0.1 pips and charge a commission for handling your order normally $13 per 100k contract, in my opinion the advantage is the bid and ask price are almost the same. To conclude any broker is fine as long as they are NDD, ECN or STP. Dark Pool Liquidity Definition | Investopedia
[B]Should I get a seperate data feed like the pros? [/B]
This is the biggest piece of nonsense that has come from the equity world where all orders and data coe from a central exchange so speed to the exchange is a fact and not all feeds are equal and most of the exchanges charge for real time exchange information and extended trading ours. In the FX market this is not relevant as there is no central exchange. If however you rely on technical analysis you should get a good charting package, esignal and trading view are the better ones. Initially MT4 should be able to handle. If you have an ECN like me MT4 is not compatible so you the broker would have a customized platform. Don’t waste money on feeds unless you need it.
[B]What should I trade?[/B]
Trading should not be limited to just FX. The reason you are here is because the level of intermediaries that are involved have increased the marketing of FX against other products. You should consider the return potential on what you are trading. It is possible to trade successfully for a year or two and increase a stake and perhaps start to diversify into higher return derivatives like futures or assets like equities, futures have less trade costs, higher margin requirements normally about $5,000 and a maintenance margin requirement. The use of margin is a little different from FX. Futures Margins | The Options & Futures Guide. The most important thing to consider when trading a market is the average true range of the market for e.g. Euro dollar has an ATR of about 100 pips you could make roughly $600 or loose $600 per day on a standard 100k contract (you will never get the entire range), Gold has an ATR of about 30 to 40pts per day, so you could make or loose $2000 per day on a standard 100 Oz contract. In the end if you want to make money, you need to have some money first. It is the reason why the poor unemployed are likely to stay that way.
[B]What is the best strategy?[/B]
If you have ever served in the military, you would be familiar with the idea of point and shoot. In an engagement you have no chance of seeing the enemy, let alone make a calculated shot that confirms the enemies death, instead you just direct your fire in a 30 round magazine you are bound to hit something or overwhelm the enemy till they retreat. that would be a successful engagement. Like in the military strategy rarely works. What you need is a plan in the event of an engagement, this will eventually lead to strategic decisions like flanking maneuverer or calling fast air or artillery fire support on the enemy. So in trading we need a business plan that will focus on our mentality, our attitude, money management plan, exit strategy, conditions for enetering trades, etc. I can use Fibonacci, you can use RSI’s and so on but what tells us apart is our plan when faced with danger in the market or when we are engaged in a trade. This is why soldiers will always make good traders. In my opinion there is no best strategy just your plan of engagement. You can literally go on youtube get a few videos, pick a strategy that suits you and you are ready but without a plan it is all useless. So focus on your plan.
[B]
Is it true that many people fail in FX?[/B]
Brokers have been banding a lot of statistics around i.e. 90% fail, etc. Truth is in the 80’s a lot people use to be involved in equities and the 87 crash changed the perspective on financial markets primarily because the US population had a bias to not going short, it was just not American. This is still the case. So the media reports market collapses as bad news. How is this bad news to a trader? My point is that many people still don’t understand what they want from the markets, they are in it because everyone else is, a bit like why everyone has an Iphone or a Mac (I have none by the way). Now, it looks good to tell your mates I trade the markets. Everyone gets what they want out of the market, this is reflected in the diverse opinions on markets. Some get wealth, some get satisfaction, some ego, some losses, some proof of life. In the end you will get what you want. So in my opinion it is unlikely more people will succeed in life than fail, what makes the markets different? 90% is arbitrary number to represent the majority.
[B]
Do I need 10k or 2k or 1k? [/B]
This an excellent question and many people will naturally disagree and say you over leveraged, etc. Those of us who are old enough to own houses understand the subprime crisis that spanned the western world. People certainly didn’t see the Folly in a 5% deposit. The FX and all other derivative makets offer leverage (I only call FX a derivative as I feel cash is really a derivative of Gold which is what it should be as currency should be backed by Gold). Moving on… The goal here is to become a trader so you need to start somewhere. If you won’t be happy asking someone to give you 10k to start trading, then don’t ask yourself for that. Money is not monopoly dollars so one must always treat it with respect. So it makes sense to start with 2 to 5k you can afford to loose. If you are serious about your profession, you would have studied prior to making this plunge, dare I say you would have tried a few demo accounts and understand your technical analysis and your market an instrument to fine tooth, to the point if someone woke you from sleep and quoted a price you can tell what instrument it is likely to be. This not only simulates the environment of making money from small amounts but also the pressure o trading for a living. If I gave my daughter 10k and said trade mini lots all day long I am sure she can remain solvent. My point is your 10k will soon become 5k maybe over a few years. The key is knowing how to trade not the bank balance.
I intend to keep updating this thread with more FAQ’s as they hit me but again, this my 4th contribution to this forum. Also if you have questions besides, where can I find a mentor? Please feel free to ask and I will gladly pass on my knowledge. remember you are on a journey that doesn’t end here.
Hope this helps. You can follow my ideas on this thread 301 Moved Permanently