In this article I will describe why I do not think that do people can earn a lot of money trading currencies for a living if they start with small amount of money. This is just article for thinking and I hope you think different than me…
Trading forex for a living
So you’ve decided to start a career as a Forex trader, living off forex. Your first 3 questions will be:
1) Does anyone make money trading forex?
2) How much do forex traders earn?
3) Does forex really work?
Can forex be traded for a living ?
Congratulations, you’ve taken the first steps towards a reward – both personally and financially – career.
But there are a few things you should know before you get going and put your money down on the table.
And even if you think you’ve thought of everything we ask that you take a pause and read this article.
We’ll not only tell you three things that we think every beginning Forex trader needs to know but also we’re telling you this because we don’t these three tips are emphasized enough to beginners.
That’s because you can make a lot of money on Forex, but you can also lose a lot of money on Forex.
In fact, no matter how sophisticated a trader is, he or she will lose money one day. Your goal now and always is to limit the amount of money you do lose on Forex.
That might not sound as exciting as telling you about how much money you COULD make or better question: Can I make money trading forex?
Yet we know for certain that if you don’t follow some baselines that your story will end up a tragedy. Such is the nature of trading foreign currency, but it is doesn’t have to be.
We don’t want to rain on your parade, we want to make sure it happens.
Before you make your first trade, read these three tips that will tell you what you need to know about trading Forex before you spend a dime:
Don’t Expect to Become a Midnight Millionaire and start making living trading forex from the first day !
Probably the first misconception you need to dissuade yourself from immediately is the idea that trading Forex will make you instantly rich.
Don’t get us wrong. After years of sustained trading success and astute financial management, you can make a fortune off of trading Forex.
That takes a long time which is why Forex is a game for those with the patience to do it.
But, wait, you’re thinking, I have a lot of initial principal to invest.
After all, the more money you have to risk, the more money you can make, right?
You might even be thinking that you have enough training to know better than some general advice article, but you’d be wrong. The more you risk the more you will lose. If you’re just starting out, you don’t want to begin with losses. Losses over your career are inevitable, but they should be as small as possible and contained.
Don’t risk all of your capital at once and certainly don’t rely upon a “tried-and-true” strategy or a “surefire way” to make millions.
There is no better tried-and-true strategy than a sober, collected approach to trading.
Large Amounts of Initial Capital Can Lead to Enormous Losses with Short Periods of Time
Of course, you might think that this piece of advice is a no-brainer tip.
But, again, you’d be surprised how many traders disregard this advice. Whether it is because of a rushing bull market or emotions getting in the way of reason, risking a lot has huge rewards yet, in Forex, it can have devastating consequences.
First of all, this approach stems from a day trader’s mentality with stocks and securities.
Forex is not a stock or security, it represents the exchange differential between two fiat currencies.
The predictive mechanisms for a currency’s value are almost as vast as the ocean itself and the factors that impact a currency’s value are equally voluminous and nearly impossible to comprehend alone.
Many traders have developed strategies and metrics that they like to use but those that tell you they just “know” when something is good or bad are not trying to obfuscate the issue or hide some unique strategy from you.
This is because, even in the best conditions, you will be wrong and you might be wrong more often than not. The key is to balance losses with huge gains, not recover from huge losses with depleted capital.
You can always regroup after a small loss, but a huge loss might be enough to drive you out of the market.
And things can change in a heartbeat in Forex.
So we have to emphasize again: No matter how certain you are of your skill, strategy, or market conditions, a smart risk leads to a future. Dumb risks can ruin it.
It’s that simple.
One tool that every beginning Forex trader needs in their arsenal is the Speculative Sentiment Index or SSI. It is basically a measure of how many people are long or short for each currency pair being traded.
My personal opinion – Can I make money in forex trading or Forex Lies ?
If you think that you can put $500 and make to be $ 5 million dollars in a few years – No. This is a small probability event. There are no holy grail or some strategy that you can follow and earn money in the trading industry. After 11 years of trading, working for several prop companies, I can for sure say that it is a very small chance to succeed in and trading industry with small capital. I believe in Prop trading, manage big portfolios and 10%-20% gain per year.
Why I think like this – see Table above this text. This is the most important table for every trader who trades for a living. It shows the percentage of the profit needed to recover a loss.
Example 1 :
You risk 1% of your portfolio. If you trade and after few months you have 10% loss you can recover as same as you made loss. So after 11% gain, you will be break-even.
You risk 5% of your portfolio. If you trade the same positions as in Example 1, after a few months you will have a 50% loss. So after a 100% gain, you will be break-even.
You risk 9% of your portfolio. If you trade the same positions as in Example 1, after a few months you will have a 90% loss. So after 900% gain, you will be break-even.
Can you make a living trading forex ?
Trading for a living might be seen as a risky adventure that no one should go on by some persons who think having a job offers more security; but for others there is nothing secure about working for a boss who can have a change of heart and fire you at any time. These persons will constantly learn about the many ways in which they can be the best trader so they can make a lot more money than the salary they would be getting if they had a job.
Having a job puts persons in a position where they will always be job seekers until they retire, being an investor/ trader means you will constantly be looking for and finding opportunities to earn a lot more than what the job offers. You will be putting yourself in a position to be the boss as you can constantly improve your ability to earn, by simply learning more about the skills you’ll need to increase your investment. You can look at the many earning opportunities you will have when you become a trader.
Do people make money in forex? Yes, but can they be successfully several years in the future not just a few months?
Proprietary Trading- the Pros, Cons and More Important Information
There are day trading firms that offer traders to trade with a pool of capital instead of their own money in an arrangement that helps all the parties involved to benefit. You’ll be entitled to a cut of the profits that are generated through trades. However, there are challenges that make it difficult at times for persons to generate profits.
When proprietary day traders do a few trades a day for bigger gains or many small trades per day, you can work as a contractor for them. If you have been making profits and you are seen by persons as an experienced trader, you can work from home with these proprietary trading firms, but before you have earned that reputation you might still be hired by these firms. During this time, you will be asked to pay for training, as the firm uses this method to eliminate persons who are not serious about trading.
You will need to decide on what your own preferences are so you can put yourself in the position you want to be in. You will think about the type of trading you are best at and find ways to improve your knowledge about that way of trading so you don’t waste time learning about everything when you could be earning and becoming more experienced in one area.
Technology has caused a change in the way persons can work for these firms and there are persons who work for firms while they are with their children at home; as markets can be accessed with ease.
However, it can take several months before you are experienced enough to earn a living from trading, so if you are in a job it is not good for you to leave it too quickly.
It is important for you to make a trading plan or business plan
You can run a search for the proprietary trading firms in your area and start learning more about them if you are planning to work with them in the future. You will be choosing between two model types. One that takes 20 to 50 percent of your profits; or others that takes a little of your profits and gives you up to 90% of your earnings after you have used your own money to trade.
You can also be hired by a company to work on their trading floor and you’ll be trained and given a salary plus bonuses. As a prop trader you’ll be working up to eight hours per day or you could work from home for 3 to 4 hours, it all depends on what is needed. However, these firms make a profit by charging fees for software, seats, training and more.
Finding out what markets you’ll be trading in depending on your capital and interests.
Persons who want to become traders will benefit from working for a trading firm as they will have access to more trading capital than they would have on their own, they will be surrounded by traders who can help them to become profitable, they won’t need to worry about having a balance that is too low to trade in stocks, they will have access to training from professional day traders at a cost, reduced commissions when it is compared to what other day traders face.
New traders are always in need of training and it is best for you to be trained by persons who produce successful traders. You should do some research as you constantly pay attention to your likes and dislikes, as well as the time you can spend on trading, the markets you want to trade in, your personality and circumstances. When you know what is available to you, you’ll be putting yourself in a position to make better plans after you decide what trading method suits you best.
Forex for a living and psychology of trading
When you are willing to do what it takes to overcome the many challenges and learn about the psychology of trading, by remembering that fear and greed are two emotions you should avoid because they will have a negative impact on your ability to make profits; you will also need to know about trading strategies and risk management techniques, how to bounce back after a trading loss, to pursue profits so you will be one of the experienced traders who earn a living by trading as a proprietary day trader.
Even though firms are now online as they reduce their costs and you won’t be sitting among experienced traders when you are starting to trade, chat rooms and Skype are useful tools but getting answers for your questions might be difficult, competition for seats on a physical trading floor is now higher than before, retail day traders access trading platforms and internet speeds rival most proprietary resources, the fees charged to traders by some firms could reduce your profits and be a deterrent.
Other Trading Options
Persons who do full-time trading and have advanced degrees and a lot of experience are not confined to working in investment banks and you don’t need a lot of expendable time and a huge amount of capital to start trading.
However, it is possible for persons who are not university graduates to start trading and get on the path that leads to wealth creation.
Persons can trade independently by choosing the easiest and flexible ways by including trading in their daily lives, trading from their homes
Even though trading stocks from your home is a very capital intense arena as the lowest equity requirement for the trader who are designated day traders are $25000 and this amount will have to be maintained. If the balance should go below the prescribed amount the trader will not be trading until the lowest amount needed is restored when money or securities are deposited in the account.
New traders need to be aware of all the markets, as a lower barrier-to-entry that requires less capital can be a better option sometimes.
The currency markets or forex markets offer a number of alternatives these days. There are times when traders can open accounts for as low as $100 with leverage, meaning a huge amount of funds can be controlled with just $100, during the week the market is now opened 24 hours per day. Persons who are not able to trade during the day time can trade when it is convenient for them.
Who trades forex for a living? For me, only people who develop strategy, figure out market inefficiency and then make forex trading as a business. This is the only approach that can give consistency in trading results during the long term period in trading.
Last Question – How much do forex traders earn ?
When you work for a prop company average trader who manages $100 000 accounts can earn an average of $1000 per month. It is around 1% per month. So when you earn $2000 you need to split and share money with Prop company. Senior Traders manage more than 1 million dollars in smaller companies and in large corporations they manage much much more.
If you are a trader and trade your own money and if you risk more than 2% of your portfolio based on several data from brokers – you will in 94% all of the time lose money instead to earn money. I worked 1 year as affiliate manager for one reputable broker and I saw that from 3 000 traders that I tracked in one year all 98% of them had bigger losses than the profit in the end.
Brokers are not guilty – risky traders are!
The Contract for Difference (CFD) Market
The (CFD) or contract for the different markets can also be entered with low requirements and it is best for persons who want to get involved with trading to do extensive research and learn about what has caused this market to expand. An electronic agreement between two persons doesn’t need to own the asset that is being used, is a CFD. Gains are captured for a fraction of the cost of owning the asset.
The contract allows room for profits and losses to be earned, but the CFD contract can be used to trade in the foreign exchange (forex) markets, even though the assets are never owned by the traders. There is speculation on the underlying stocks or indexes as its movements are mirrored so that profits or losses are reaped in this way.
If a trader does not have a lot of money, this way of trading can be beneficial.
You can educate yourself on the risks involved in this way of trading as you build a trading plan that is strong.
However, you should remember to always strive to be the best trader. As you continue learning from the best as there is no other way for you to continually increase your profits and reduce the impact of the issues that would be seen as a deterrent. Always remember it is easy to quit when you suffer a loss, but you can always learn more and become one of the professionals who are earning huge sums of cash every day.
You can earn money as a trader trading from your home. But remember that risk is something that can be your biggest mistake. Prop company traders for me have a great advantage because they can manage a larger sum of money and have small controlled risk.