In the last few weeks we have been discussing the pros and cons of trading in the foreign exchange (‘Forex’, or ‘FX’) markets. So far, we have learned that FX markets are big, really big, trading over US$4 trillion a day. This is in the order of magnitude: one hundred times bigger than the turnover of all of the stock markets in the world combined!
This means that in such a busy and crowded market, FX traders have to merge very close together in their buy and sell prices, also known as the ‘bid-ask’ spread. As the spread is an inevitable cost of dealing to all traders, the extremely small spreads in FX markets make this type of trading very cheap and very efficient indeed. Certainly, this marginal cost to deal is probably the biggest advantage in trading FX, and is no doubt a major driver behind professionals flocking to this type of trading.
For the average investor controlling transaction costs is an equally important consideration. When one is starting off with a modest capital base, transaction costs are an insidious drain on profitability. Whilst FX trading certainly meets the needs of smaller investors in this regard, there are many other very good reasons why traditional ‘mum and dad’ investors are also flocking to FX trading. Let’s investigate a few of them today.
All trading needs to be treated like a business. This involves having a well documented approach based upon strictly defined and proven profitable rules. We’ve talked at length in these articles about trading plans and I refer you to the archives for more information. For FX traders, the FX markets offer the ultimate small business proposition.
Staff? Potentially just one! No calls at 8am in the morning from Barry putting on a cough and a sniffle because (you’re guessing) he’s had a big night last night! No salaries, no super, no annual leave to pay…No whinging. No hiring or firing.
Boss? Look in the mirror! You really are the master of your own destiny when it comes to trading.
Clock on, and clock off? FX markets trade 24 hours a day, 5 days a week (early Monday morning our time until early Saturday morning). Pick and choose your hours because there’s always at least one major financial centre around the world open, and therefore some action somewhere in the FX markets.
Time off? That’s up to you. What you put in is what you get out. Also, there are trading approaches and strategies which range from always active to set and forget.
Overheads? Most FX trading platforms are offered free of charge and come with an array of advanced news, analysis, and charting tools. One simply needs a laptop and an internet connection and a place to sit. Hopefully this is a nice sunny place with a great view…it really can be anywhere these days. No rent, no inventory, great! As we’ve mentioned before, FX trading is generally commission-free so the FX trader’s only overhead is typically the spread in their transactions.
Without a doubt, get this game right and the rewards are substantial both from a financial and lifestyle perspective. However, before you get too excited and begin to entertain dreams of sitting on a beach somewhere on your own little private island, sipping cocktails with the supermodel of your choice whilst tapping away on your laptop making millions in the FX markets…here’s a reality check: Very few FX traders actually make money in the long run!
Why? Well, it’s actually got very little to do with the FX markets themselves. For all of the reasons we’ve already talked about, the FX markets are arguably the most cost effective and efficient markets on the planet. The reason why the vast majority of people fail to make money in the FX markets is because they plunge in with great expectations, too little capital, too little time and dedication to the cause, and little-to-no experience. In addition, very few have the well defined and proven profitable trading plan we mentioned above.
The rewards are great, yes, but so are the risks. So too is the amount of hard work you’ll have to do in order to get yourself to the stage where you are earning a steady and reliable income from the FX markets. Well, what are you waiting for? The ultimate trading market is waiting for you…always!
If you would like to learn more about FX trading, or more importantly learn more from one of the most respected FX traders in the country, Australian Stock Report is proud to offer an exclusive FX workshop presented by Kel Butcher.
The Fast Track FX Workshop is a one-day intensive training session which will show you all of the ins and outs of FX trading and give you a number of great short term FX trading strategies to help you trade profitably from the start. It certainly is a not-to-be missed event! Click here for more…