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Day Trading the Currency Market – A Word of Warning

My views on day trading the currency market are well known to anyone who has read a few blogs here. But since the forex industry – selling information, systems, “robots” and brokerage services to new forex traders as opposed to actually making money by trading currencies – is still going strong with no sign of going away, then allow me to issue a fresh warning.

All the glitzy sales pages have pictures of swimming pools and sports cars, illustrating the wealth you can expect once you’re a successful foreign exchange trader. And it’s so easy anyone can do it. Well, there are a few sharks lurking in the swimming pool and the sports car has a worn brake lining.

If you want to day trade the currency market you have to do it in one of only two ways – spread betting or fixed odds betting. All winnings are tax free in most countries, just as losses can’t be deducted for tax purposes. This is a major selling point for the purveyors of forex information.

Taking fixed odds betting first, this is where you go to a web site like betonmarkets.com and place a bet, for example, that GBP/USD will be lower than its current level at close of trading on a particular day. You can select the current day if you want to keep to day trading.

Fixed odds has the advantage over spread betting in that you can’t be stopped out before the bet expires, so if you’re right in your prediction it doesn’t matter about the volatility in the meantime. But you’ll see presently that this is pure gambling and in the long run the bookmaker always wins.

Spread betting involves a spread of, typically, two to six points, stop loss levels and probably limit orders. This is what nearly all newcomers are directed to do by all the forex systems and robots out there. But day trading the currency market on a spread betting account is a sure way to lose all your money just as much as fixed odds betting. And here’s why.

The currency markets are extremely volatile and are dominated by the really big players. We’re told that forex is a huge market – over $3 trillion per day being traded by traders from all over the world 24 hours a day – and it’s just too big to be manipulated by anyone. That’s not true. It’s huge all right, but it can be and is manipulated by just a few big players.

Apart from a few private traders who have proven spread betting strategies and who often trade under the mentorship of an expert, private forex traders have generally limited capital and last only a few months before they lose all their money. There’s a rapid turnover of new traders as there are always people new to forex arriving, ignorant of the dangers and thinking they’ve found the new El Dorado.

The rest of the forex market consists of professional traders acting mostly on behalf of big banks. There are in fact only about 20 huge banking corporations that, through their employee traders, dominate the market and can cause rapid and large fluctuations in the prices. Their actions often cause movements in price that defy the charts and indicators everyone else is relying on.

The result is that small, private traders frequently lose money on trades that should have been safe and profitable. Even experienced, professional private traders are frequently caught out. To ride out the volatility you need massive stop loss levels of the size that traders with a limited amount to trade with, and therefore to risk, simply cannot afford.

The currency market is like an ocean in a storm. The huge liners can sail through it and hardly notice there’s a storm going on, but the small yachts and dinghies get tossed around and overturned very easily.

There are much easier financial markets to trade. Trading stocks with covered warrants and Exchange Traded Funds may not sound very exciting, but it’s much easier to make money with them, even if you usually have to wait a few weeks, rather than a few hours. And if you must stick to trading the currency market then your best bet is to find someone who is an expert financial trader himself and see if you can copy his trades and methods.

Someone like Vince Stanzione. Just go to our home page and complete the form for your free mp3 interview with him.

Philip Gegan