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FX Online Trading – A Viable Business Model?

FX online trading is still quite new, but already it’s one of the main ways to make money on the internet – up there with weight loss and dating.

But it’s not so much the making of money through trading fx, or forex, as making money through selling other people information on how to make money in this way. But is actual fx online trading itself a viable business model?

Nearly all the web sites promoting this particular method of earning money are hosted either by brokers, who seek you as a customer, or purveyors of “earn money with fx” types of information product. It’s no surprise, then, that the content of these web sites gives the impression that trading foreign exchange is easy, provided you buy and follow their particular method, or subscribe to their particular brokerage.

Some sites even offer a “trading robot” that can faultlessly make all your trading decisions for you. (I know from experimentation that these robots do not work over the long term and can lead to disastrous losses).

The fact that over 95 per cent of all newcomers to fx online trading lose all their money and have to give up, usually within 3 months, is used simply to reinforce the argument that you need the particular product being offered to you.

The second point you ought to know is that all these web sites invariably guide you towards trading by way of spread betting. Spread betting does have its attractions, not least of which is that all your profits are tax-free. However, it is a far from ideal way to trade foreign exchange, and on top of that there is a far safer alternative method (see below).

The next point to bear in mind is that brokers regularly offer “mini accounts”, so you can start off with a relatively small amount, and “keep your risk level low”. Even the regular accounts can be opened with just $2,000 to $2,500, and there are thousands of people every day opening fx trading accounts with those minimum levels. The important point is that, though there is nothing illegal in brokers doing, this, they are not doing so to help you amass a fortune from trading currencies online. They are doing it to make money for themselves.

The truth is that only a very few traders make regular profits in fx trading through spread betting. These people are seasoned traders who know all the foibles of the market and are frequently prepared to ride out potential losses of hundreds of points (sometimes trading at $100 or more per point). Most, though not all, do so on behalf of large banks, who have millions to back up their traders.

These people usually have stop loss levels (the amount of loss on each trade that is tolerated before it is automatically terminated at a fixed level of loss) of several hundred points. This often enables them to ride out trades that initially go wrong but eventually right themselves and become profitable. They are prepared to have a trade open for days or weeks, if necessary.

Most beginners, in contrast, are encouraged by the “method” they have bought to “day trade” (open and close trades on the same day) and keep losses to a minimum by having stop loss levels as low as 20 points or so. In the volatile fx market this is little short of madness, and it explains why so many people fail.

Yet it is possible to trade foreign exchange for regular profits, and you don’t have to be a seasoned trader with millions of dollars to do it. Instead of using spread betting, use the system of covered warrants or exchange traded funds. They are less glamorous than spread betting, and don’t have the aurora of excitement, but what would you prefer – a roller coaster ride into losing all your money, or a more staid but reliable method of regularly profiting?

Few brokers or sellers of fx online trading “information” will tell you about this, but if you look around you’ll find someone who will.

Philip Gegan