“You can get rich with forex spread betting”. That’s the message we see so often from purveyors of forex trading information and software.
The tragedy is that not only is this an over-simplification, in the sense that the information being sold probably won’t bring you instant riches, but the buyers of it are usually people desperate to replace a lost income and who simply cannot afford to throw what money they have left down the drain.
Why do these forex systems not make everyone who buys them rich? Briefly, because there is a missing link between most information products relating to the forex market on the one hand, and the new trader on the other. Readers of this site will probably know what that missing link is, but I will spell it out here – it’s simply knowing the dangers of day trading.
Nearly all successful trades in the forex market last at least a week or so, often several months. The main reason for this is the volatility in the market. When all the indicators and all the latest news says a currency pairing has to go up, it may well go down 50 or 100 points before it goes up. Or it may go up 20 points and then go back down 50 points before resuming its upward course. That’s just the way forex is – you can’t do anything about it.
But if you’re trading with just a few hundred, or even a few thousand, and have tight stop loss levels of just 20 or 30 points, as instructed by many forex courses, then you’ll end up losing all your money. You may have one or two successes but they will soon be eclipsed by the losing trades that you will inevitably have.
Successful forex traders have learned how to cut out this weakness. They trade will sufficiently large stop loss levels, so they can withstand the volatility in the market. This means they have to have at least a couple of thousand in their account, and trade at no more than one dollar (or pound, or euro, depending on their own currency) per point until they have thousands more in their account.
Of course this is a simplified explanation of how to really profit from international currency trading. But it’s true that successful traders take a long view. They tend to disregard most short-term signals, and have their trades open for several days to a week or more.
So if you want to succeed at forex spread betting then stay away from day trading.
Philip Gegan
You make very nice points. Finding that small percentage of profit it what Forex trading is all about. Knowledge is the key.
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