Hello Everyone, tonight I have something a little different. In response to my post on Green Fairies, a reader responded via email and shared something very interesting with me. I asked his permission to reprint what he shared and he agreed as long as he remained anonymous.
So throughout this post, I will refer to him as “Bob.”
What I thought was interesting was that when Bob first considered getting into Forex, he made a simple chart of the pros and cons to help him decide if it was worth getting into. Like me, he had gone through other businesses before getting into Forex so he had some things to compare it to.
The reason I found it interesting is that it is a peek into the mind of the average person who wants to get into Forex. It is a great list that covers most of the bases. After Bob’s list, I will add my opinions on some of his points.
If you are deciding if you should get into Forex or not, this may bring up some important points that you may have not considered. Keep in mind that these are his opinions and your situation may be different.
Here is his list:
What I do not like (or might not like) about the FOREX market
- It is active work. Not a passive income.
- It is possible to lose money very quickly.
- The hours where profitable trades may be found might be “unsociable”.
- It could be considered betting and this might lead to addictive behavior.
- The wins can come fast and big and this might lead to bad habits or behaviors.
- Brokers might go broke and take my money.
- I have to look at a screen “all day”.
- I am a small fish. Big players might be preying on guys like me.
- The market is always open so I will be tempted to trade even when I should not.
What I like about the FOREX market
- Versus most businesses – There are very few taxes to consider. No GST, Land tax, council rates, stamp duty. There are no customers, debtors, creditors, stock, invoices etc.
- It is a “clean” market.
- Versus Real Estate – It does not rely on capital growth, rental returns, changes to the tax law, insurance claims, property maintenance etc.
- Versus Share trading – I do not need to analyze company reports. I do not have to keep my eye on a hundred variables that might influence company price and dividend, continually. I am not paying inflated salaries to directors and auditors etc. I am not wasting millions of trees with paper trail.
- There is relatively little paper trail to consider. Most recording can be done electronically.
- Versus Option or Futures trading – All of the above but the FOREX market is open 24/5 each week
- I can operate when I want. Any time of day and any time of year. I can stop any time I want and there is nothing to undo. No company structures, no equipment storage etc.
- I can operate from anywhere in the world where there is an internet connection.
- There is an unlimited upside opportunity
- I can trade for others when I become a good trader
- I do not need employees
- Transaction costs are low
- Money can be stored offshore in different currencies
- When I become good at it I will have the ability to create an income for life. From anywhere.
- The market is almost immune to manipulation.
- There is no one “making the game” (eg poker, TAB) and creaming the profits. There are many brokers so a low spread can always be found.
- Brokers and software developers are continually developing trading tools and the tools are inexpensive (or free).
- There is very little chance of not being filled at a price, even if there is a big move in a market.
- There is actual real life need for currency exchange.
- Each transaction is a simple transaction with a result that is known pretty quickly. I am not hanging around for days or years wondering if the investment was a good one.
- I think my brain is well suited to trading currencies
- People still need to exchange currencies, even if there is a zombie apocalypse.
- Skills learned in trading these markets will be useful for analyzing silver and gold.
- Success will be determined by rational thinking, research and execution. It will not be achieved by social manipulation, membership of a clique or brown nosing to a boss as happens in many jobs. The Forex market does not care which clubs I belong to or what car I drive.
My thoughts on his list
First, I’ll address his reasons why he though he might not like Forex trading. One concern was that he may lose a lot of money. This is a very valid point, the leverage can kill your account if you are not careful. However in Forex, I feel that if you use stop losses and proper money management (only risking 1-3% on one trade), it can be safer than other markets because I find there is less slippage in Forex. Most of the time, my stop losses are filled at the levels that I set them.
He expresses a concern over losing all his money if his broker goes out of business. In light of what happened to Refco, this is a valid concern. However, if you trade with any of the major brokers nowadays, you should be fine. The US government has since raised the requirements for brokers to prevent such an event from happening again. If you are very concerned about this, research a prospective broker and find out their current cash reserves and capitalization.
The next interesting point that he makes is that trading is similar to gambling and there is a potential to get addicted. If you really do have a gambling addiction, then trading is probably not the best business to get into. However, if you treat it like a business and not a game of chance, you have the potential to become successful. Most people see trading as a fast ticket to wealth…it is like any other business, you have to learn before you earn.
Another concern that he has is that he may get pushed around by the bigger players in the market, since he is a small guy. Actually, being the small guy can be a good thing. I forget where I read this statement, but there is a positional advantage for every player in the markets. The independent trader has flexibility and agility. He can get in and out quickly while it may take the big institutions longer to take and unwind large positions. In addition, the currency markets are so liquid that it is usually very easy to get in and out.
The final negative point that I will comment on is the fact that he thought that he has to sit in front of the screens “all day.” I think this is a common misconception of people who are new to trading. You can choose to be a day trader, or you can take position trades that last weeks or months and only require a check once a day. It just depends on your goals and your style.
Now on to the positive stuff…
He makes some great points in the pros category.
A couple things I want to comment on…first, watch the offshore thing. People talk about sheltering their funds offshore to get around paying taxes. I don’t believe in that, getting caught is serious. It’s better to just declare your offshore holdings, pay what you owe and sleep well at night.
I especially like his last point that the markets do not care about who you are. That is one of the best reasons! You can become successful regardless of race, religion, creed or sexual orientation. You don’t have to kiss up to anyone and brokers like Oanda make it easy to get started with a very small amount of money.
Oh yeah, and don’t forget about the “zombie apocalypse.” That shit is serious son, there are even videos on how to survive if one happens. But yes, you will probably still need to exchange currency with the people who are not zombies.
Just joking BTW, I know what you meant Bob.
But these reasons are worthless unless…
Anyway, if you are just starting out, I hope Bob’s list and my comments have given you something to think about. As you can see, there are a lot of great reasons to get into Forex trading and the pros greatly outweigh the cons.
However, regardless of the intellectual reasons to get into trading, the bottom line is that you have to love the act of trading…period. If you don’t, you should get into something you do love and figure out a way to get paid for it.
Forex trading is not just about the money.
Many thanks to Bob for letting me share his list! Did you make a similar list when you were first starting out? What else can you add?