If you are considering the foreign exchange market (forex) as a new income stream there are many points to consider before moving forward. More and more people are hearing about the spectacular profits that some individuals and firms are able to make month after month no matter what the global economies or markets are doing. But for new investors or traders to this market it can be extremely daunting the amount of time and energy and money required to start making forex profits. This guide is a first step and overview of how to get started in forex and what expectations for profit are realistic and how quickly these profits can come.
First, let’s identify how many basic ways there are for you to profit from forex:
1. Learn to trade the forex market yourself with your own investment capital.
2. Let a pro trade your investment capital for you.
3. Use an automated trading system or bot to trade your account for you.
4. Become expert enough to attract other investors and trade their investment capital for a monthly commission.
In order to first decide which of these methods is best for you, consider this:
1. How much money can you invest that will not hurt you financially in case you lose this entire investment? The forex market is the most risky market to trade. It is recommended to open a trading account with at least $10,000, and most professional money managers require at least this amount for an initial investment but some require much more. Most retail forex brokers have minimum requirements as low as $50 to open an account, which is why many small investors decide to open trade accounts and trade themselves. But beware, the smaller the account the more likely the entire account can be wiped out quickly. A bare minimum of $2000 is recommended for new trader accounts, and trading with mini lots in this case. The smaller the trade account, the less quickly your account will grow.
2. What expectations for profit do you have? If you are expecting to start with $2000 and be a millionaire in a year, you will be sadly disappointed. Learning to trade your own account for consistent profit takes time. And many professional money managers average about 5% profit monthly. Realistic profit goals of 6-15% per month are obtainable. Anything more than that is gravy. But it is very possible to double your investment each year, that is much better than any mutual fund return.
3. How much time can you allot yourself to start realizing profits or decide it is not for you? Set a time goal for yourself or investment regardless of what method you decide on. For example, give yourself 6 months to learn to trade and an additional year to consistently be making monthly profits. If after that time you still cannot make consistent profit, then re-evaluate your decision to trade your own money.
4. Do you have the time, the desire, and the discipline it takes to learn and to trade this market yourself? Not everyone has what it takes to consistently take profit out of this market. It can be a rollercoaster and the risk involved can send some traders running for the exits. Being honest with yourself is the most important thing when deciding whether to take this market on yourself or let a pro trade for you.
5. Do you have a day job? If you currently have a job you certainly can still trade your own account. But just be aware that a lot of your limited free time will be needed in order to learn to trade and then to do the actual trading. So again, you may want to consider letting a pro trade your money for you. But, having a job while trading yourself can also be a big motivator. For example, your plan for profit may include the statement: “I can quit my day job once I consistently show profit after 6 months. HOORAY!!”.
6. Do you have a family? If you decide to learn to trade yourself you must take your family into account. Tell them your plan and how much time you plan to set aside for forex every day. Tell them your goals for profit and how long it will take in order to achieve these goals, and tell them how this will benefit you all in the long run. It is so important to have your family on board with you when embarking on this journey. You will want them cheering you on, not upset that you cannot go to every baseball game.
Now that you have considered these questions, lets review some recommendations for each method.
1. Learn to trade your account yourself.
Many people choose to take the time and energy to learn to trade forex themselves. Often they choose this option because they have a smaller initial investment, too small to give to a pro money manager to trade for them. Now you must decide how you want to learn to trade. Books about forex are good for learning the theory, but truly to learn is by watching someone else trade. Invest in yourself and an online education course or a live education course at a trading conference that may be near you. There are some good options in the Forex courses reviews here at dailyforex.com. Expect to pay on average about $200 per month for a training course that includes some mentorship. You will want to be in training for at least 3 months, 6 months is better. While you are in training it is important to start trading a free demo account. To do this you will need to choose a retail forex broker. The broker reviews here at dailyforex.com are extensive and give many good options for choosing a broker. Best thing about trading a demo account is you can always change to a different broker if for some reason you do not like their trading platform or spreads or features. While you are in training pay attention to different styles of forex trading: intraday trading, swing trading, position trading. Some traders use all different styles in order to profit while others stick to just one.
Also during this time you should start to compile your trading rules. Every trader’s Rule #1 should be: “Protect your trade account at all costs.” Master this one rule and you will be well on your way to becoming a great trader. Additionally, any good forex training course will spend a great deal of time on leverage and money management. This is the most important part of trading to learn. Most new traders lose their trade accounts because they get greedy and overleverage their trades. Master correct leverage early to avoid this common mistake. Also during this educational process hopefully you will meet other entrepreneurial like-minded individuals that you can start trading together with during and after the training period is over.
It is very highly recommended to find a trade partner, two sets of eyes are better than one when it comes to chart analysis and trading decisions. Make this a priority to find a trade partner, trading forex can be a very lonely endeavor. If you are needing to start making profits quickly while you are in training, consider using an automated trading system that trades for you or a signal service, see number 3 below. It is recommended to not go live with your trading until you can make consistent profit on your demo account for at least 6 weeks. Here are some additional websites to visit while going through the trading education process:
a. www.babypips.com (free school for forex traders in a fun way)
b. www.forexfactory.com (forex forums)
2. Let a pro trade your money for you.
There are many professional money managers out there that would love to trade your money for you, for a fee. These people are very, very, very good at what they do. They are professionals. As stated earlier, you can expect on average 5%-10% profit per month on your investment, but some managers can make more. They then will charge a commission from 15%-25% per month on that profit that they created for you. Sounds high? Not really when you realize that you were out playing golf or on the beach while your investment was consistently growing. Typically money managers require a minimum of $10,000 initial investment, some require much more. If you want a taste of letting someone trade forex for you, check out the review for zulutrade.com. This fairly new company allows investors to pick from 1500 different forex trade signal providers to trade their account automatically, for free. Soon dailyforex.com will be adding reviews of professional money managers.
3. Use an automated trading system to trade your account
People are always looking for the easy way to make money and this may be one of those Metatrader4, a free charting software, has the capability to program automated trading configurations that can open and close trades on your account without you needing to be managing the trades. Easy cheesy. The key is to pick the right automated programs, called Expert Advisors. Be careful, some people try to sell Expert Advisors or bots or other automated trading systems that turn out to be scams. Do your homework before sending anyone any money. Many EA’s are available for free on the internet. See our article about Metatrader4. Another option is to use a signal service to receive trading signals to trade on your live account. This option does require you to be proficient in opening and closing trade orders on your broker’s trading platform. And most services are a monthly subscription. Whether using an automated system or a signal service the key to becoming profitable is to use correct leverage. Most traders agree to risk no more than 2-5% of your account leveraged on a trade. So if you have $1000 in your trade account you should be using mini lots, risking no more than 30 pips for a stop loss. Understanding leverage is the most important part of trading, learn it well. There are some pretty good and consistent services, see the reviews of signal service providers.
4. Become an expert trader and manage other people’s money for commission
Ok, so now you have learned to trade forex making consistent profits week after week, month after month, year after year. Ultimately many traders hope to be able to manage other people’s money (OPM) whether it be just for family and friends or much bigger. Making monthly commission while trading as usual can be pretty sweet. Some forex brokers have special capabilities designed for money managers, allowing them to trade multiple account with one click, do all the back office managing of commissions easily, etc. MG Financial is an example of such a broker, but there are others. Depending on what country you reside in, there are different tax implications and considerations like whether to incorporate a business for your managed accounts trading. Managing OPM can be very rewarding for you and for your clients and could be the end goal for you while on your forex journey.
In summary, there are several different ways to profit from the forex markets. Learning to trade yourself can take months before you will see any profit but can be the most rewarding, while giving your money to a manager to trade for you can see profits quickly. Take the time to get to know yourself, your limitations, your goals before jumping into anything. The world of forex is open 24 hours and waiting for you to open the door to life changing profits. It could be the best investment you ever made.