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Trading forex for a living

Moneyweb spoke to Erin Peterson, head trader at JustForex.

Forex trading has a bad reputation. Bucket shops, scam artists, boiler rooms, and brokers that trade against their clientele are more common than you think. Regulations are on the rise and startup firms with alternative visions have to raise huge amounts of capital just to compete. But for some people, forex trading is just an ordinary way to make a living. 

What made you get into the forex trading market?

I learned about forex from a friend who was a part-time trader. I was a student and wanted to make some extra money, so I thought ‘Why not?’ At the same time I wanted to understand it, to know how it works. I started reading books, followed the traders’ blogs and slowly got more and more into it. That was six years ago and I am still learning new things.

I should add that I am not an economist by trade and did not study finance. However, I have been trading for six years and I would like to share my thoughts and some of my experiences.

How did you start?

Slowly! It took five, maybe six months to get the basic knowledge and understand how everything works. I read a lot at the time, for instance Alexander Elder’s Trading for a Living, and Bill Williams’ Trader’s Troubleshooting Tools. Most of it went over my head, so I talked to traders on different forums, exchanged notes and ideas for the strategies and asked a lot of questions. And here’s a reason I love this community — they answered those questions and helped me understand many of the most advanced concepts.

Then I started a demo account. Here you trade on a virtual exchange, without real money involved. It’s a good way to feel the stress of actual trading without risking your own money. I spent a couple of weeks trading there, getting used to it, and then started an account with real money. Honestly, I think that trading with real money is the only way to learn.

I started with the cent account. I think I started with $20 or $25. I actually doubled it quite fast and then lost everything. That’s when I realised what ‘risk management’ really is and why people told me that it’s important. So back to the books and forums I went, trying to develop my own trading strategy.

Real trading started sometime later, on a standard account with a $500 deposit. Only then did I see my first stable earnings, and a fair share of losses too.

Forex trading has a bit of a reputation – is it a bit like gambling?

People think that forex is some sort of a casino, where crazy rich people gamble their savings based on luck. But it’s not about luck, at least most of the time it’s not. There are laws at work, laws of supply and demand. Once you know the laws and understand how they work, you begin to see how efficient and beautiful the market really is.

It’s all about probability and expectations. You have to game the system, play the crowd and make money off their mistakes — just like they’ll make money off yours. And that’s fine, since everyone makes mistakes. The most important thing is to follow the rules of your trading system, adhere to your risk management principles, and make sure that the potential profits are several times higher than possible losses.

I am sure that most people, once they have some training under their belts, can trade forex successfully. I’m not saying that everyone can be a Jesse Livermore, George Soros, Jim Rogers or any one of a number of geniuses on the market — that would require a lot of natural talent, luck and starting capital. But making some money is definitely possible.

You just need to limit your expectations. No one can start with $100 and make $10 000 — that would be magic. But you can definitely invest with $10 000 and earn enough to comfortably live off the profits. Of course, I do not recommend starting with such money — $100 to $500 is more than enough to hone your skill and learn how to manage the risks.

How does one compete against the automated traders?

Automated traders have an upper hand when it comes to reaction speed but otherwise I don’t feel threatened. It’s still all about the brain when it comes to strategy and I feel quite comfortable with my skills. Besides, there is so much liquidity on the market that the automated traders are almost imperceptible. Now, had I been on the stock or a derivative market, I’d be more concerned.

How does the forex market differ from other markets?

Forex has the largest trading volume, the lowest cost of transaction, and the fastest cash flow. And it keeps growing – each year is bigger than the previous one. The daily trading volume is just short of $5 trillion.

What currencies are the best to trade and why?

I recommend starting with the major currency pairs as they have the most liquidity. I generally use EUR/USD, USD/JPY, GBP/USD and USD/CAD.

 How many hours a day do you trade?

I usually trade for about four hours a day. Not in a single sitting, though. I take a lot of breaks when nothing interesting is happening.

What is the best strategy for trading forex?

If you want to trade forex to make extra income, then I recommend swing trading where positions are held for anything from several days to several weeks. If you have enough free time, I would suggest you try day trading, which provides great experience.

What emotional characteristics are required to be a successful trader?

  • Calm temperament; if you panic after a bad deal, you make mistakes.
  • The best forex traders will tell you that it is worth waiting for one profitable transaction rather than opening many positions ‘just in case’.
  • You need to manage risks, capital, emotions, investments, and the trading process. You need to know how to choose between bad and worse, and not feel bad afterwards.
  • If you don’t care about the process of trading, you should quit right now.
  • Self-control. This is achieved with a clear plan of action, when the trader is in no hurry to take risks, thinks about every step, and can spot trends in the market.

How has the market changed in the years since you started trading?

Six years ago you could coast with a single strategy and still make money regularly. But that is no longer the case. Personally, I recommend having several trading strategies and switching between them.

How much should one have set aside before you begin trading? 

If you want to trade to gain experience, start with $20 in a cent account. You’ll lose it, but you will understand a lot more afterwards. Do this again and again until you know what you are doing.

Once you are confident in your skills, put at least $100 in a standard account. That should be enough to start trading without a serious handicap. Personally, I’d recommend a bit more, up to $500, but that is not strictly necessary.

What profits can one expect to make?

There is no universal metric. It all depends on your deposit and the state of the market. Generally, I can make 10-20% off my deposit each month. But there were times when I made more after catching a good trend.

How does one get started?

A forex broker will provide you with access to the market via their software platforms. I’ve been trading with JustForex for several years. I like their spreads which are pretty decent. They also offer high leverage, so I think it’s a good place for beginners. They also provide support, so feel free to ask them questions.

For more information visit JustForex.com.

Brought to you by JustForex.

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