How to Make a Living Trading Foreign Exchange: A Guaranteed Income for Life
Courtney Smith
Preface
Trading foreign exchange (forex) is one of the most exciting and poten-
tially lucrative activities in the world. Yet about 90 percent of traders
lose money. This book is designed to createprofitabletraders.
Can you make a living trading forex?
Yes!
And no.
Let me explain.
It is common wisdom that about 90 percent of traders lose money trad-
ing forex, about 5 percent break even, and about 5 percent make money.
I have not seen any scientific evidence that this is true but I have talked
to senior executives at brokerage houses and they tell me that this is a
rough guide to what happens to traders. My own experience as a senior ex-
ecutive in the futures and options industry also confirms the same dreary
results.
There was a study by the federal government back in the 1960s of
futures traders and they found that futures traders had those same statis-
tics. However, the underlying data were not so dismal.
It was true that 90 percent lost money, but that wasaftercommissions.
They actually had about a 7 percent return on their investment before com-
missions. The main reason that they were losing was commissions. The
theory back then was that the 7 percent gain was the equivalent of an
insurance premium that commercial companies paid to speculators to take
over the risk of the commercials. Trading forex does not incur any commis-
sions (and futures commissions are much lower now) so I doubt that this
factor is so important anymore.
However, forex does have other transaction costs in the form of the
bid/ask spread. The cost of buying at the ask and selling at the bid on every
trade is a significant drag on performance over a given year.
Let’s assume a $10,000 account trading mini-contracts. Let’s further as-
sume that there is a 3 pip bid/ask spread for each trade. Now assume that
we do almost one trade per day, or 250 trades per year. That comes to a
$750 expense off the top of trading. We have to overcome that vig each
year to make a profit. We effectively start out in the hole by 7.5
…
Trading foreign exchange (forex) is one of the most exciting and poten-
tially lucrative activities in the world. Yet about 90 percent of traders
lose money. This book is designed to createprofitabletraders.
Can you make a living trading forex?
Yes!
And no.
Let me explain.
It is common wisdom that about 90 percent of traders lose money trad-
ing forex, about 5 percent break even, and about 5 percent make money.
I have not seen any scientific evidence that this is true but I have talked
to senior executives at brokerage houses and they tell me that this is a
rough guide to what happens to traders. My own experience as a senior ex-
ecutive in the futures and options industry also confirms the same dreary
results.
There was a study by the federal government back in the 1960s of
futures traders and they found that futures traders had those same statis-
tics. However, the underlying data were not so dismal.
It was true that 90 percent lost money, but that wasaftercommissions.
They actually had about a 7 percent return on their investment before com-
missions. The main reason that they were losing was commissions. The
theory back then was that the 7 percent gain was the equivalent of an
insurance premium that commercial companies paid to speculators to take
over the risk of the commercials. Trading forex does not incur any commis-
sions (and futures commissions are much lower now) so I doubt that this
factor is so important anymore.
However, forex does have other transaction costs in the form of the
bid/ask spread. The cost of buying at the ask and selling at the bid on every
trade is a significant drag on performance over a given year.
Let’s assume a $10,000 account trading mini-contracts. Let’s further as-
sume that there is a 3 pip bid/ask spread for each trade. Now assume that
we do almost one trade per day, or 250 trades per year. That comes to a
$750 expense off the top of trading. We have to overcome that vig each
year to make a profit. We effectively start out in the hole by 7.5
…
Categorias:
Ano:
2010
Editora:
John Wiley & Sons
Idioma:
english
ISBN 10:
0470442298
ISBN 13:
9780470442296
Arquivo:
PDF, 5.57 MB
IPFS:
,
english, 2010
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Barnes & Noble 
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