If You’re Going to Provide Advice on Trading, Don’t Be Ignorant
April 11, 2008
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John Forman - The Essentials of Trading author
Yesterday I started answering a LinkedIn question post about trading for a living. I mentioned then that there were several ignorant statements being made. Here are some of them.
The secret is do not do it. The reason is because with internet trading you are ALWAYS giving up the “edge” when you trade. That is because the market THEY provide you with is fiction, based on a spread that always makes them money. That, in addition to other fees is how they make money. That is how every online “brokerage” FX firm seems to work. What that means to you is that every trade you make, you start out as a LOSER. You then have to gain back your loss then make money on the trade, only to lose again when you sell because of the market THEY provide.
Who exactly are “THEY”? Is he talking about the brokers? Does he somehow believe that the forex market operates differently than other markets? The line about starting off each trade as a loser suggests as much. That is a function of the bid-ask spread, a spread which existings in EVERY market, not just forex. Market makers always have AN edge, though not THE edge. There’s more than one.
95% of all Forex Traders will take their account to zero.
This is one of those stats that people throw out there with no actual figures to support their argument. Yes, the majority of new traders close out there accounts and give it up. Since it’s nearly impossible to actually get your forex account balance to zero, the idea that 95% of folks are doing that is just plain wrong.
I have a friend who was all excited about it and started doing it for a while. He gave up really quick. Could be because he saw the high degree of risks around it, or the fact that he had to work at night, or the limited resources in terms of information he had, or the unpredictable nature of the FX markets…or all of the above.
I’m not saying is undoable, but it’s like day trading; unless you’re a professional handling millions of dollars, the statistics are against you and you’ll be better off with long-term investing.
The idea that pros handling large funds are the only ones who can make money in the markets is so far off as to be laughable. Those running big funds have major limitations to what they can do and how they can do it. Smaller traders, who can be more nimble, often have significant advantages.
I am absolutely not one to be saying trading profitably and making loads of money in the markets is easy. It’s not (See Good Trading Doesn’t Happen Overnight). At the same time, though, I do believe that folks who spend the time working on it and don’t expect overnight success can do good things in the markets.
Here are some other posts which might interest you:
I must admit, the quality of comments at LinkedIn is on a par with the quality of comments in general on the internet.
Yeah, no kidding.
Hi John,
You are a good man for just answering some of these questions.
Just as in a lot of other things, people just make excuses. I guess
some people think you just put on a position and $100 bills come spitting
out at you. Oops, make the E100 notes !!
Lou Vozza
Thanks Lou. I’m usually pretty relaxed about it all, but every once in a while I reach some kind of tipping point where the inanity of what some people are saying - especially those who act like they have some authority to do so - just pushes me temporarily beyond the point of continued tolerance.
LinkedIn is an open platform. There will be inane answers. And there will be inane questions. There will be mistakes, inaccuracies. Even the “experts” make mistakes. Despite this, there are some good people on the site and it has the potential to be an effecitve networking tool.
But, John, let’s be honest. You sell a service and you’re selling a very fine book. And you will find plenty of customers on LinkedIn. This is your time to shine. Answer the questions. Challenge the BS openly. You’re a rockstar. Get your game on. Go play.
If you’re writing is anything to go by, it should be very clear to serious prospects that you are the one they should be listening to. No?
Jay - You’re absolutely right. I’ve been around the block on forum and other discussion sites and I have most definitely seen some pretty amazingly dumb questions and ill-informed answers. Normally, I do answer them, and I have posted on LinkedIn several times. That day I just must have been of a particularly sensative mind to let the negativity and whatnot get under my skin.
Besides, it gave me two days worth of stuff to post here.