After having paper-traded forex for a while, I came to realize that forex trading is not all rosy as some websites and educators claimed to be. Let’s go through some of the claims:
A global 24 hour market
First of all, we have to know that the market is not opened 24-by-7. Some people misinterpreted the above statement. Forex markets are opened 5 and a half days a week.
Ok, it is true that the market is there 24-by-5.5. Do you think there will be trades any time in the day? My experience is…this is not exactly true. That’s why most educators advocate to trade during hours when major stock markets opening and closing hours coincide. That is when there will be more trading volume in the forex market and when most likely we can find bigger price movement. Even the 2 most traded currency pairs - EUR/USD and USD/JPY can be pretty flat or trend-less at times.
World’s Most Liquid Market
Ya…ya…and we don’t have to worry about not being able to find buyers when we want to sell and vice versa…Well, this is true. However, we have to understand that not all currency pairs are equally liquid. One way to tell which currency pairs are more liquid is to look at the bid-ask spread, like with any other instruments, be it stocks, options etc. The bigger the bid-ask spread, the more illiquid the currency pair is.
Trade with no commissions
Many online forex brokerage offer commission-free forex trading experience. They do not charge any commission for the trades that we make. Well, actually, they have built in their commission into the bid-ask spread. InterbankFX is one of such a brokerage. If you look at the bid-ask prices for USD/JPY, they are 3 pips apart! What is 3 pips? For the mini-account is ~$3 and for the standard account is ~$30! Those brokerages that charge commissions for every trade entered will usually have a tighter bid-ask spread, something like 1 pip for USD/JPY.
Leverage - earn more with less
Many educators only mention about the positive side. We need to understand that there is a downside to this. Leverage is often labeled as a double-edged sword, like with any other instrument, the very fact that one can make more with little capital means he/she also can lose the same amount easily!
Some educators just tell us that 1 pip is ~$10 and ask us to calculate how long it takes to make back our course fees. Ya, we just need 20 pips a day to be financially free…but 1 pip = ~$10 is for standard accounts. For some brokerages, they have minimal account size requirements to open standard accounts (like $10,000 or $100,000). Even if some brokerages allow you to open standard accounts with $2000, you won’t want to do that. You will get margin call easily.
Margin Call
Some educators do not highlight this. Allow me to demonstrate with a simple story. Let’s say John has $5000 in his forex account. He uses $1000 as “deposit” also known as the used margin to enter a forex trade. He is left with $4000 usable margin. Simply put, if the trade goes against him and he loses an amount that is more than $4000, he will receive a margin call. And NO, this is unlike a friendly morning call. Some brokerages would require you to top up your account or they will flatten (close) all your positions for you! No other choices at all. Let’s say John don’t have money to top up his account. He loses $4000 and that leaves $1000 in his account.
Trade Forex on your mobile phone while on the move!
I personally have not experienced this before, and I don’t know how to. I cannot visualize myself drawing trendlines, support and resistance lines on that tiny screen. Furthermore, I am quite slow with entering my trades on a full computer keyboard with mouse already. Not sure how I can make my trades in time on a mobile phone.
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would his philosophies work for trading?? 
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The only way to be truely satisfied is to do what you believe is great work and the only way to do great work is to love what you do… - Steve Jobs
Thanks for the sharing. I agree that most of the financial instruments whether it is option, forex, future,….etc with great “leverage” advantages are double-edged swords. You can make big buck and at the same time you can lose big time. It is depending on how much you know the financial instruments and how do you minimize your risk.
There is always risk in any business. Trading is just like when you are driving a car. It is very risky to drive a car before you learn how to manage the car to minimize the risk when you on the road.
Hence, It is depending on how much you know the subject matters and how can you manage and minimize the risk when trading.
You will be successful as long as you continue to learn and improve your skills and knowledge.
You are not learning and growing everyday, you are dying!
It is just like when a plant stops growing, it is dying very soon…