Friday, March 29, 2013

forex is for smalldogs but be careful ...

forex, the foreign currency exchange spot market, is enticing for the retail investor. you get 50:1 leverage, no or small commissions, no daytrading regulations and taxes on fx gains qualify for 60/40 (long term/short term) tax treatment (with minor caveats.)

i dumped 3k into an fx account a few years back and within a year traded it down to $50, which i am told is not an uncommon story. at the time leverage was 100:1 on fx accounts, the smallest unit of transaction was the mini (10k) and i was attempting to daytrade fx. after losing 2,950, i swore i would not add any more money to my fx account and i let my account languish with a $50 balance to remind me.

however, that didn't stop me from continuing my fx experience. several things changed during the languish period. first, the leverage on fx was reduced to 50:1, which is far more workable for retail traders. secondly, the micro was introduced (1k) and lastly, i developed my seasonal projection study.

at 50:1 on a micro, one needs only $20 of margin to support an fx trade. i had 50. that meant i could trade 1 micro with the effective leverage of 20:1 with some room to spare on margin-calls. there is a commission on micro trades of $1. daytrading was out but that's ok because i just wanted a back-burner trade. i looked for currency pairs that set up nicely in my seasonal projection and used the pps (john person's proprietary signal) indicator on the thinkorswim platform on a weekly chart for a trade signal.

today, my fx net-liq is $600 and i am long 9micros (15:1) on aud/usd. while it is encouraging that i was able to rise so far from the grave so quickly, i am humbled by the fact that i am still far away from break-even.  trade small, be persistent, never-say-die - good words for us smalldogs.

3 comments:

  1. I still have problems with Forex trading.
    I tried all sorts of trading mix to my
    dissatisfaction........
    But like a wolf I will never give up......

    ReplyDelete
    Replies
    1. since you have expressed interest i will share more about my fx trading style in future blogs.

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