So, you wanna be a Trader huh?

After reading [ this article ] on the habits and considerations that people should adopt when trading FX, especially before they give up their regular job to trade from home, I thought I would write a little about my own experiences.

Many people dive into trading before they are ready.. WAY before they are ready. In my opinion, learning to trade effectively is always built on making a series of mistakes (like many things in life) the problem is, these mistakes can cost you alot of money and even more so if you decide to give up your job and trade from home, since you are no longer drawing a paycheck. There is an old maxim 'never trade with money you cannot afford to lose.' Ignore it at your peril.


Now although that is really good advice, many people get sucked into what I call the 'FX Myth'. I remember the first course I ever went to, I paid £2500 for a weekend course and you even had to bring your own lunch. (I was one of the lucky ones, I still remember a poor girl who was at the course with me. She had spent something like £20,000 on courses, hotels and air travel. In the lunch hour of the last day, I was still trying to explain how candlesticks worked to her. I remember seeing the panic in her eyes as she realised that she had blown most of the money her father had left her on courses that promised to make her rich, but instead just left her poor and confused.)
However, what sticks in my mind the most now, (apart from the panicked look in the young girl's eyes) was that it was the first time I heard the often repeated statistic that 95% of people blow their FX account within 6 months.

I heard this statistic repeated many times in the subsequent years and although I have never been presented with any solid proof for this claim, there is no doubt that the rate of failure for new traders is extraordinarily high. However, what stuck me the most was that every time this statistic was repeated, everyone in the seminar always thought that they were part of the 5% destined to strike it rich.

If we take the 95% statistic at face value, then remember, we are only talking about people who blow their account in the first 6 months, it doesn't take into account people who just break even, or even lose most of their money. Trading can be very, very risky and the level playing field is more like a vertical slope. Everyone in the market trades against you, including your own broker. Effectively, you are the 'dumb money'. Like a massive Ponzi scheme, every year the myth of making easy money through FX draws in many otherwise intelligent people.

This defect of human rationality is something that brokers count on, in the same way that casinos do. In both situations you are sold the line that although 95% of people lose all their money, YOU are one of the 'lucky ones'. The reason why this argument is swallowed by so many rational people is that like all great lies, it contains a grain of truth. The Laws of Probability state that if you roll a million dice, they will all come up with exactly 1/6th showing each face. Conversely, the laws of probability state that if you roll just one dice, then the result cannot be predicted. It works the same way with people. If you take a million people, then you will know exactly what percentage will lose, it's just that you can't tell exactly which people will win or lose beforehand.

However, in my opinion, you may actually be better off going to a casino than trading. At least at a casino you are playing a game that is not rigged (usually) whereas in trading, there are so many ways to rig the outcome that it's very much like playing at a crooked casino, except you would never know, because all the dice rolls are done out of sight.

Trading FX is in fact, very much like gambling (so similar, in fact, that FX companies in the UK had to get a special exemption to the gambling regulations in order to run their businesses.) This means that in certain people, this will bring out addictive and self destructive behaviour. However, most people do not think of FX as 'gambling'. For instance, many people who would never think of putting money on a horse race (because that is gambling) will happily trade 5 different currency pairs at once, without any formal training, based on some vague news they read in the financial press, people like this would probably have a better chance winning at a Casino, at least they would understand the rules of the game. It's no wonder these people blow all their money, they have NO IDEA how the market really works or the rules behind it's operation.

However, since it has been proven that gambling addicts get the same thrill that most people get by winning then they almost win, but lose, this can be a deadly cocktail. It is so easy to double down in FX trading, especially if you are operating under the misguided illusion (as I was for some time) that economic fundamentals are actually relevant to the way the market moves. The market is now a creature in it's own, devoid from reality, since all the numbers that price discovery are based on are cooked or just plain false. These days, whenever the US releases economic data, even if it is bad, the USD goes up. This means that people who are reading market fundamentals and saying things like 'why the hell does anyone support the USD?' or 'why the hell is silver so low' have missed the point, since all the numbers that market valuations are made on, such as the DJIA (which now only covers 25% of the total volume of shares that make up the index.) LIBOR, ISDAfix, the Gold and Silver fixes, etc are false, the entire market is merely smoke and mirrors, kept in a state of constant volatility by and for the benefit of the big HFT firms. Because they take such small bets (in large numbers) they only need the market to correct by 30-50 points and they are out of there. Becoming a trader is not easy, however, becoming a sucker is. Before you quit your job and start trading, there is one very important question you should ask yourself, and it's not the one people are expecting. It is 'are you good with computers?'

Since the entire market is now controlled by computers and 70% of US / UK volume is traded by machines, if you do not understand computers, you will be eaten alive. No one I have ever met has a fool proof system, except being able to see the future, which is known as insider trading (unless you do it by buying a private data stream and a co-located server so you can see the news half a second before everyone else (half a second is an eternity in computer time, since it is now possible to turn around trades in milliseconds.) in which case, it is perfectly legal. Always remember, that to the large banks, you are cattle. They believe that if you are too stupid to understand the consequences of your actions, then you deserve it. However, the truth is distorted by all these brokers trying to get new clients, telling them 'it's fun, it's easy and you only have to work for 1 hour a day'. However, if you read the fine print, you will always find something like this:

'Trading currencies can be a potentially risky activity, you may lose all or part of your money, make sure you always contact a professional adviser before making an investment, you hereby indemnify Broker ABC from any financial losses incurred from your trading'

Of course, most people cannot afford professional advisers, so they talk to the people who work at their broker, come to the free meet and greet sessions and chat to other people who share the same opinions as they do, which is reinforced by the staff, which is that everything is fine, you may be losing now, but soon you will become sucessful, just follow our strategy, sign up to our newsletter and subscribe to our paid tips service. However, after going to a number of these meetings, I noticed that the most successful men in the room were usually not the traders, but the people who own the spreadbetting companies and the people who tour the lecture circuit, selling their get rich quick books and seminars at inflated prices. There is an old trick to this, which I have seen used many times.

If you can convince someone that you have information that can make them a million USD, then tell them you are selling it for the low, low price of $60k, then you also tell them that 'the amount you are paying to get this knowledge will be far outweighed by the profits you will make once you have this knowledge', then some of them will believe you. You don't need many of these people to keep a business churning over. The funny thing is that they are paying you for something that cannot be demonstrated to work. Firstly, because you know nothing about trading, and second, because you have to start trading yourself after you have paid the money to find out if the training was any good.
Why do we do this? Well, we are brainwashed to think that if bankers are making money on Wall St, then we can too. The problem, of course, if that you are not a banker. You don't have massive interest free government loans, a room full of supercomputers next to the stock exchange and a department of math whiz kids. However, it seems that the average person really has been brainwashed to believe that 'anyone can make it trading.' Of course, as the statistics show, this is simply not true.

So the next time someone offers to sell you a book on some ground breaking system that cannot fail, ask him why he is selling books, or speaking a lecture tour instead of having retired at the age of 35 with the masses of money he made by using his 'special plan'? This is always a really great question to ask by the way, because they usually do not expect it, so occasionally the shock will let drop a nugget of truth. The usual answers are: 'I am doing this as my 'primary' income, so I can spreadbet tax free' (apparently, according to UK tax law, you DO have to pay income tax if trading is you 'primary' occupation.) the other common one (and in my opinion the most truthful) is that they have gone through an 'unlucky' patch and they are teaching until they get enough money together to start trading again. This answer should raise serious red flags for anyone who hears it. After all, if their trading system is so great, then how is it that they managed to blow their account? If you press this point, they will usually tell you that they misjudged some major economic event, which hardly ever happens, but the system still works. Again, this should also raise a red flag. After all, if the person teaching you was caught by surprise by a major economic event and blew their account, then there is a very good chance that the same could happen to you.

The best way around this bullshit, of course, is to educate yourself (at least to the point where you can tell the difference between a legitimate educational course and a scam). I personally recommend www.babypips.com for good advice. However, make sure that you do not base your choice upon something that only one person has told you, since they may turn out to be a 'sockpuppet' employed by the very people who are trying to sell you their course.  Incidentally, the company that ripped me off used to be called Knowledge to Action, but they have now changed their name to something like 'Learn to Trade'. These companies charge anywhere from £2500 for a weekend seminar, to £80,000 for a month, depending on how gullible the person in question is. Both are run by a guy called Greg Secker who is a firm believer and spreader of 'the FX myth.' just put his name into google to find out what most people have experienced at his courses. They attract people with 'free seminars' in hotel lobbies around London where they tell you that you are part of a special group that will receive a discount on your training only if you sign up right away, because they are starting up a training centre in another country. After talking to other people who attended the same course, I discovered that they tell this to everyone and it is merely a tool to pressure you into making a decision before you have enough time to fully think about it. My personal advice would be to avoid them the the plague, however, don't take my word for it, google is your best friend is such a situation, since all complaints from people who feel that the course was not worth the money will be on there.
By the same token, if you are signing up for a course, ALWAYS check the reputation of the company online first (google is usually the best place to start. If you see many pages with complaints or arguments about a certain company, then that is a definite red flag. Also, as I said before, beware of sockpuppets, or people who are employed by the company and who are impersonating as 'impartial observers'. I was fooled by one once when enquiring about a course because I had become concerned about all the bad publicity I read on google. After posting a question about whether this company could be trusted, a user messaged me privately, pretended to be my friend and managed to convince me that he had been to the course in question and it was good value. Needless to say, it wasn't, and I was not the only person fooled in such a way. Once it happens to you, it is easy to spot, but if you have never had it happen to you before, such tactics can be very effective in getting you to ignore negative publicity written by other people. Always be wary of people who message you privately, instead of in public, since private messages cannot be commented on by other people. If you are unsure, just post your question and the private reply you received in a public forum and see what other people say.

Simply put? Be careful out there people, think long and hard before you give up a steady paying job to trade, I have met many brilliant traders who eventually had to take jobs with banks because the market is no so far removed from reality that none of the techniques for predicting the market, be they technical or fundamental, work any more.

As if the complete separation from reality of the numbers that the market is based upon was not enough, you also have to contend with a myriad of other factors working against you, such as HFT, the complex nature of the current trading landscape and the increasingly cut-throat nature of the business as more and more players chase after a steadily shrinking pie.

In other words,  it's a dangerous world out there and it's only getting worse.

Good Luck.