Article - Rags to riches?
More likely riches to rags
It is a cruel industry fact that that most traders would start their journey full of capital and full of promise only to end up on a road to nowhere. so do your home work properly because at all times - remember the 5 p's - Proper Planning Prevents Poor Performance.
The last 3 years in particular has seen this latest fad pop
up all over the internet with incredible marketing prowess. there are countless examples, illustrations and stories of traders making hundreds of thousands of
dollars and beaming with smiling happy faces to genuniely prove their new found wealth.
Nothing can be further from the truth.
Well, people win the lottery don’t they? But how many people do win the lottery in reality? Even a criminal behind bars has an equal
chance and can win the lottery, albeit, with the grace of the gods! But how often can the same person hit the
jackpot again and then again? One more time? perhaps a second? and then the inevitable turn in tide and a
serious of unfortunate events. Fortune does not repeat itself forever.
Dominoes push each other and gather momentum. Positive news becomes ugly and
before we know it, the smiling happy trader has suffered terrible defeats and
becomes mentally scarred forever.
- What amazes me is how these forex websites can
induce people to believe that they can consistently make profits of 100% per
annum. The heavy use of internet and
email seductive marketing is absolutely astounding. Aggressive marketing designed to dazzle has certainly generated strong interest from novice traders. This is blatantly
outrageous and encouraged by an industry designed to pick of your earnings and
your wealth apart piece by piece. Because in the long run once you open an
account at a forex platform, you have entered a casino, and there can only be
one outcome in the long run and that outcome is heavily skewed against the new
trader. And what’s even more frightening is the sheer number of companies today
that offer access to forex markets. This
industry remains scantily regulated and over-fraught with lurking dangers that
would-be debutante traders aren’t even aware of due to lack of proper homework
preparation.2. Most of the forex trading platforms are directly your counter-party in all trades that you select once you open an account. In the forex market for professionals, companies are not limited to a single counter-party but can select from a range of counter-parties best pricing on any trade that they are contemplating. This is a very dangerous arrangement in that basically the counter-party forex platform can basically choose any price it wants to offer and more often than not the trades are often skewed in favor of the counter-party forex platform in the long run. There have also been several reports how successful traders have had their accounts closed by the forex platform. Needless to say, success at one forex platform spurs the trader on to open another account elsewhere and then he goes and blows his money apart when he tries to apply the same methodology that got him successfully closed out at the first account. Go into a casino, play blackjack, beat the dealer for 2 hrs and let’s see what are the chances that you won’t get thrown out. House always wins.3. This is what I consider the most dangerous aspect of opening accounts on these forex platforms – 99% of the forex trading platforms out there, whilst they disclaim the risks of forex trading and deny all responsibility, virtually none of them demonstrate any intelligible material on how a trader should hedge his position with the use of currency options. Thus what I am basically saying is once you open your account and open your first long or short trade, you’re basically open and naked in the market! And what with the notorious volatility and sensitivity of the forex market to global economic and political news releases, at any given moment in time, all of the trader’s planning and analysis can go against them in a single session. The trader maybe long the Euro viz a viz the Dollar and all his fundamental data couples with technical data may point to a strong trend in the upward direction, and then boom! Suddenly some even happens somewhere on the planet, like the assassination of an important figure, or a military flare up somewhere, and prices are heading south in rapid motion and the position is at risk of a total loss, and when the trader closes position, he then has to watch with indignity as the market corrects itself and surges back up! None of these forex platforms will demonstrate to the trader clear information that all trades can be hedged. it is so easy to assume the account holder undertakes all risks in understanding the nature of what he is about to get into. Consequently, the trader fails to see that with an open long position they could easily take a put option on the currency trade. Why not point this out to the trader? Because then the trader would be increasing his odds of success and possibly making modest gains with higher degree of probability, and that’s not exactly what the house wants! The average account does not last more than 1 year of active trading.4. Size matters? Forget it. you had better do some serious homework on your forex platform provider. Been there and got whacked big time. As a trader myself i have seen the effects of some big collapses of big forex houses. any would be forex trader must do their homework diligently and understand the nature of the risk involved even in selecting a suitable provider. Please study the failure of Refco in 2005, read here at Wikipedia - http://en.wikipedia.org/wiki/Refco and Man Financial in 2011, read here at Wikipedia – http://en.wikipedia.org/wiki/MF_Global These were the forex trading platform giants of the day. Refco and Man were not the Lilliputians, but the very Titans of the forex industry themselves with all kinds of compliance structures to prevent clients accounts from becoming desegregated. Yet the giants fell, and that is what is frightening; to end up for years waiting for part of your money to be returned to you after company liquidation. Historical precedence has already been set that large forex trading platforms can go bankrupt.
Conclusion -
Show me a trader that for the last 10 years has made an
average of 100% per annum? The mere fact that a trader can survive 10 years
without losses is astounding. The very best of traders at the very top of their
game, over a 10 year period can average 30% per annum. But to get to that point
of financial Nirvana, one has to undertake a series of tasks, lessons and
undergo rote learning so rigorous that it becomes a feat in itself that very few of us could
ever commit to. Only a financial Samurai with severe discipline of mind would
ever be able to reach a level of understanding to make 30% per annum year in
year out for a period of 10 years.
Making money is not easy; don’t bluff yourself. It takes a lot of commitment and years of toil and education to master this subject. Rid yourself
instantly of visions of grandeur and instant profits. There are no quick-fix winning solutions. The forex markets are not a place for those who cannot commit to a career of trading with discipline. Life for the forex trader is harsh, mean and perfectly
illustrated in the immortal words of Thomas Hobbes in his book the
Leviathan…. Life is solitary, poor, nasty, brutish, and short - http://en.wikipedia.org/wiki/Thomas_Hobbes
But we suffer into truth and gains can be made. we can grapple with the rules and thrive bby it were we to comit ourselves to the discipline of the market. The markets are like a battle, a constant war that rages and
lives off consuming legions of new starry-eyes traders. It is amazing how
powerful a trader may become with a little bit of organization and discipline.
Forex trading platforms per se must not be the be all and
the end all of all trading strategies. Forex trading must essentially become a component of
a wider strategy inclusive of equities, commodities and fixed income designed
to suit the needs and personality of the trader. At all times a trader should do his homework on the market provider.
Pieter Bergli - DeLoren Trust Holdings
Working towards a better education for market participants
