How trading in forex is like running business
TECHNICALLY, all that is needed to start trading forex is a laptop, a trading account, and a small amount of capital to invest. But don’t let the seeming simplicity of the setup fool you.
Trading forex is actually a complex affair, and successful traders know that in order to be profitable in the long run, trading must be treated like a business—not an internet hobby they turn to when they have nothing better to do.
Building a successful trading business requires a similar financial, emotional, and time commitment to that invested in building and managing any other business and forex traders should understand this requirement before clicking the “buy” button.
Every good business starts with a solid business plan to guide its activities and development. Similarly, every good forex trading strategystarts with a solid trading plan. How much of your portfolio should you risk on a trade? What will you trade and when? What risk-reward ratio are you willing to take? What are your entry and exit rules for trades? There are many questions surrounding each and every forex trade placed, and without a plan to manage priorities and expectations, traders can become overwhelmed and start acting on impulse, which can rapidly lead to losses.
Cost versus Profit
In order for a business to be successful, it needs to not only generate revenue, but also maintain the right balance between costs and profits. Even with a huge turnover, a business can still go bankrupt if the costs of maintaining the business exceed the incoming revenue. A lot of traders only calculate the price of a good computer, the price of software needed for trading, and their broker’s spreads or commissions into their trading business’s expenses, but that is a mistake. The greatest costsof a trading business are by far losing trades.
No trader can win one hundred per cent of the trades placed, no matter how sophisticated a trading system he uses. The sooner a trader accepts losing trades as a natural consequence of running a trading business, the sooner he can build a strong and effective trading plan that accounts for such setbacks in the larger scheme of increasing his overall trading account.
Education and Analysis
To be at the top be any field requires ongoing education and analysis of new information. With the financial field being in constant flux, it is crucial for forex traders to keep up to date with the latest news that can affect their trades, to be able to analyse the markets based on new information and investor sentiment, and to learn to use the latest software that can assist their trading. Although the basic rules of trading forex are always the same, the variables of trading are so many, that not even the best of traders can claim to have ‘finished’ with their financial education and analysis.
Quality over Quantity
Successful businesses know that quality always trumps quantity, and the principle applies to forex trading as well. When taking stock of your trades and seeing how you did, never count the number of losing trades against the number of winning trades, but rather look at the overall amount won or lost in each trade. With the right trading plan and strict exit rules in place, the costof losing trades can be minimized, allowing a few winning trades to rake in the profits.
Forex trading should be approached like a business rather than a hobby. Like with every business, forex requires a financial and time commitment in order to generate sustainable profits. Successful traders know that the key to building atrading business lies in constant education and in a good plan that helps minimize risks and costs, in order to benefit from the profits.
• Akinyele works with ForexTime Nigeria.
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