Don’t know about you but I’ve heard enough objections to last me several life-times.
You want to leave work? Oh, it is so hard to get another job.
You want to start your own business? Oh, but most of them fail.
You want to run an ultra-marathon? Do you know how many people don’t finish?
You want to make enough money to retire in four years’ time? This is impossible.
And so it goes about almost anything.
You see, I may be an optimist but I’m not delusional; well, not usually, anyway. I know that some things are difficult to achieve, others may be impossible at the time and yet another group are not worth trying to achieve.
Mastery of life and personal finance is to be able to distinguish between these.
FX trading is no exception. Don’t believe me?
Okay, just try and mention to your friends that you are going to have a go at one of its forms: spread betting or contracts for difference.
What you’d very likely hear is that you’d be better off going straight to Las Vegas and having fun in the casinos.
I won’t tell you that FX trading is safe and guaranteed investment: I told you already that I’m not delusional. But I’d very much like it of you don’t try spread betting (or CFD) to do it for the right reasons; not because of empty objections generated by inertia and lack of thoughtfulness.
What is FX trading?
FX is short for ‘foreign exchange’ or the changing of one currency into another. With the advent of Fiat currencies (these are currencies that are not underpinned by gold, other precious metal or a commodity which is actually all currencies at the moment) currencies are allowed to float and the market sets the price.
This market is estimated to be in the region of 6 trillion dollars per day. Yep, I can imagine this kind of number as well. It is $6,000,000,000,000 which is a lot of zeros.
More importantly, this market is to a degree speculative and it also very dynamic: currencies change value relative to each other all the time.
This open the two ways to make money FX trading by spread betting and CFD. In both cases you place a bet on whether a currency will go up or down relative to another currency but there are important legal differences between the two. There are also the small matters of legality and tax: in the US, for instance, spread betting is illegal and in the UK it is not taxed.
Still, many fortunes have been made by FX trading. Have you heard of George Soros? He is the dude who helped me get to the UK (Soros Foundation Fellowship) but he is better known for borrowing a lot of money and shorting the British pound in the 1992. His gamble paid off and he made $1 billion in the space of several weeks.
Five Objections to FX trading
Here are the five objections to FX trading and spread betting that, I believe, you shouldn’t listen to.
#1. It’s not an honest day’s work
It probably isn’t since your money makes money (or not).
While I understand some people’s obsession with hard work, I am still puzzled by the failure to recognise that it only gives you bad back and drains your life source. To get anywhere in life, you have to learn to work smart and make you money work for you.
You see, to win the game of wealth, it’s not enough to sell your labour or your reputation. You also ought to save and make your savings work for you. FX not being an honest day’s work is an inducement rather than an objection.
#2. It is gambling
Yes, FX trading (spread betting and CFD) is probably a form of gambling. Then again, gambling is really part of life. Every time you drive to work, you are taking a number of bets: you are betting that no-one will hit your car, that your house will still be standing when you get home and that nothing bad will happen to any of your relatives.
All investing is a combination of science, art and gambling. Your probability of success depends on the proportions you allow for each of those. For instance, the better grasp you have of CFD the lower role the gambling part will play.
#3. You need a lot of money to make profit
Strictly speaking, you don’t. But small capital will bring small returns – it is advised to use no more than 1% of you capital for trades at any point.
Big players play this one with very big money: professional traders working for investment banks may well stake a billion dollars on 1/100% change in price!
‘Normal’ people can dabble with small money. And they do!
#4. The middle man takes all the profit
The middle man – or woman – does take a profit from their activities but they also enable us to save money. Why should they work (for it is work) for nothing?
What you’ll have to do if you’d like to minimise the fees you pay per trade is to research the available FX platforms. There are thousands of these and the fees they charge are very different.
#5. You’ll lose all your money
This may happen. Again, you can lose all your money in any investment.
Learn to be careful. More specifically:
- Don’t put all your investments (savings) into FX trading.
- Don’t trade more than one percent of your FX trading account.
- Be very strict with using the ‘stop-loss’ facility.
And remember: you’ll always have losing trades. The mastery is to win more than you lose.
FX trading is certainly not always a plain sailing and it definitely isn’t a painless way to wealth. You may win and you may lose; the important thing is to win more than you lose.
FX trading is also not for everyone and you may well decide that it is not for you. I don’t do it, for instance. But I don’t do it not because of the objections discussed above; I don’t do it because I’m a compulsive gambler and it’s better to stay out of temptation’s way.
John, my husband, is another matter – he plays with his head not with his obsessions; and he wins more than he loses.