Skip to main content

Is Your Forex Trading Business Properly Funded?


I usually encounter a lot of questions regarding the ideal amount of capital you should put in forex trading.

On one hand, I recommend risking money that you can afford to lose. On the other hand, there are plenty of risks associated with being undercapitalized.

You see, once you step into live forex trading, the way you look at capitalization will never be the same. Forex trading is now a business – YOUR business.

This means that you are the manager and just like in any other business, you need to have a business plan.

You need to know what you’re going to do from beginning to end and how you’re going to react to any foreseen–and unforeseen–circumstances.

As the saying goes, “If you fail to plan, then you’ve already planned to fail.”

So, what’s a great way to start having that business mindset?

One key business principle you need to understand is that it takes money to make money.

Before jumping into live forex trading, consider what kind of lifestyle you want as well as the possible costs you may incur (equipment, services, drawdown periods, etc.), because one of the biggest reasons why many traders and businessmen fail isn’t because they aren’t good, but because they are undercapitalized.

Being properly funded will allow you to sweat out periods of bad business (poor trading), and give you a higher chance of surviving long enough so that you may experience periods of good business (good trading).

To give you an idea on how much you should put in, here are some important questions that you need to ask yourself

  1. Will you be trading full-time or part-time?
  2. Will you make a living out of forex trading?
  3. Will you be supporting your family or is it just you?
  4. How are you going to be educated?
  5. How much will you spend on trading tools such as charts and news feeds?
  6. How much can you afford to lose?
  7. Do you make money from being more right than wrong?
  8. What is your average variability of returns on a per week or per month basis?
  9. How big of a drawdown can you stomach?

After answering questions like these, then you can estimate how much you need to start with. Once you’ve decided on your initial capital and have begun your forex trading business, only then can you start growing it.

But of course, like any other business, you should only expand when you are already making money and successful. You don’t build a second McDonalds if your first one is still struggling to rake in profits!

These are all basic management principles, but they will be essential to setting the foundation of your trading career and business.S

Somake sure you have both a solid trading plan and a business plan in place before you decide to get your feet wet and go live. get your feet wet and go live.

Comments

Post a Comment

Popular posts from this blog

Why is fundamental analysis important in Forex?

  Fundamental analysis is an approach to analyzing the markets by taking into account factors such as the social, economic and political issues. These factors tend to influence the supply and demand of the security in the question. Fundamental analysis is one of two ways to analyze the forex markets. The other approach is the more widely popular technical analysis. Both fundamental and technical analyses are important when you want to study the markets. However, traders mostly ignore the fundamentals when trading currencies and focus only on the technical analysis. The general argument is that day traders who  only   trade within a small time frame need not concern themselves with fundamentals. This is because fundamentals are what tend to impact longer-term trends. However, regardless of whether you are day trading or swing trading, it is important to pay attention to the fundamental developments in the markets as well. You can actually expect to see losses on your trad...
Post a Comment
Read more

Why you keep losing money on forex

It is often said that the odds of being consistently profitable and succeeding in the forex market are very slim, as more than 90% of traders are bound to face failure. Here are the common reasons why this usually happens: They don’t understand key indicators, key numbers, ideal times to trade, and how the market works. Would you enter a battle without knowing how to use weapons or who your opponent is? When you place a trade, you literally go toe-to-toe against some of the biggest nerds in the industry ( BigBanks ) Many professional traders are not only super smart and Ivy League educated, they’re also rich. That doesn’t mean that you, the small guy or gal, can’t win. It just means that you simply must educate yourself and be prepared to do battle. David can beat Goliath, but only if he’s prepared. Some people might think the cost of a trading education is too high. But the cost of ignorance is way more expensive. They don’t have a tried-and-tested trading methodology with no prov...
Post a Comment
Read more

How to become a profitable Forex trader

1) Manage Your Expectations As a trader it can be easy to become obsessed with chasing profits and this  will almost definitely lead to problems. The anxiety which surrounds chasing profits can cloud your judgement and lead to mistakes which will cause losses. Therefore, my first bit of advice in your journey to becoming a master Forex trader, is to dispense with any unrealistic objectives. The prospect of becoming rich in just a few sessions of trading Forex is extremely unlikely and, believing any differently, may cause you to operate with greater risk, jeopardizing your capital. 2) Define Your Trading Risk Profile Before making any substantial commitments, get a good understanding of the fundamental aspects of the market. Assess your capital at hand, read trader testimonials so you have realistic expectations of returns and research the markets and currency pairs you are interested in. If you don't feel comfortable, don't invest your money in Forex, even if it might be profi...
Post a Comment
Read more