FOREX day trading, can it be done?

April 30, 2006 7:03 PM

Do you trade FOREX? How's it going?

How did you get into it (reasons, starting capital, techniques, etc.)? Success or failure? Is it plausible to actually make a living, what skills and abilities are necessary? How does a 24hr market affect your lifestyle? And any other general or specifi advice and information would be appreciated.

posted by andrewyakovlev to work & money (12 comments total)

A close relation did. All I can say is that in every sale there's someone who gains and someone who loses. Money doesn't come from nowhere, and you should probably make sure it doesn't come from you. I don't want to rain on your idea, but I've seen someone lose a BIG LOT of money.
posted by anadem at 7:31 PM on April 30, 2006

When I think of FOREX trading, I think big institutions with big balance sheets. And within this world, pure speculative traders makes a relatively small subset. Rather than making outright bets, financial instutitutions need to create markets for foreign currencies in order to satisfy their clients' needs, and by doing so create opportunities via bid/ask spreads and various market movements. They have large teams of traders and analysts that monitor the markets (using proprietary data, or purchased data/information flow that an individual could probably not afford), use sophisticated quantitative models and have access to economists dedicated to macro-level trends. Currency and also fixed income markets are much more complex than the equity markets (in my experience, the fixed income/currency/interest rate guys consider the equity traders to be light-weights).

I'm suspicious of anyone that tells me that they make money day-trading in equities. If someone told me that they beat the market day-trading FOREX from home, I'd be either blown-away or likely to call them a liar. I think the fundamentals of equities are easier to grasp - to value company X, you can access their financial results and conduct various analyses. If that company can grow its earnings more rapidly than the market expects, its stock price will appreciate, in theory. With FOREX, I have no clue - it seems to rely on macro-level issues that are, at the same time, very simple and astonishingly complex.

But, what do I know? I've never tried this myself and I only come across the FOREX guys at work once in a blue-moon. These are just my slightly-eduaction assumptions, hopefully someone will come along with some real experience.
posted by mullacc at 8:12 PM on April 30, 2006

I have a good friend who works retail sales at a major forex firm.

His summary of it was that about 90% of their clients lose their deposits, most of the rest run close to breakeven, and a small percentage get decent returns.

Most of the clients explode because they don't really understand how much risk they're accepting until they have a bad day and get blown up. If they understood that, most of them would be small losers anyway, because of the spread.
posted by I Love Tacos at 9:04 PM on April 30, 2006

A former friend of mine got into the online stuff that's marketed to individuals. He was logging on at 5:30 a.m. to catch up on the Euro/Pound rates. Seemed like a lot of stress to invest in negative returns. Losing money at the local Indian casino would have been more fun, and wouldn't have required losing sleep and wrecking one's schedule.
posted by gimonca at 9:14 PM on April 30, 2006

I worked sales/trading at a big investment bank about four years ago. You've got no chance of making money without access to the day's trading patterns. Sure, you can sit on a position and hope it falls for you but that's going to be no more than luck. Currencies move on so many factors and you have so many guys who are thirty steps ahead at reacting. Don't bother - unless you have an inside tip that the government of Xslyvania's going to devalue tomorrow (and if you do, tell me. Insider rules don't apply to forex).

You can get an advantage trading illiquid equities and debt that's going bust. The big boys don't have the time to look at it in depth. Analyse the balance sheet and think hard. Then you (might) stand a chance.
posted by TrashyRambo at 9:47 PM on April 30, 2006

Seen lot's of scams around it, but if you understand how to trade and wait until a particular currency goes into an extended run as a result of some significant current event, then you will be poised to jump on whatever large scale trend is underway for that one moment in time.

Don't get in without a compelling trend, wait for that, and be ready to go when it happens.
posted by StickyCarpet at 10:01 PM on April 30, 2006

You can get loads of FOREX info for free online. Disgraceful self link. (Please don't eat me. 15 minute delayed intraday FOREX prices and a level 2 style break down of each banks price positions) Yes we will send you "commercial emails", yes you can unsubscribe from them.

It is possible to make money day trading equities and FOREX but it's risky and takes a lot of research and effort and as you tend to be making quite small percentages, a rather large chunk (e.g. > $100,000) of money to invest to actually make a living off.
posted by public at 11:01 PM on April 30, 2006

Forex is God's way of telling people who don't do cocaine that they're too rich.
posted by b1tr0t at 11:09 PM on April 30, 2006 [1 favorite]

Also, 15-minute delayed forex quotes are less than worthless. With a typical delayed-quote system, I* can consistently papertrade a $50k account up to around $300k. About 25% of the time, I can get up over $1M within a day, and I never get drawdowns. The trading opportunities that make this possible do not exist in the real marketplace.

*By "I" I mean my FX automated trading system.
posted by b1tr0t at 11:39 PM on April 30, 2006

It's certainly possible. My father has been a very successful self-taught, self-employed forex trader for the last twenty-five years, using family assets only. He has never set foot on a trading floor except as a tourist, and he has never worked for a financial institution of any kind.

Of course he is a driven, disciplined individual who has a knack for picking up new skills and perservering at them (he first got a degree in medicine, then worked as a gemstone cutter for many years).

But what set him apart from other wannabes was the ability to cultivate a strong network of mentors, contacts and investors. He would not have succeeded were it not for the clutch of elite professional traders who taught him everything he knows, fed him leads and deals, and continue keep him in the loop on market trends to this very day. Finance is still a people-driven business, so ultimately it was his network that lifted him above the bottom-feeders.

What traits do you need? A superlative combination of technical skills and people skills, and a relentless drive to work hard and keep on learning. Sorry to speak in generalities, but those are the essential ingredients -- if you have those then the rest will just come naturally.

I'm obviously very proud of my dad, and I wish I was half the man he is. And I hope I can be semi-retired like him from age 47 on.
posted by randomstriker at 11:40 PM on April 30, 2006 [1 favorite]

Alright, I guess I was a little too general about my answer above. So to give a bit more detail about my dad:

His starting capital in 1981 was in the six-figures. He has averaged double-digit annualized growth since then (some years more, some years less of course).

He is a "chartist", i.e. trading mainly on technical analysis. He doesn't disagree with trading on fundamentals, but it doesn't suit his instincts. I'd tell you more if I could make any sense of what he does.

He makes good money mainly because he has access to small-spread trades and is charged virtually no fees. You don't get that without a 20-year working relationship with the brokers.

He works odd hours - a few hours before 9am and then a few hours late evening. Maybe an hour or two at midday. We're in Vancouver (Pacific Standard Time). That allows him to monitor all the major markets (NY, London, Tokyo, Hong Kong, etc). He golfs or plays with our dog the rest of the time.

He is very risk averse -- too much so according to some of his peers. But it's not nice making mistakes with family money, so I'm glad he is the way he is.
posted by randomstriker at 11:56 PM on April 30, 2006

BTW, what my dad does is not day-trading, per se. Yes, he sometimes flips a transaction within a day. But typical positions are held for days, weeks or months.
posted by randomstriker at 12:05 AM on May 1, 2006