There are many alternative methods for extracting an income from the forex market, where almost $4 trillion in currencies change hands daily. Probably the most fundamental decision you must make is how to participate in the market. From the four discussed here, just one requires personal responsibility for trading decisions - the other three transfer this role to another entity.
Personal Trading
If you want to personally direct your own trading activity, you should make sure of the following:
1) Mastery of the topic: Understand the nature of the risks and rewards associated with forex trading, as well as the sometimes arcane vocabulary and procedures for forex and selecting brokers.
2) Developing a strategy: Technical analysis is the predominant discipline utilized by forex traders to generate buy and sell forex trading signals. Investigate the topic and adopt one or more technical signal generators. Always back-test your signals with hypothetical trades before risking real money.
3) Learn money management techniques: A profitable trader learns how to quickly abandon losing positions while letting successful ones ride. Operationally, this means always placing stop-loss or trailing percentage stop-loss orders on open positions.
Managed Accounts
Many erstwhile traders learn their prospects for achieving an income might be enhanced by using a managed forex account, in which a professional trader makes trades for your portfolio. It is an efficient method for investors to take benefit of an expert's superior experience and resources while still having some control over investment activity - in contra-distinction to hedge funds, where investors have little say in such matters. If you choose this route, perform research on potential accounts: learn the trader's past performance, the volatility of the trader's portfolio and the fees charged by the account manager. Note that management fees are often up to 25 percent of profits above your account's high-water mark. You might like to divide your capital among several managers to diversify risk.
Auto Trading
Firms such as ZuluTrade have innovated a way for investors to trade forex from their own accounts without making trading decisions. Known as forex auto trading, the service teams a professional trader with your account. Every trade made by the professional is scaled and replicated in your own account. In effect, the trader is transacting for you. Interested investors should carefully evaluate the performance and strategies of each of the candidate traders before adopting one. One plus of auto-trading is that it's free to traders; the provider is compensated by brokers in return for providing order flow.
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