There are several various ways for extracting a profit from the currency market, where almost $4 trillion in currencies change hands daily. Probably the most fundamental decision you need to make is how to participate in the market. Of 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 need to 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 choosing brokers.
2) Developing a strategy: Technical analysis is the predominant discipline utilized by forex traders to generate buy and sell forex trading signals. Research 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, what this means is always placing stop-loss or trailing percentage stop-loss orders on open positions.
Managed Accounts
Many erstwhile traders learn their prospects for achieving a profit may be enhanced with a managed forex account, where a professional trader makes trades for your portfolio. This is an efficient way for investors to take advantage 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 like 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.
Hassam 