Funding a Trading Account

How Much Money is needed to Start Trading?

Just recently a new Twitter friend read my posts both here and where I guest post at the Online Forex Trading Blog (http://www.onlineforextrading.com/ ). I was delighted that she found them interesting and she followed up with a tweet that posed this question: ‘How much start-up money is needed to trade?’ What an excellent question; I have been mulling it over ever since she asked it of me as I was not quite sure how to reply. It’s a simple enough question of course, but importantly it is probably one of the best questions to ask yourself if you are considering embarking on learning to trade.

Although undoubtedly an excellent question, possibly the more important question is: ‘How much money can I afford to lose’? Yes, that’s right, afford to lose. In order to never lose money when trading, all our trading decisions would have to be 100% correct 100% of the time. Nobody can be that perfect... not even us girls!

There is a quote from a book I keep in mind whenever I am in a position to perhaps increase the working capital in my trading account. The quote comes from ‘Bets and the City’ by Sally Nicoll, a very entertaining book about her spread betting exploits. I still can’t totally get my head round the difference between spread betting and ‘proper trading’ but the book is a good read, it’s funny, frank and factual. http://bit.ly/fBy1V

Not wishing to take the quote out of context, you should know that Sally’s Dad liked to have a wager on the horses and when she was a young girl he would take her along with him to the Races. Normally her Dad would compensate her for any losses she incurred backing the wrong horse. However, one day Sally insisted upon placing all her money on a horse, even though her Dad advised her not to, and it lost. She waited for the normal compensation to be offered, but none was forthcoming this time. After sulking all the way home her Dad finally offered this piece of advice:

“When you go to the races, never take out of the house more money than you can afford to throw in the gutter.”

Okay so horse racing’s not trading but there is an analogy here, those who professionally have a punt on the horses always go through the same motions as professional traders do. They (the punters) educate themselves about the industry and they do their research; about the horses, the jockeys, the trainers, the racecourses and they study the ‘form’ of the horses. They keep journals with statistics of the bets they place and whether the bet was a winner or a looser and what was the return on their ‘investment’ etc. etc. A professional trader will keep journals to record details and outcomes of the trades they place.

If you are interested in learning to trade currencies (or anything else for that matter) keep in mind the motions a professional horse racing punter goes through, they will bode you well for a trading career. Remember also the advice given to Sally by her Dad; if you can’t afford to lose the money don’t risk it in the first place.

The Start-Up Fund

I call it a ‘Fund’ because that’s precisely what it is. It’s the amount of money with which you are prepared to fund your ‘Trading Account’ and leave it there to grow or not depending upon how successful or unsuccessful your trading exploits are. Ok, Ok, but how much do I need to start with, I hear you all scream!!

It’s one of those ‘pieces of string’ questions... only you know how much money you can 'afford' to throw in the gutter.

Some Trading Mechanics

With the advice of Sally’s Dad ringing in your ears, here’s a simple guide to the type of Trading Accounts and the money needed to open them in order to be able to commence trading.

Please remember that I am not a trading expert, I class myself as a fledging, going on fledged trader. I pass on here information I have gathered on my journey to hopefully becoming a consistently competent trader of foreign currencies.

First Things First

Your country of residence will determine the regulations governing the trading of financial instruments. It is advisable to research these regulations in order for you to understand your rights governing any monies deposited with an institution/broker. If you choose to trade with an institution/broker outside of your country of residence your financial rights will be governed by that country’s governing body. I am a UK resident, and trade via UK based operators, so for me the governing body is the FSA (Financial Services Authority).

Note for USA based traders – NFA regulations have recently changed/are in the process of changing, USA companies offering UK based segregated accounts may be of interest, or take a look at GFT Forex here http://www.gftforex.com/ and for an explanation of some of the changes see the blog post of Francesc Riverola,CEO & Founder of FXStreet: http://blogs.fxstreet.com/francesc/2009/07/03/gft-announces-continued-use-of-stop-and-limit-orders-full-nfa-compliance/.

Secondly

Decide how much money you are actually prepared to ‘throw in the gutter’ and then decide what type of trading account to open. There are various accounts available from various companies, with variable amounts of money needed to open them. It’s up to you to do the research, I can give you a guide but ultimately it’s your decision (that’s trading in a nutshell if ever I heard it!)

There are Micro Accounts, Mini Accounts, Standard Accounts, and anything you’d like to call them accounts. The marketers conjure up wonderful names for them all; you just need to find the account that presently fits you. Below is a brief overview of a few of the many accounts available.

Micro Accounts

These are accounts you can open with a microscopic amount of money, from as little as $/£25-$/£30.

Mini Accounts

Mini accounts usually need around $/£250-$/£300 deposited to open.

Standard/Regular Accounts

Now we’re getting towards fledged trading girls – In order to open a Standard/Regular account, you will have to deposit funds of at least $/£2,000-$/£2,500 for starters.

Last (But not Least)

Here are some resources to get you started on your investigations:

You can find some excellent learning resources at http://www.fxstreet.com/, http://www.onlineforextrading.com/ and http://www.tradingacademy.com/. These sites all have free training material available and FXStreet and Online Forex Trading also have links to a number of Forex Trading Companies where you can open both live and demo/practice accounts.

I very strongly advise that anyone just starting out to trade opens a demo/practice account first and uses that whilst learning the mechanics of trading... And remember the advice of Sally’s Dad girls (slightly amended for trading)...

“When you trade, never risk more money than you can afford to throw in the gutter.”

A Girls' Guide to Risk Aversion

I came across this great guy on Twitter; he’s a trader too but not a Forex Trader, his focus is stocks on the FTSE-350. He mentioned he was looking to learn Forex trading and we struck up a bit of a tweet exchange (as you do) during which I was really surprised to discover he felt all at sea in regard to currency trading.

Now, I still consider myself a newcomer to Forex trading and have never traded stocks, or indices, or commodities, not even chicken feet (yes…. that’s right, chicken feet; I knew a man once who did - honest!) but I had not realised that traders of other financial instruments would be anxious about trading currencies.

What I found most interesting from our ‘twitterings’ was he feels he’s quite a risk averse type of guy who likes to take his time over the analysis of stocks, but has the impression that Forex is different. Well is Forex risk different I wondered? As a Forex only girl, I’m not sure I can answer that, but I can show you what system I use to control my aversion to risk – you guessed it girls, here comes another list!

10 Rules of Risk Management for a New Forex Trader

1. Use a small ‘lot’ size until you’re comfortable with your results
· Build a buffer bank
· Stage lot size up slowly
· Stage lot size down when your strategy doesn’t respond

2. When in doubt Get Out!
· Immediately
· A flat is a good trade, nothing was lost

3. Trade, don’t Gamble
· Don’t sell after a period of selling
· Don’t buy after a period of buying
· Don’t take overnight trades (you can’t control what happens)
· Don’t trade at major news announcement times. Volatility at major news times can blow your trading account

4. Don’t Add to Losers
· You can wipe out your account waiting for the market to come back to you

5. Don’t Overtrade
· Set a daily goal
· Stop trading when you reach your goal
· Keep your lot size the same throughout a trading day

6. Don’t increase your lot size to recoup losses
· The table below shows why you should not increase your lot size (and
therefore your risk) to recoup losses.
· A recommended amount to risk at one time (not per trade but at any one time) is no more than 3% of the account balance.

· So in percentage terms, you can see that the higher the percentage of your trading capital you risk, the higher the percentage return you need to recoup to get back to where you started!

7. Have a Daily Loss Limit
· Ultra conservative – 0.5% to 1% of risk capital
· Conservative – 1% - 2% of risk capital
· Experienced Conservative – 3%

8. Be Careful of your Computer System
· Don’t trade if you notice problems with your system or data flow is slow
· Have a check list and if something is wrong don’t trade

9. Be Logical not Emotional
· Have rules to enter and exit trades
· Have rules to exit losing trades
· Write your rules down
· Always stick to your rules
· Understand your strengths and weaknesses
· Build on your strengths, control your weaknesses

10. Be Disciplined
· Do your homework (your research)
· Plan your trade
· Trade the plan
· Focus on the trade, don’t get distracted
· Keep a trade journal
· Analyse your journal to identify learning points

Whether this helps the Forex risk aversion fears of my Twitter Stock Trading pal I do not know. I’m sure he will realise that just the same rules of risk aversion and money management apply to Forex as they do to trading stocks, commodities and even chicken feet! The most important thing to learn is: decide your tolerance to risk, decide your risk aversion rules and….. stick to your rules. Your trading account will thank you for it.

I send my thanks to my Twitter Trading pal; it was a great idea for a blog. If you like to trade stocks see http://350trader.com/

An Unusual Journey to Understanding Risk Management

What Exactly is My ‘Job’?

I’m in the process of buying a new car and went along to visit the car dealer just recently to choose the model, colour, trim etc., etc., and, oh yes, fill in all that paperwork the dealer needs you to complete to get the car of your dreams. You know the stuff: name, address, date of birth (oh no, got to give the real one for a change girls!) name of employer.….. name of employer?

That threw me; I no longer have an employer, I’m free of bosses, I’m my own boss now. But the paperwork needs an answer and it has to know what my job is. So I asked myself, what is it I do? How do I categorise my ‘employment?’ A broad description could be ‘I work in the financial sector’ but that’s just far too broad.

Am I a currency analyst? Not really, the term analyst doesn’t tell people what it is I do on a day to day basis. These days, when people ask me what my job is I answer: I buy and sell money in the foreign exchange markets, and by my reckoning that makes me a currency trader or foreign exchange trader. Foreign Currency Trader is what went down on the paperwork andhaving to think about categorising what I do for a job made me wonder how I got involved in currency trading in the first place?

Now what follows is an account of my very first tentative steps to become a currency trader; I do not recommend that anyone starts their journey as I did, every individual who decides to embark on trading currencies (or anything else for that matter) must be prepared to undertake and be responsible for their own due diligence.

How I Arrived Here

The world of corporate internal communications had just decided it could do without my services and made me a handsome offer, one I couldn’t refuse, to go and try out pastures new. I now found myself with plenty of time on my hands but with nothing much to occupy me. A little project is called for I thought, but what? Something that was going to provide me with an income would be good; the corporate parting handshake was not going to last forever. Now what do we girls do in this situation? Communicate of course; we were born to do it, where would social networking be without us?? Get onto the internet then, I thought, update your social network profiles; rekindle internet contacts; find out what people are up to and what ideas are floating around out there; go onto Google and search for anything related to money, working from home, home businesses etc., etc. and that’s where I stumbled upon foreign currency trading - literally stumbled, as a Facebook friend had pointed me in the direction of StumbleUpon.

I came across a lady who was telling me I could trade the foreign currency markets from my home computer and she had a ‘foolproof’ system for doing this. I was intrigued, money to be made, not just money though, foreign money. I’ve always loved foreign money, such fun to use on holiday, all those weird banknotes and coins, and the fun of working out what it would cost in ‘real money’. (Real money for me is the British Pound; your real money is your own country’s currency). I’ve always kept some coins from foreign trips, just to remind me of the visit. Now I could work from home, buying and selling foreign money from my own computer – what a great idea!

I sent off for the system and eagerly awaited its arrival, not as a PDF document but a published, printed and bound manual. I had researched the lady, I’d researched the publisher, and I’d decided the price for the system was both sensible, affordable and, more to the point, an amount of money I was prepared to risk losing if it didn’t work out. After all, I knew absolutely nothing about trading foreign currency, so how would I know if the system would work unless I tried it?

Risk Management

There’s a little analogy here of course, unwittingly, without being aware of it at the time, I’d utilised a small part of risk management, by deciding if the amount of money I was prepared to spend from my available resources was an affordable risk against any potential future rewards – my risk to reward ratio in other words. In this case I didn’t know what the rewards might be, but I did know how much money I could afford to lose and not worry about it.

Not necessarily a conventional start to a currency trading career then, but if the shoes fit in the first place, then why not fly in the face of convention, at least you’ll be comfortable on the journey girls.

(This post was first published on March 18th by Online Forex Trading under the title: A Girl’s Guide to Getting Started in Forex) www.onlineforextrading.com/blog/girls-guide-to-forex/

10 Magic Questions

I can hardly believe it’s almost six months since I last made a post on the Blog – my how time flies when you’re learning to trade!

What got me started to think of the Blog again was attending a webinar given on FXStreet.com (www.fxstreet.com) by Adam Rosen, CEO and Co-Founder of 4XLounge (www.4xlounge.com) as it ties in nicely with the previous post ‘Discover Your Trading Personality’.

Adam’s webinar covered a list of questions to ask oneself to discover your Trading Personality … ie Trading Style. Having struggled to determine my own trading style, this webinar was a Eureka moment and suddenly all the questions I needed to ask myself, but could never quite think of, were simply and logically explained.

So girls, I thought, what a good idea for a Blog post! I’m sure there are some of you out there struggling with this aspect of trading, just as I have done. Here goes then:

The Adam Rosen List of 10 Questions to Discover Your Trading Style:

How long do I want to hold a trade open?
· Identify if you’re happy holding a trade for weeks/days/hours or get out very quickly
How quickly do I get bored?
· This will determine how long you are happy holding a trade
How much trading experience do I have?
· Completely new to it
· Weeks/Months/Years
How nervous do I feel when trading?
· Do you have to keep looking at how the trade is doing?
How much capital am I starting with (have)?
What do I expect when trading a specific currency pair?
· High volatility (fast moving, wide average daily range, high profit potential)
· Low volatility (narrower average daily range, lower profit potential, slower moving)
What time of day/night can I trade?
· European/London session (0700 – 16:30 GMT)
· New York session (1300 – 2100 GMT) includes the Europe & London/New York crossover
· Asian session (2300 – 0800 GMT) – includes Sydney open to Tokyo close
Am I available for at least one full trading session to watch the markets?
· Work out the time you have available and the specific hours you are realistically available to trade
What are my trading expectations?
· How much do you want to make in profit each day/week/month/year
How are things going in my life?
· Stresses in personal and family circumstances can affect trading performance.

What’s so great about this list is that you can keep going back to it as your circumstances change and your answers will help you adjust your trading style accordingly. Eureka!
The answers you give to these questions should help you to discover what style of trading fits you best (remember the shoes analogy from the last post girls).
You can work out if you’re a Position trader (real long term stuff) a Swing trader (holds trades for days or maybe a week or two) a Day trader (closes trades the same day, never holds a trade overnight) or a Scalper (in and out of the market within minutes). Or, as I prefer to call them:

Test Match Cricketer (plays the long game)
Endurance Car Racer (Swings in and out of the car with the co-driver during a 24 hour race)
F1 Racing Driver (gets the job done during the day then goes out to party all night!)
Jumping Jack Flash (in and out of the market like lightning)

There I go with the analogies again!

Well I hope this helps and that it may have given you a little chuckle. Goodness knows we girls need to find a few chuckles here and there along the road of learning to trade forex. If you want a good few more chuckles visit the FXStreet website (www.fxstreet.com) and attend the Rob Booker Webinars (he has a great sense of humour).

To end this post I must send thanks and credits to Adam Rosen of 4XLounge without his list this post would not have been possible. (www.4xlounge.com)

Discover Your Trading Personality

Are you a Big Picture Person or a Detail Person - why do I ask and what does it have to do with trading?

Somewhere along the line in this journey of mine so far (and I can't remember exactly where now) I read that discovering your 'Trading Personality' would very likely be a key factor in achieving your desired trading goals. Why I mention this is because not too long ago I attended a Forex Trading Workshop given by a highly respected trading education company and, as they normally do at workshops, seminars and the like, the tutor went around the room asking each person their specific reason for attending. The tutor was surprised by my reply; my reply being that I was attending the workshop to gain more knowledge of forex trading and to help me on my discovery towards what my 'Trading Personality' is.

For a brief second I thought the tutor was going to suggest that 'personality' had nothing to do with trading and was not even worth considering in conjunction with it. However, he proceeded to tell delegates that he'd not before come across anyone whose reason for attending his workshop was to try and get some more knowledge to determine their specific trading personality. He then explained that it is important to discover a trading style that suits you and one that you are comfortable using. Your own personality, he went on, is key to finding a trading personality and therefore a trading style that fits you.

It’s just like shoes girls, it’s no use finding a gorgeous pair of shoes that are just right for your personality but they don’t fit your feet – you’ll forever be uncomfortable in them and end up throwing them out; what a waste of money.

Trading is the same, if you don’t take the time to find a style that suits your personality you’ll be uncomfortable with it and that will cost you, not only money but a blow to your confidence – what a waste.

Trying to determine if you are a ‘Big Picture’ person or a ‘Detail’ person may help you decide what type of trading you would be comfortable with (remember the shoes?) If you’re a patient type that’s happy to let things evolve over a longer period of time you may well be a ‘Big Picture’ person and find longer term trading suits you. A ‘Detail’ person is probably going to be more concerned with what’s happening all the time and want to be monitoring trades very frequently, watching all the action as it were unfolding right in front of them – this person might find shorter term ‘Day Trading’ fits them better. However, this is just a simple view and it’s not that easy to decide what your trading personality is. If you’re just starting out you might want to see some quick action unfolding in shorter timeframes. But never forget to look at the Big Picture; it contains a lot of detail!

I stress that these thoughts are just that, thoughts, if you have read this, then you must decide for yourself if there is anything useful to you here. There is one really useful and important thing I have learnt this far on my trading journey, it is: one must take full responsibility for one’s own trading decisions.

There’s a mountain of information and advice available on forex trading and you can take all the advice you want, act upon it if you wish, but if you do act upon it and the outcome is not the one you desired, then blame only yourself, it was you who took the decision, not the person whose advice you took.

Make sure the shoes fit girls!!

Starting the Journey

I have been mulling over the thought of becoming a Blogger for a little while now, turning over the reasons for doing so in my mind, without coming to any coherent decision as to why I should (or should need) to put my thoughts out there in the great black void of anonimity. Then I realised I don't need a reason and in that realisation the reason became obvious.

On my journey into trading the foreign exchange markets - or trading anything actually as I have never done so before - I discovered all the 'real' traders, the ones who are successful and internationally known, all say that keeping a Trading Journal is vital. Now, unless you have been an avid 'Dear Diary' type of girl from as far back as you can remember, keeping a Journal (or a diary as I like to say) can be a real drag. After all girls, diaries are secret aren't they? They're kept in the sort of secret places that Mothers can't find them and if Mothers can't find them then neither will MI5 (aka your best friend), or the FBI (aka your husband), or whatever name or label your secret service goes by.

Anyway, I've never been a Dear Diary girl, and whilst feeling that I should pay heed to all the successful traders of the forex trading world and write up a daily diary about my trades, writing a diary was something I could do without! But could I do without it?.... NO, I could not. That's when the obvious struck me - I need to write a blog, the blog will be my Trading Diary where I can write about my progress, or lack of it. I can use my blog to record some thoughts about what I have learned so far and am currently learning and hopefully use it to develop my strategies and methods and record whether the processes I decide to use achieve the desired results i.e. monetary profit!

The thought of keeping a Trading Diary is much more exciting now. People can find my diary's hiding place, see what I've said and make comments if they wish, (I hope they do). More importantly I will have a reason to write my Trading Diary, it will chronicle my progress, my ups and my downs and, in the process, I hope I'll be able to pass on a few tips that will help you get started a little more easily on your own forex trading journey.

This blog will not record actual figures of financial trading successes or failures, it is just going to be a diary of events (past and present) on my journey towards hopefully becoming a reasonably proficient foreign currency trader. As the blog evolves I'll include hard won and, hopefully, interesting, useful information I have come across on my journey so far i.e. good websites, trading platforms, strategies, methods and theory and titles of books by successful traders that I have found relevant, logical, interesting, often amusing but most of all, truthful.

Go to it girls, you can succeed - there is another side to the coin.