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Sept. 23, 2010, 12:02 a.m. EDT · Recommend (2) · Post:
By Deborah Levine, MarketWatch
NEW YORK (MarketWatch) -- When I learned I'd be writing about the growth in retail currency trading, I figured it made sense to try it myself.
Luckily, it was only play money.
Many of the online sites serving the fast-rising demand for retail foreign exchange trading offer free trial accounts to let novices gain experience before putting real money on the line.
I opened two trial accounts, one with FXCM and the other with Forex.com, figuring that after writing about foreign-exchange markets for a while, I could put on some trades based on what I know about the markets.
What I learned was that timing and risk management are fundamental to hanging onto your money -- let alone making any profits. Another key is the ability to stay engaged. Foreign exchange markets operate 24 hours a day and trading in them seems to be the antithesis of "buy-and-hold"? stock investing.
I did know to put in stop-losses for all my positions, so if my bets went against me I didn't just keep losing. That's important to do. I wasn't able to check my accounts very often, roughly every week. Most of the times I did check, my positions had hit those stops, giving me a big loss. If you can spend more time staring at the screen, you may be able to improve your profits, but I couldn't do that.
Foreign exchange markets have seen their appeal increase in recent years because the flavor of trading is similar to the boom times of day-trading during the dot-com era, albeit in a much larger market. See Retail investors flock to foreign exchange trading.
But volatile trading offers the risk of abrupt market turns and I instantly lost money, in part because of bad timing -- one may think a currency will go down over time but if you take the position on the day it's up, you lose money. That was a short-lived mistake.
Most people I talked to for this story said they, and other traders, focus on the major currency pairs: U.S. dollar and the Japanese yen /quotes/comstock/21o!x:susdjpy (USDYEN 84.4700, -0.0500, -0.0592%) , euro and the dollar /quotes/comstock/21o!x:seurusd (EURUSD 1.3337, -0.0055, -0.4107%) and the British pound and dollar. (USDGBP 0.6431, +0.0047, +0.7362%) . See slideshow on Forex facts.
I also tried betting on the New Zealand (USDNZD 1.3701, -0.0048, -0.3491%) , Australian (USDAUD 1.0563, -0.0093, -0.8727%) and Canadian dollars /quotes/comstock/21o!x:susdcad (USDCAD 1.0340, +0.0039, +0.3786%) , the co-called commodity currencies expected to gain along with oil and gold. That didn't actually work for me either, again, because of the timing.
Both trading sites offered education in how their platform works, how the market works, what terminology you need to know, and how to devise a strategy. They also offered tutorials and videos to help new traders.
U.S. individual investors are increasingly drawn to foreign exchange trading, long the domain of professional traders. MarketWatch's Deborah Levine reports.
Many sites also have information on understanding technical indicators and how other traders are positioned. Some offer forums with other traders to trade tips and ideas.
But as one of the customer-support representatives I spoke with acknowledged, becoming a professional trader with a 30-day practice account is almost impossible. It takes more personalized training.
In one month of setting my own trades, I lost about $45,000.
I also tried a platform that allows individuals to piggyback on successful, professional traders. I started with $100,000 there, and split it between a few systems that seemed to be doing well. I ultimately lost $72,000 trying this.
In the end the only thing I had a gain on was gold /quotes/comstock/21e!f:gc\z10 (GCZ10 1,293, +1.00, +0.08%) , which one site I tried lets you trade.
Given the continuing popularity of the precious metal as a hedge against paper assets, that's probably not surprising.
Deborah Levine is a MarketWatch reporter, based in New York.
The Troubled Asset Relief Program stabilized under Allison who took the job in June 2009. Since then, billions have flowed back into the Treasury, but more than $300 billion is outstanding, writes David Weidner.
2:34 p.m. Sept. 22, 2010 | Comments: 9
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