One of the most frequently asked questions we receive from our clients is whether it is possible to make a living from forex trading. There are a number of factors that determine one’s success on the forex market, and they need to be considered. First and foremost, you need to have an objective. Many aspiring forex traders do not, and they start trading without any preparation or a plan in place. You do this at your own risk.
There are only a few viable strategies that work on the forex market, and it is best to focus on them. The three strategies I recommend are arbitrage, scalping, and trading the news. Unlike other strategies - which require higher deposits, not least because you’ll need to wait out drawdowns - these strategies (and their variations) offer higher profits and less risk. It is therefore advisable to stick to them.
Aside from the question about whether it’s possible to live off forex trading, here is another frequently asked question: “I have $1,000. How much money do I need, and how much can I expect to make if I buy your EA?”
A lot of our clients look puzzled when I recommend aiming at monthly profits of 30-40%. They have seen online statements that showed fabulous daily profits of as much as 500%, and my profit targets look underwhelming by comparison, to say the least. It is important to be realistic. If you rake in exceptionally high profits on a daily basis, your broker will quickly close your account. In fact, you’ll be lucky if the broker agrees to turn over the profits after your account is shut down. Even if you do manage to recover your profits, it is evidently not a workable long-term strategy. You won’t be able to make a living from forex trading that way. This strategy is only possible if you’re interested in one-time profits.
If one-time profits are your goal, you might want to try VIP Latency Arbitrage, which is the best software product when it comes to short-term profits.
While I am not a big fan of one-time profits, here’s some advice that I would offer to those who are interested in this type of trading. After testing your strategy, choose 1-3 pairs that are best for arbitrage purposes. Test your broker’s support team - as a (probably) young company, your brokerage firm will be unlikely to offer 24/7 support, so you’ll need to know when support is offline in order to do your testing. Make sure you apply aggressive money management (increase the lot size you trade based on the account size) and start opening your orders. If it worked, you now need to take your profits off the table. If you’re able to pocket your profits without any hassles, great! But don’t count on being able to replicate this kind of success.
Let’s go back to the trading strategies that I consider to be viable in the long term. In order to determine whether you can make a living from trading on the forex market, you will need to figure out how much you have to allocate to expenses associated with getting started and how much should be allocated to your initial deposit. Once you have those amounts, see if a monthly profit of 20% is sufficient for your needs (this is a realistic number that takes into account periods of low market volatility, periodic changes in the brokerage company you use, and oscillating profits - in some months, a profit of 100% can be made, while in others your return might be zero). If a 20% return is sufficient, then the question about your ability to live off forex trading can be answered in the affirmative: yes, it is definitely possible.
That said, it is best to focus more on the trading process than on potential profits. This is the only way to accomplish your goals, obtain a stable income stream, and turn forex trading into your day job.
As we sell a wide range of products, many of our clients want to know which product is best for them. When I receive this question, I usually ask for additional clarification. One client’s needs are bound to be different from the needs of another client, so there are two things that I need to know in order to recommend a product that is ideal for you:
1. Your country of residence.
2. The size of your investment deposit (i.e., how much are you prepared to invest?).
The first question is easy enough to answer, but I find that many of our clients struggle with the second one, and we often get responses that leave us scratching our heads. The client would respond by saying that there is some $200 available to invest and that, if things work out, the deposit would be increased to $100,000. Actually, this invites even more questions. If you have $100,000 to invest, then VIP Multi-leg Arbitrage is your best bet. But . . . if you buy that software product and open two accounts with MT4 brokers, there is a good chance that you won’t be successful. In order to make the software work for you, you will need to open one FIX API account with LMAX, investing at least $10,000, and a second FIX API account with a similar deposit (or, alternatively, an MT4 account with a minimum deposit of $2,000).
If you have $200 to invest, on the other hand, you will need a very different software product. VIP Lock Arbitrage for MT4 should be very useful for traders with more modest deposits. However, were you to try this product with $100,000, you would quickly hit a wall. The broker would see a red flag, and your brief streak of success might come to a premature end. This is why we ask clients to be precise when it comes to providing information about their deposits, and to follow our product recommendations once these are made.
Another problem that we often encounter among our clients is excessive trust in brokers. Traders want to work with brokers without any problems, so they decide to be absolutely transparent with respect to their intentions. Even experienced traders sometimes disclose to their brokers information that should probably be withheld. Some traders have friends who are employees at brokerage firms, and the traders think that the relationship will help them come up with an arrangement that is suitable for both parties. When mouthwatering monthly profits on the order of 1,000% are mentioned, these friends-cum-employees become especially willing to help the traders with their arbitrage strategy.
It is a mistake to be that trusting.
It is a mistake to be that trusting even if your broker is a true ECN broker. In fact, a “true ECN” broker is something of a misnomer - it is more appropriate to call such brokers “STP brokers”. An STP broker connects you directly to the liquidity provider and does not interfere with your trading; it is merely the intermediary between you and the liquidity provider. The liquidity provider used by the broker might actually use another liquidity provider, which in turn might have its own liquidity provider, etc. This chain can be quite long, and there’s a good chance that one of these liquidity providers will be left unimpressed by your arbitrage trading. Your broker might get a call with a request to rein in the toxic flow sent by you. Alternatively, the liquidity provider might switch you to a special feed that has a lot of slippage and makes arbitrage trading all but impossible.
The upshot is that it’s inadvisable to tell your broker anything about your trading strategy. It does not, and should not, concern your broker. You can use any trading strategy you want on the forex market - it is perfectly legal.
There are really only three ways to keep the broker at bay when using arbitrage trading.
1. Do not mention you’re using Lock Latency Arbitrage software or Multi-leg (hedge) Arbitrage software. The use of these products should make it possible for you to use arbitrage for long periods of time. This is because locking or hedging your positions helps increase the size of your profit on each trade and, most important, increase the duration of your open orders.
2. Work at the Prime of Prime (PoP) level. Note that PoP requires you to have at least several million dollars in capital.
3. Start your own brokerage firm. Your clients will provide non-toxic trading volume that you can use to mask your own toxic volume (the total non-toxic trading volume sent to the liquidity providers will be too large for your own toxic component to be noticeable). Additionally, liquidity providers will be more open to discussing the use of arbitrage trading with you if you’re a broker.
However, it is reasonable to assume that it’s best to start with the first solution before considering the next two.
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