Nowadays, due to the development of online trading, a retail investor enjoys the same full access to financial information and data as a professional trader on Wall Street. The question is whether retail investors can manage their investments without having to hire consultants.
Given the overwhelming amount of information that retail investors have to digest, it is certainly tempting to engage the services of a professional. But how sophisticated are these professionals? Are they truly experts? You can conduct a little experiment: try asking a number of analysts the same question, e.g., whether the Japanese yen will fall against gold or vice versa; and you will be unlikely to find a consensus. The truth is that there is a lot of money to be made in the financial industry, and quickly, which has the effect of attracting all sorts of individuals, including those who might not necessarily be qualified to be there.
Professional consultants employ many different strategies, but how suitable are these strategies for you? It is commonly held, for example, that margin trading is a high-risk strategy that is best to be avoided; it is more advisable to invest in other financial instruments such as mutual funds. Yet if you speak with a mutual fund specialist at a bank and analyze historical charts for the past couple of years, you will quickly realize that the drawdown can be as high as 20%, while the return on investment is typically about 8% per annum. You will also realize something else: that friendly mutual fund specialist is trying to sell you a package and his industry knowledge leaves much to be desired.
Conversely, when you trade on the forex and CFD markets and aim for an annual return of 8%, the probability of a 20 percent drawdown is practically nil. In truth, a more realistic objective is a monthly return of 40% with a risk level of 2-3%. If you’re starting small ($100-500), it is possible to increase your monthly profit by 100% by taking on more risk. When your investment capital is more sizeable ($10,000 and up), it is advisable to moderate your appetite for risk.
What strategies work best? Short-term scalping strategies are the most effective ones on the forex market. Strategies with least risk tend to be arbitrage ones; their risk is nearly 0%.
Why do arbitrage strategies involve low risk and high profitability?
The reason is very simple. Arbitrage strategies do not use indicators or rely on analyses of historical performance; instead, they utilize fast quotes received from the market and, as soon as the market moves sharply, orders are promptly opened in the direction of the sharp market move. It is almost as if the strategy were leaping ahead in time. Naturally, an arbitrage strategy has a more complex algorithm and an extremely elaborate code, but the idea behind arbitrage trading is simple: the strategy is trying to anticipate and take advantage of future price movement based on faster and better access to information.
How difficult is it to manage one’s own capital when trading, and what does it involve?
- It takes no more than a day or two to open an online trading account with a broker.
- You then need only acquire a fully automated strategy (a forex robot); recommended arbitrage strategy
- rent a server that will be active twenty-four hours a day, which will make it unnecessary to keep your computer on all the time (such a server can be rented for as low as $10 a month);
- and install the forex robot in your account – and that’s it!
What are the advantages of managing your own trading?
You determine your own risk levels and can stop trading whenever you want.
You do not have to pay an investment firm fees on an ongoing basis; you only have a one-time outlay of $300-600 when you buy the strategy.
You get to choose your own broker, which you can change at your discretion.