Questions about Currency Trading

[msarro]

Hey everyone.
I won't lie, i've had my curiosity piqued about the shiny numbers I've seen when people talk about forex. I know its an incredibly powerful investment vehicle, but a very dangerous one too. I've tried to find some genuine advice but a lot of the forums seem to be filled with spam/advertisements. Looking around at a lot of the books on Forex, they all seem to be filled with hyped up Billy Mayes style "You could make millions if you follow this formula!!!" crap. There's also tons of talk about automated advisors, which I really don't have any interest in. I won't learn anything if its a machine making decisions for me.

I know most people who look into trading currencies fail, but then again I know most people will never bother to try and learn about it with any depth - sort of like the stock market.

So far I've checked out some books from the library on macroeconomics so I can get a firm understanding about global trade and currencies.

Are the numbers I've heard about real? Is it actually possible to make some profit if you stick firmly to a risk management strategy?

I'm looking for some real, honest answers. Not people trying to sell me on one particular ideology.

[Slug]

If you want to do FOREX trading, do it on paper first or use one of the free portfolios that let you pretend. It's not for the weak of heart, and it's certainly not for me.

[msarro]

If you want to do FOREX trading, do it on paper first or use one of the free portfolios that let you pretend. It's not for the weak of heart, and it's certainly not for me.

Thank you!
So far I've been playing with something called "the forex game" on my android phone. I've also got a practice account on a broker but I haven't done much with it (made one successful trade for 2 dollars, lol).

I don't want to go into it with any expectation until I have a better idea of what I'm doing. For now I feel like its just gambling. Do any of the patterns really help? Or is always a toss up?

[disneysteve]

I find it rather odd that you posted this 10 minutes after posting about your nearly $160,000 in debt.

I say forget about it. You don't need to be wasting any time trying to figure out if it is possible to make money in currency trading. You need to focus on paying off your debts and building a solid financial foundation starting with an emergency fund and moving on from there. Highly speculative investments like this should only enter the picture way, way down the line after everything else is already in place, if ever.

[msarro]

I find it rather odd that you posted this 10 minutes after posting about your nearly $160,000 in debt.

I say forget about it. You don't need to be wasting any time trying to figure out if it is possible to make money in currency trading. You need to focus on paying off your debts and building a solid financial foundation starting with an emergency fund and moving on from there. Highly speculative investments like this should only enter the picture way, way down the line after everything else is already in place, if ever.

Hey Steve, thanks for the post! First, I appreciate your concerns - I really do. I have been working at this for some time now, and do have an emergency fund taken care of (2 months worth of bills currently). I updated the other post a little bit to include some more of my financials.

I have a small amount of my current income that gets put into an account for investing purposes outside of my employee stock plan/401k/RothIRA (approximately 15$ every other week on top of the others - not much, but something to play with speculative stuff for fun and maybe profit). Right now it goes into a money market account where it sits until I choose to invest it somewhere on the off chance something takes off. I figure its a dollar a day to have a chance at something else working, you know? For now, most of it goes into high dividend yield real estate funds (that 15$ will generate about 14 cents a month for the foreseeable future). I know the money could pay down by loans a little faster, but for now I'm just as happy to slightly increase my assets at the same time. Burn the candle from both ends, you know?

Were I to do any trading, it would be with the smallest of the small lot sizes - less than 100 dollars, if that. Its money that's earmarked for investing already in my budget, and still lets me put a pretty hefty sum towards my debts. Further, I'm not looking to rush into anything right away, I'm expecting a few months, if not years of practicing and book learning before I'd ever touch it with real cash.

But the hard part is finding real information to get started with. Sites like babypips are decent, but I'd like to see if there is more unbiased information out there to learn from.

[disneysteve]

I have a small amount of my current income that gets put into an account for investing purposes outside of my employee stock plan/401k/RothIRA (approximately 15$ every other week - not much, but something to play with speculative stuff for fun and maybe profit). Right now it goes into a money market account where it sits until I choose to invest it somewhere on the off chance something takes off. I figure its a dollar a day to have a chance at something else working, you know? For now, most of it goes into high dividend yield real estate funds (that 15$ will generate about 14 cents a month for the foreseeable future). I know the money could pay down by loans a little faster, but for now I'm just as happy to slightly increase my assets at the same time. Burn the candle from both ends, you know?

I would maintain that you are taking the wrong approach. You are essentially investing with borrowed money since you are holding onto your debts in order to invest. That just doesn't make any sense. Stop investing except for any employer-sponsored plan with a company match (and some would even argue against that).Put any spare money beyond that toward debt reduction. That is going to give you the best bang for your buck. And, of course, slash your living expenses as low as you can to free up even more money for debt reduction.

[msarro]

I see your point, and it is absolutely valid. The one point I'd have to argue is that I'm earning over 10% off of dividends currently on my investments (on the trust funds alone). The employee stock program nets even higher returns (I get fortune 500 stock at a steep discount), plus yearly dividends.

My highest interest debt is 7%.

I do agree that it isn't the most... efficient (I suppose that's the best word?) path. But it at least lets me know that when I do finally hit that 0 marker I'll have a substantial body of assets to vault me skywards. I essentially gave up a cup of coffee a day. Plus I consider the investment to be part of my allowance (I've budgeted myself 10$ a day for spending money).

Agree to disagree on approaches?

[bjl584]

I see your point, and it is absolutely valid. The one point I'd have to argue is that I'm earning over 10% off of dividends currently on my investments (on the trust funds alone). The employee stock program nets even higher returns (I get fortune 500 stock at a steep discount), plus yearly dividends.

My highest interest debt is 7%.

I do agree that it isn't the most... efficient (I suppose that's the best word?) path. But it at least lets me know that when I do finally hit that 0 marker I'll have a substantial body of assets to vault me skywards. I essentially gave up a cup of coffee a day. Plus I consider the investment to be part of my allowance (I've budgeted myself 10$ a day for spending money).

Agree to disagree on approaches?

The danger that I can see is that you are carrying a high debt to income ratio around with you. I would accelerate paying it down to free up cash flow. Having money is no good if it is all on paper and you have to finance everything that you buy.

[disneysteve]

I'm earning over 10% off of dividends currently on my investments (on the trust funds alone). The employee stock program nets even higher returns (I get fortune 500 stock at a steep discount), plus yearly dividends.

My highest interest debt is 7%.

Make sure you are accounting for taxes in your calculations. For example, if you are earning 10% that is taxable and you have 7% debt that is not deductible, the spread is pretty narrow, especially when you factor in the risk. Prepaying that 7% debt is a guaranteed 7% return on your investment. Is that 10% guaranteed? I suspect not.

Now if some of that debt is low interest, like less than 5%, especially if it is tax-deductible, then I think investing probably wins out.

Still, though, what you are talking about isn't investing. It is speculating and I would stand by my original statement that speculating should enter the picture much farther down the road.