Why Forex Traders Need a Business Plan (Just Like Any Business)

Forex trading can be a great way to make money. However, it requires a substantial commitment of both time and resources. Some of the costs of getting into Forex trading include:

  • Broker commissions and fees
  • Sophisticated computers
  • Advanced software that can perform detailed analysis
  • Research services
  • Losing money on bad trades (this is inevitable I am afraid)

The foreign exchange market is the largest market in the world. More than $200 billion worth of trades are conducted every day, which means that traders have a substantial opportunity to make a lot of money.

However, Forex trading is also very risky. It is a zero-sum game. This means that every dollar one player wins will be a dollar another player lost. Forex traders will either win big or lose big. You also need to keep in mind that when you are trading on the Forex market you are betting against some of the biggest sharks in the financial world. You definitely need to know what you are dong if you are going to operate a Forex trading business.

Tips for Running Your Forex Business

The most important thing to keep in mind when you are trading Forex is that you are running a business. You can't treat it like a hobby if you want to succeed. Make sure you have a detailed business strategy as you work the markets. I have outlined a couple key things to keep in mind here.

Revenue Model

First of all, you need to know how you will be making money on Forex. You will calculate your profit the same way you would with any other financial investment. Your profit will be the sum of your winnings minus the sum of your losses.

You probably already knew that, so let me tell you something a little more informative. The mistake many people make is assuming that they are going to need to win more often than they lose. That tends to be more the exception that the rule.

Some of the best traders have struck it rich with Forex trading by winning less than 40% of the time. However, other people have taken less risk and still don't win often enough to realize a net profit. The trick is to take smart, healthy risks that will yield high returns that outweigh your risks. You will need to have an organized approach to win as a Forex trader.

Common Forex Trading Mistakes

As I said, Forex is a zero-sum game. In the long-run there are more losers than winners, but the winners tend to make a lot more money. That's because they know how to operate a serious business.

Here are some of the biggest reasons Forex traders lose money:

  • They make their trades on emotions.
  • They don't have a system they are willing to commit to.
  • They don't understand how to use risk to their advantage.
  • They don't learn how Forex markets work or how to trade effectively.These mistakes have cost traders a considerable amount of money. Many financial institutions have also lost money with traders who have made these mistakes. Many banks now require people to have a business plan before they will even allow them to open an account.

Remember, as a Forex trader you will be competing with seasoned traders all over the world. Most of them are trading full-time. You will need to make the same commitment and take the same risks if you hope to beat them.

You need to take the time to develop an optimized system. You will need to implement your strategy consistently if you intend to make money with Forex. You will be better off having a good strategy that you use consistently than having a great strategy that you never implement.

By Andrew Mitchel

Andrew Mitchel manages a blog for people learning to get into Forex investing for http://tradeforexbeginner.com/blog/.