MARCUS PADLEY May 19, 2012
So the Australian dollar goes through parity in the other direction this time and again every Tom, Dick and Harry is suddenly a currency expert. The same thing happened when it first rose through parity in October 2010. It's as if the Aussie dollar hitting the big figure miraculously releases a previously absent foreign-exchange-predicting hormone into the community at large.
But the idea that you can suddenly speculate in foreign exchange and make money just because it's through $US1 is ridiculous. What could you possibly know about the future direction of the forex markets? What edge could you possibly have on the whole currency-trading world? Where could you have possibly obtained this wisdom? I'll tell you. You ripped it out of your a---, because that's the only possible place your complete guesswork, your seat-of-the-pants, mean-reversion, media-fed instinct, could have come from.
The only reason forex trading is so heavily marketed to the public is that CFDs got a bad name and this is the next-best reincarnation, another leveraged derivative substitute, and the reason they are such a good product is that the currency markets tick every second 24 hours a day, whereas equities tick once a minute for eight hours a day.
The net result is that forex bunnies, sorry, clients, can fit at least three years of equivalent equity trading into one year of forex trading, blow themselves up three times as fast and the platforms that take the other side of their bets earn their money three times as fast.
It is also perfect for charting, and on one-second charts it's fast and exciting action all day and all night. And what better than a two-hour free seminar and a smattering of sophisticated jargon such as doji and harami to empower you. It's so convenient and liquid, the software is truly sexy and you can trade while the rest of us sleep. It's miraculous. And it's pathetic. Come on, everybody, who do you think you are?
The currency markets are for businesses to exchange one currency for another, hedging and the professional systems trader. They are a graveyard for the part-time speculator.
There is no edge for the mortal man, no matter how many home-study DVDs you buy. Trading currency is a full-time job for technical experts. Not for idle amateurs.
There are some ''systems'' that appear to work by exploiting tiny margins over long periods of time and then there are the big banks that see the real currency flows (they handle massive currency deals for corporates that have to move money cross-border) and they trade around the edges of that information with some chance.
But do you really think you can find an edge trading with borrowed money that has you leveraged into a much bigger position than your capital would otherwise allow while you pack four kids off to school and hold down a proper job?
No, you cannot be a forex trader from your own home. No, the average forex trader does not earn $100,000 to $2 million a year starting with as little as $10,000 in his or her trading account. The average home forex dealer puts $10,000 in someone else's bank account with the slenderest understanding and blows the lot in a month, three if they are lucky, and the reason you don't hear about it is that they are too embarrassed to tell anybody. They only market the winners.
You can dress it up as sophisticated investment, you can credit yourself with brains when you make money doing it, but the truth is that no one knows where the currency is going in the short term or long term and any forecasts, amateur or professional, are fanciful guesswork rather than a researched likelihood.
Forex trading for retail investors is now a massive business, not because people make money but because people love to gamble. The only difference is that trading the currency market sounds smarter than gambling. But the outcome is the same.
Marcus Padley is a stockbroker with Patersons Securities and the author of stockmarket newsletter Marcus Today. His views do not necessarily reflect the views of Patersons.