Well I have had another week of Forex trading and it was even crazier than the first week. To start with the Reserve Bank of Australia (RBA) was due to announce changes to the interest rate this week so last Friday (28th November, 2008) I sold a heap of AUD/USD. For some reason whenever the RBA announces interest rate cuts, despite this supposedly being a stimulus for the economy, the value of the dollar drops. Since the dollar was rising in value on Friday I took up short positions on the dollar as it rose, so that way when it dropped the following week I could close the positions and make sweet, sweet profit.
On Monday (1st December, 2008) I started off with an opening balance of $107,795.55. The RBA wasn’t due to make their announcement about the interest rates until the next day but the dollar was already dropping. So I closed a heap of AUD/USD positions. I also got 308 pips on the AUD/JPY and 1234 pips on the EUR/USD. All together, after 35 trades I had a closing balance of $126,242.31 (profit of $18,446.76).
I figured this must mean that on RBA announcement days the price actually drops the night before the announcement in anticipation of what it will be. All the news stories tell you what the rate change will be, in this case an interest rate cut, long before the actual announcement is made.
But no the dollar dropped some more the following day. I had some opens positions in the AUD/USD in preparation for this so made a killing on those, but also made some very good profits on EUR/USD, EUR/JPY, GBP/USD and AUD/GBP. After only 12 trades I had a closing balance of $148,815.45 (profit of $22,573.14).
I thought alright surely now that this RBA announcement is out of the way I must loose some money. It can’t be possible to make almost $50,000 in just seven days trading. Otherwise everyone would be doing it. But no, Wednesday 6 trades $1,743.78 profit, Thursday 10 trades $2498.05 profit and last night 10 trades $3076.46 profit.
The table below summarises this trial period.
Table 1.Opening bablance, trades, closing balance and profit from each day of trading frm a 14 day Demo account with IG Markets.
So in just 10 days trading I made $56,133.74.
The initial investment was $100,000 of pretend demo money. I was interested in working out what the anual percentage return was for currency trading.
That is 56133.74 /10 (to give you the average amount of money made in a single day trading). Then multiply that by the total number of trading days in a year (5 days per week * 52 weeks) = $1,459,477.24. This is the total amount of money that you would make in a year. As a percentage of the initial starting money then this is:
End money / startmoney * 100 = 1,459,477.24 /100,000 *100
= 1459.48% pa
This beats the hell out of any other form of investment. I have done some reading and from what I read Forex is actually very difficult. Figures you see thrown around the net (never referenced to any particular source so it isn’t possible to verify them) is that 95% of Forex traders loose money, or conversely only 5% of traders are successful at it.
If you look at the various Forex forums around the place they are invariably full of people trying to make a bit of extra money on the side. Sometimes they do, sometimes they don’t. Most are happy with 20-50% return per year (eg http://www.elitetrader.com/vb/showthread.php?s=86a2451470c690455b5562d7b2b958bc&threadid=136300).
I am a little bit wary therefore, since it doesn’t seem that much more difficult to make astronomical returns so why would you only aim for 20% return? There must be some hidden difficulty that I haven’t come across yet. I was planning on taking out a personal loan (interest rate 15.75% – yes interest rates are massively high in Australia) to open a live account, but I might try a second demo account first just to check that it is possible to make a profitable return from Forex trading. After all the question keeps coming up, if it is so easy to make such enormous amounts of money Forex trading, why doesn’t everyone do it? I don’t know the answer to that yet.
The return from Forex trading seems to be more than able to cover the cost of the loan, so if this second demo account turns out to be just as profitable, then I will take the loan and get started with a live account.