The Trading Mistakes.

A broker with no definite plan of action in place upon entry into a futures buy and sell does not know, among other things, when or where he or she will exit the trade, or about how much money may be made or lost. Traders with no per-determined trading plan are flying by the seat of their pants, and that's usually a recipe for a "crash and burn." It does not take a fortune to trade futures markets with success. Traders with less than $5,000 in their trading accounts can and do trade futures successfully. And, traders with $50,000 or more in their trading accounts can and do lose it all in a heartbeat. While these two virtues are over-worked and very often mentioned when seminal what unsuccessful trader’s lack, not many will argue with their merits.  Indeed. Don't trade just for the sake of trading or just because you haven't traded for a while. Let those very good trading "set-ups" come to you, and then act upon them in a prudent way. The market will do what the market wants to do -- and nobody can force the market's hand.  Beginning futures traders that expect to quit their "day job" and make good living trading futures in their first few years of trading are usually disappointed. You don't become a successful doctor or lawyer or business owner in the first couple years of the practice. It takes hard work and perseverance to achieve success in any field of endeavor -- and trading futures is no different. Futures trading are not the easy, "get-rich-quick" scheme that a few unsavory characters make it out to be. Most successful traders will not sit on a losing position very long at all. They'll set a tight protective stop, and if it's hit they'll take their losses (usually minimal) and then move on to the next potential trading set up. Traders, who sit on a losing trade, "hoping" that the market will soon turn around in their favor, are usually doomed. It's human nature to want to buy low and sell high (or sell high and buy low for short-side traders). Unfortunately, that's not at all a proven means of making profits in futures trading. Top pickers and bottom-pickers usually are trading against the trend, which is a major mistake. It takes keen focus and concentration to be a successful futures trader. Having "too many irons in the fire" at one time is a mistake. Trading too many markets at one time is a mistake -- especially if you are racking up losses. If trading losses are piling up, it's time to cut back on trading, even though there is the temptation to make more trades to recover the recently lost trading assets.  If you feel you are not in firm control of your own trading, then why do you feel that way? You should make immediate changes that put you in firm control of your own trading destiny.  When you have a losing trade or are in a losing streak, don't blame your broker or someone else. You are the one who is responsible for your own success or failure in trading. You make the trading decisions. Using protective buy stops or sell stops upon entering a trade provide a trader with a good idea of about how much money he or she is risking on that particular trade, should it turn out to be a loser. Protective stops are a good money-management tool, but are not perfect. There is no perfect money-management tools in futures trading one can look at a daily bar chart and get a shorter-term perspective on a market trend. But a look at the longer-term weekly or monthly chart for that same market can reveal a completely different perspective. It is prudent to examine longer-term charts, for that bigger-picture perspective, when contemplating a trade.

Market size and liquidity

Turnover of exchange-traded foreign exchange futures and options have grown rapidly in recent years, reaching $166 billion in April 2010 (double the turnover recorded in April 2007). Exchange-traded currency derivatives represent 4% of OTC foreign exchange turnover. Foreign exchange futures contracts were introduced in 1972 at the Chicago Mercantile Exchange and are actively traded relative to most other futures contracts.

Most developed countries permit the trading of derivative products (like futures and options on futures) on their exchanges. Some governments of emerging economies do not allow foreign exchange derivative products on their exchanges because they have capital controls. Countries such as Korea, South Africa, and India have established currency futures exchanges, despite having some capital controls. All these developed countries already have fully convertible capital accounts. The use of derivatives is growing in many emerging economies.

The biggest geographic trading center is the United Kingdom, primarily London, which according to estimates has increased its share of global turnover in traditional transactions from 34.6% in April 2007 to 36.7% in April 2010. Foreign exchange is an over-the-counter market where brokers/dealers negotiate directly with one another, so there is no central exchange or clearing house. For instance, when the International Monetary Fund calculates the value of its Special Drawing Rights every day, they use the London market prices at noon that day. Due to London's dominance in the market, a particular currency's quoted price is usually the London market price.

The growth of electronic execution and the diverse selection of execution venues have lowered transaction costs, increased market liquidity, and attracted greater participation from many customer types. Foreign exchange trading increased by 20% between April 2007 and April 2010 and has more than doubled since 2004.The increase in turnover is due to a number of factors: the growing importance of foreign exchange as an asset class, the increased trading activity of high-frequency traders, and the emergence of retail investors as an important market segment. In particular, electronic trading via online portals has made it easier for retail traders to trade in the foreign exchange market. By 2010, retail trading is estimated to account for up to 10% of spot turnover, or $150 billion per day (see retail foreign exchange platform).

The foreign exchange market is the most liquid financial market in the world. Traders include large banks, central banks, institutional investors, currency speculators, corporations, governments, other financial institutions, and retail investors. Of this $3.98 trillion, $1.5 trillion was spot transactions and $2.5 trillion was traded in outright forwards, swaps and other derivatives.

Foreign exchange market

The distant exchange market (forex, FX, or currency market) is a worldwide, worldwide-decentralized financial market for trading currencies. In a typical foreign exchange transaction, a party purchases a quantity of one currency by paying a quantity of another currency. The modern foreign exchange market began forming during the 1970s after three decades of government restrictions on foreign exchange transactions (the Breton Woods system of monetary management established the rules for commercial and financial relations among the world's major industrial states after World War II), when countries gradually switched to floating exchange rates from the previous exchange rate regime, which remained fixed as per the Breton Woods system. The foreign exchange market assists international trade and investment, by enabling currency conversion. For example, it permits a business in the United States to import goods from the United Kingdom and pay pound sterling, even though its income is in United States dollars. It also supports direct speculation in the value of currencies, and the carry trade, speculation on the change in interest rates in two currency. As such, it has been referred to as the market closest to the ideal of perfect competition, notwithstanding currency intervention by central banks. According to the Bank for International Settlements, as of April 2010, average daily turnover in global foreign exchange markets is estimated at $3.98 trillion, a growth of approximately 20% over the $3.21 trillion daily volume as of April 2007. Some firms specializing on foreign exchange market had put the average daily turnover in excess of US$4 trillion.

Rules for Successful Trading.

A trading plan is a written set of rules that specifies a trader's entry, exit and money management criteria. Once a plan has been developed and back testing shows good results, the plan can be used in real trading. The key here is to stick to the plan. Using a trading plan allows traders to do this, although it is a time consuming endeavor. Taking trades outside of the trading plan, even if they turn out to be winners, is considered poor trading and destroys any expectancy the plan may have had. With today's technology, it is easy to test a trading idea before risking real money. Back testing, applying trading ideas to historical data, allows traders to determine if a trading plan is viable, and also shows the expectancy of the plan's logic. In order to be successful, one must approach trading as a full- or part-time business - not as a hobby or a job. As a hobby, where no real commitment to learning is made, trading can be very expensive. As a job it can be frustrating since there is no regular paycheck. Trading is a business, and incurs expenses, losses, taxes, uncertainty, stress and risk. As a trader, you are essentially a small business owner, and must do your research and strategist to maximize your business's potential. It is important to stay focused on the big picture when trading. A losing trade should not surprise us - it is a part of trading. Likewise, a winning trade is just one step along the path to profitable trading. It is the cumulative profits that make a difference. Once a trader accepts wins and losses as part of the business, emotions will have less of an effect on trading performance. That is not to say that we cannot be excited about a particularly fruitful trade, but we must keep in mind that a losing trade is not far off. Setting realistic goals is an essential part of keeping trading in perspective. Trading is a competitive business, and one can assume the person sitting on the other side of a trade is taking full advantage of technology. Getting market updates with smart phones allows us to monitor trades virtually anywhere. Even technology that today we take for granted, like high-speed internet connections, can greatly increase trading performance. Using technology to your advantage, and keeping current with available technological advances, can be fun and rewarding in trading. Saving money to fund a trading account can take a long time and much effort. It can be even more difficult (or impossible) the next time around. It is important to note that protecting your trading capital is not synonymous with not having any losing trades. All traders have losing trades; that is part of business. Protecting capital entails not taking any unnecessary risks and doing everything you can to preserve your trading business. Since many concepts carry prerequisite knowledge, it is important to remember that understanding the markets, and all of their intricacies, is an ongoing, lifelong process. Think of it as continuing education - traders need to remain focused on learning more each day. Hard research allows traders to learn the facts, like what the different economic reports mean. Focus and observation allow traders to gain instinct and learn the nuances; this is what helps traders understand how those economic reports affect the market they are trading. World politics, events, economies - even the weather - all have an impact on the markets. The market environment is dynamic. The more traders understand the past and current markets, the better prepared they will be to face the future. There are two reasons to stop trading: an ineffective trading plan, and an ineffective trader. An ineffective trading plan shows much greater losses than anticipated in historical testing. Markets may have changed, volatility within a certain trading instrument may have lessened, or the trading plan simply is not performing as well as expected.  A trader who is not in peak condition for trading should consider a break to deal with any personal problems, be it health or stress or anything else that prohibits the trader from being effective. After any difficulties and challenges have been dealt with, the trader can resume. An ineffective trader is one who is unable to follow his or her trading plan.  I mentioned that funding a trading account can be a long process. Before a trader begins using real cash, it is imperative that all of the money in the account be truly expendable. Traders must never allow themselves to think they are simply "borrowing" money from these other important obligations. One must be prepared to lose all the money allocated to a trading account. If it is not, the trader should keep saving until it is.  It should go without saying that the money in a trading account should not be allocated for the kid's college tuition or paying the mortgage. Taking the time to develop a sound trading methodology is worth the effort. Traders who are not in a hurry to learn typically have an easier time sifting through all of the information available on the internet. Consider this: if you were to start a new career, more than likely you would need to study at a college or university for at least a year or two before you were qualified to even apply for a position in the new field. It may be tempting to believe in the "so easy it's like printing money" trading scams that are prevalent on the internet. But facts, not emotions or hope, should be the inspiration behind developing a trading plan.  Expect that learning how to trade demands at least the same amount of time and factually driven research and study.  A stop loss is a predetermined amount of risk that a trader is willing to accept with each trade. The stop loss can be either a dollar amount or percentage, but either way it limits the trader's exposure during a trade. Using a stop loss can take some of the emotion out of trading, since we know that we will only lose X amount on any given trade. Ignoring a stop loss, even if it leads to a winning trade, is bad practice. Exiting with a stop loss, and thereby having a losing trade, is still good trading if it falls within the trading plan's rules. While the preference is to exit all trades with a profit, it is not realistic. Using a protective stop loss helps ensure that our losses and our risk are limited. There are two reasons to stop trading: an ineffective trading plan, and an ineffective trader. An ineffective trading plan shows much greater losses than anticipated in historical testing. Markets may have changed, volatility within a certain trading instrument may have lessened, or the trading plan simply is not performing as well as expected.  A trader who is not in peak condition for trading should consider a break to deal with any personal problems, be it health or stress or anything else that prohibits the trader from being effective. After any difficulties and challenges have been dealt with, the trader can resume. An ineffective trader is one who is unable to follow his or her trading plan. External songstress, poor habits and lack of physical activity can all contribute to this problem. One will benefit by remaining unemotional and businesslike. It might be time to reevaluate the trading plan and make a few changes, or to start over with a new trading plan. An unsuccessful trading plan is a problem that needs to be solved. It is not necessarily the end of the trading business.