3 Practical & Safe Ways To Succeed In Passive Forex Trading
Estimated Reading Time: 26 minutes
is A Fool’s Errand, Consider Passive Forex Trading
Three Methods You Can Make Profits Reliably!!
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- 1. 3 Practical & Safe Passive Forex Trading Introduction
- 2. Three Great & Safe Passive Forex Trading
- 3. Summary
3 Practical & Safe Passive Forex Trading Introduction
Firstly, let’s discuss Why Forex? In case you haven’t read 3 Clever Ways To Diversify Your Income For A Rainy Day, suggest you do because it explains the whole background & rationale behind why you need Extra Income from Passive Forex Trading.
Anyhow, let me excerpts a few points;
- You have “Want To Learn" needs. Trading Forex will automatically make you pay much more attention to global politics, economies and general money market, which will obviously take your financial literacy to the next level. Remember, I am not asking you to trade by yourself, however believe me that once you put your own money into Forex market, your attention to those topics will increase rapidly, therefore your knowledge will improve dramatically, consequently you will be able to expand your friends & networks automatically.
- You need something that has little correlation with popular financial asset class such as Stock or Bond which people usually have in their portfolio. Stock and Bond has little or negative correlation each other, means when stock goes south bond is not necessary to go south or even go north. That’s why the combination of stock and bond is good. And Forex is said to be little / no correlation to both Stock & Bond, thus it’s perfect for risk aversion. Besides, as explained later, Forex is Recession Proof Sector, means whatever & however the total economy changes, it doesn’t affect this market. Simply “Don’t put all your eggs in one basket" as an essential concept of Portfolio Diversification, and Forex must be a part of the asset class in your portfolio.
- You require huge liquidity that is a critical factor you often fail to take into account for the occasions requiring big money such as university funding or marriage for a dependent, and your own retirement etc. The liquidity refers to the accessibility of your asset, which can be measured as the time to arrive into your pocketbook if you happen to need it today. It usually relates to the size & participants in the market. See the below chart showing Forex Market Size from babypips which makes you realize how big the Forex market is. As seen, over $5.0 trillion average daily turnover is over 12 times the average daily turnover of global equity markets. It means the liquidity of Forex is probably the best among all financial products.
Forex Market A Bit More
The foreign exchange market (Forex, FX, or currency market) is a global decentralized or over-the-counter (OTC) market for the trading of currencies. This market determines the foreign exchange rate. It includes all aspects of buying, selling and exchanging currencies at current or determined prices. In terms of trading volume, it is by far the largest market in the world, followed by the Credit market.
The main participants in this market are the larger international banks. Financial centers around the world function as anchors of trading between a wide range of multiple types of buyers and sellers around the clock, with the exception of weekends. Since currencies are always traded in pairs, the foreign exchange market does not set a currency’s absolute value but rather determines its relative value by setting the market price of one currency if paid for with another. Ex: US$1 is worth X CAD, or CHF, or JPY, etc.According to wikipedia; Foreign exchange market
As it says Over The Counter (OTC), and it is mostly dealt by banks, it’s also called “interbank” market. The entire market is run electronically, within a network of banks, continuously over a 24-hour period, which means that the spot forex market is spread all over the globe with no central location. Trades can take place anywhere as long as you have an Internet connection.
Given the development of user friendly trading platform and proliferation of on-line Forex brokers who offer the trading environments for individual traders, trading volume of the individual traders namely Retail Traders have constantly been growing by well over 10% every year lately.
Is Forex Trading Easy To Make Money?
So, is Forex Trading profitable? As said before, the spot trading accounts for over 90% of total Forex market, it can be described as a Zero-Sum Game, means, for every winner there should be a loser.
Let me share the hard fact that how many traders lose money in Forex Brokerage Accounts as below (for further details, check Passive Trading);
With the new European regulations that came into effect from August 1, 2018, brokers are required to display clearly on their marketing message what is the percentage of their clients that lose money. For example: “75% of retail investor accounts lose money when trading CFDs with this provider.”
96% of forex traders lose money? The myth has been busted!
Given the solid assumption that the winning rate of skilled traders & institutional traders is much higher than the inexperienced & retail traders, the losing % among inexperienced & retail traders is supposed to be much higher than 77%, probably close to the 95% which is often said in the industry.
Having said, unless you have enough commitments to the proper training, the best way to make money in Forex Trading is to make the best use of professionals’ expertise, which will also allow you to make this opportunity Passive.
On top of the 3 reasons I listed before, there are many benefits of Forex trading such as;
- Low transaction cost
However, you also consider fundamental risks of;
- Enemy Broker / On-line Scams etc.
For this particular topic of Enemy Broker, go to Select Trusted Forex Brokers With No Hidden Agenda for full details.
Safety Comes First
And, when it comes to Online Scams, allow me to remind you of the basic safety measurements before moving into 3 Forex passive methods.
As said in my financial safety net related report, it’s widely believed that over 97% of on-line programs offering high-yield returns in pooled fund structure are scams. They disguise and tantalize you with easy profit which you should never consider as a lucky good income opportunity. Therefore it’s better to stay away from any schemes you leave your money to other people’ entire control and focus on the schemes allowing you to make your money 100% under your own control.
Three Great & Safe Passive Forex Trading
Three Safety Schemes to make Forex Trading Passive Income are;
- Social Network Copy Trading
- Managed Account / PAMM (Percentage Allocation Management Module)
- Automated Trading by Forex Robot such as EA (Expert Advisor)
, which can provide you Extra Income conveniently by Passive Forex Trading.
I’ll explain a bit one by one.
Social Network Copy Trading
Wiki explains Social Trading as;
Social trading is a form of investing that allows investors to observe the trading behavior of their peers and expert traders and to follow their investment strategies using copy trading or mirror trading. Social trading requires little or no knowledge about financial markets, and has been described as a low-cost, sophisticated alternative to traditional wealth managers by the World Economic Forum.Social trading
Either Self Trading or Auto Trading (100% Passive)
So, Social trading is a modern way to utilize the expert’s knowledge & skill in trading FOREX. It builds on the notion that the collective wisdom of thousands of traders is better than the wisdom of one. By connecting traders from all over the world into a network and sharing their views and trades real-time, investors can use that information to make social rather than fundamental or technical trading decisions. You as an ordinary trader can either use this “social” information to make your own decisions and trades (i.e. self-trade) or decide to automatically follow and copy one or more traders (i.e. auto-trading in the manner of Copy Trading or Mirror Trading described by the above wiki), and the latter is what we focus as 100% passive trading.
Social Trading Platform
In order to make it workable, we need a common platform called social trading network. It is the glue that connects all the traders and trade followers, similar to Facebook or Twitter. You can view & analyze the performance of real live traders and you can automatically copy the trades in your account from the traders you decide to follow. In fact, the social trading networks companies that provide the platform initially focused on the idea-sharing between traders by creating a profile including trading strategies & performances to connect like-minded traders all over the world, which made the network provide the real-time trading feeds from the traders. Because the networks shares a transparent actual performance, it motivates social trading companies to allow investors to automatically follow the trades from traders they believe to be profitable. So, it is in a sense trading signal sent automatically from selected professional trader, which are automatically copied and execute the exactly same trading in your account.
How It Works
Once you open your account with a social trading network (it’s free to join), you effectively agree to let the nominated broker associated to that site to execute trades on your behalf. After the account has been funded, you simply select a professional trader to copy and the system will automatically open and close trades for you (the actual costs are basically Spread – the difference between a trades bid and ask price) and possibly fee on the successful trade you follow depending on each social trading site.
It is not a Pooled Fund thus your money never leaves your FX broker account, there is no human intervention and no direct link between your account and the traders, the professional trader you copy never touch your money but you do your own trading in your account which will be exactly the same trading of the professional you copy, therefore it’s a Ponzi Free safe system. So the security and privacy of your trading account is preserved. Your job is simply to find those profitable traders who are making good money on a consistent, long term basis – and copy them.
Pros & Cons
- Passive: any novice or experienced traders can use the trading knowledge & skills of the world best expert traders. You may find a bunch of professionals who are full time traders with goodwork background in large financial firms in the past thus they know sophisticated trading models that smaller individual investors could never use.
- Economical: as briefly said, there are often no upfront trading fees associated with social trading platform but only a fee paid on the profits the trader generates on your account.
- Transparent: it is a high level of transparency with social trading. All trading activity made by professional traders are recorded and accessed in real time.
- Diversification: there are 2 aspects, firstly the choice of trader you follow, you don’t need to restrict into 1 expert but you can follow multiple traders, secondary, it’s not only FX trading but extended into Stock, Commodity & Option Trading, all of which allows you to build diversified portfolio.
- The biggest disadvantage is that your trade will loose exactly same as the expert you follow if he / she looses. This is unavoidable, there is nothing you can do to intervene when one of their trades takes a turn for the worse, and once the funds are lost, there is little way to retrieve them (don’t get me wrong, you can terminate your copy trading anytime). This is why your due dilligence in the process of choosing the expert is critically important.
Anyhow, in Forex trading, only 5% of retail traders is said to make profits constantly, thus overall, you will have a good opportunity to enjoy Social Trading Platforms’s system of allowing such retail traders to search successful traders and copy their trades.
Copy Trading & Mirror Trading
When it comes to auto-trading in social trading, there are 2 types of;
- Mirror Trading: It refers to a relatively sophisticated system & trading style where you automatically copy trades executed by a variety of auto-trading and signal services, which generally suits large volume traders.
- Copy Trading: It is similar to mirror trading and enables you to directly copy a trade or a trader you want to follow, which is virtually an alternative to mirror trading and a better suited to small scale / novice traders.
Generally speaking, the copy trading is said to be a simpler and more flexible way to trade socially.
In copy trading you can select individual traders to copy, whether by copying their individual trades or by copying their entire trading strategy. Therefore, you can assign a percentage of your account balance to follow a specific trader or several traders concurrently. As long as you are copying a trader, every trade which they open will be replicated by a copy trade in your account. Again, you don’t need to participate in any Forex trading courses / study complicated fores strategies, but just need to choose the top trader in the social trading communities.
The advantage of the copy trading in comparison to the Managed Account / PAMM that we discuss in the next section is a cost. While you need to pay certain % (usually against the net profit) to the trader who manage your account in managed account, you basically don’t pay anything to the trader in the copy trading because they are compensated by the social trading companies that provide the platform. Visit GEM Social & Copy Trading;
Forex Managed Account – PAMM
Forex Managed Account is the form of alternative investment a money manager trades the foreign exchange market on a client’s behalf for a fee.
Managed Trading Account contains a portfolio of securities that is owned by an individual investor means you yourself directly own, but are chosen and traded by a hired professional money manager on your behalf (100% Passive) – trading can be managed by human namely discretionary trading, or automated technique such as using robot that can eliminate all emotion.
In Managed account, any of your money never leaves from your hand but all are kept in your brokerage account under your own name. You grant permission to the experienced traders to access to your account so as to trade on your behalf. Keep it mind that the permissions you grant are limited to trading only and he cannot deposit any extra fund to the account or withdraw from your account which is usually specified in the LPOA (Limited Power Of Attorney) contract you sign (see the above image as an example of FinFX), so let me stress that you are the proprietor of the account (Ponzi Free). Generally speaking, for minimum investment, most brokers will need at least $100k and more to agree to work only for you., which is a big entry barrier for normal investor, then the new technology called PAMM will help you.
PAMM, LAMM & MAM Account
PAMM (Percentage Allocation Management Module) is a new technological solution allowing the trader on one trading platform to manage simultaneously unlimited quantity of managed accounts. Depending on the size of the deposit each managed account has its own ratio in PAMM. There are few other software featuring the same function as PAMM, such as LAMM & MAM, see the brief description of each 3 software as follows;
Trader’s activity results (trades, profit and loss) are allocated between managed accounts according to the ratio. To elaborate on how it works, your account is just electronically connected to the trader’s master account by the above software, means that every time a trade is taken you get a duplicated order electronically into your account. The traders cannot steal your money, as it is fire-walled by the brokerage house to prevent this from ever happening.
The bottom-line is that the PAAM allows small investors to enjoy the security & return of managed account. Theoretically, the system can accept from a cent, and in fact some PAMM trader permits the investment from $1. Note that the investors should open their accounts in the same brokerage where the trader manages to use PAMM. Means usually you can’t choose your own broker by asking the trader to use it for managing your account.
Anyhow, under PAMM, you don’t need to learn how to trade Forex or any Forex trading strategies, but need to select the best money manager who trade Forex for you. Regarding how to select the best PAMM, please check Ultimate Guide (Seven Secrets) To Find Best PAMM Trading – Part (1) & Part (2)
A Forex robot is a piece of software that analyses the market based on settings entered by the user. In other words, the user does not need to make any trading decisions. Essentially it is referred to as a robot because it mimics all of your actions, only it takes mistakes that are inherent to human emotion out of the picture. Profitable Forex traders usually buy and sell currencies throughout the day (similar to day traders with stocks), thus a Forex trading robot can be extremely valuable because the software will manage all your trades in every way from start to finish.
A Forex robot makes automated trades that can be carried out even as you sleep.
Forex trading robots usually allow Forex traders to input the currencies they would like to trade, their long-term trading goals, prices at which to trade, and so on. For investors whose profit margins can change in the blink of an eye, being able to immediately capitalize on price changes is extremely vital. The program is automated so as to recognize potential for profit, then automatically buy or sell. Forex robots make all of their trades based solely on the numbers. Their algorithms look at a wide variety of daily, semi-daily, and long term trends. A Forex robot makes a trade based on what is most likely to achieve a profitable end result. When it loses a little it doesn’t panic and end up flushing away even more cash; when it wins big it doesn’t waste the winnings on the emotion of excitement, thinking that it can win again and again today only to end up losing it all.
With that said, properly programmed, a robot can manage all aspects of one’s trading operations to make profitable trades more times than not. Forex robots are a good way to trade a mechanical system that requires no human evaluation.
The industry-leading Forex trading platform is MetaTrader. Because of its versatility and simplicity of use, most of Forex brokers across the world offer MT-4 as a trading platform for its customers. An robot is written in MetaQuotes Language 4 (MQL 4), the built-in programming language of MT-4. Therefore, the most common type of Forex robot is designed for the Metatrader, and is often referred to as a “Forex Expert Advisor", “Forex EA", or just “EA", or simply “bots". Metatrader expert advisors can take control of your trading account and make trades according to whatever parameters you set.
Forex robot eliminates the major weakness which holds traders back from becoming successful, i.e., human emotions. As any seasoned trader will tell you, the frail human emotions of fear and greed are a trader’s arch enemy and the cause of most traders’ failure. People tend to 'feel’ when they are speculating upcoming changes rather than study charts, look at trends, and base their trades on solid numbers. People also tend to react to large loses, and even gains, by making Forex trades that they would normally never even consider. This is where Forex robots step in to provide solution, simply removing the psychological element of trading, which can be detrimental.
It is important to note that there is no such thing as the “holy grail" of trading systems, whether automated or not. There are profitable Forex robots out there. The problem is that it takes testing over a reasonable period of time to figure out how profitable they are. Most of the companies and individuals that sell these robots, are great about writing sensational claims, but the customers soon find out that many Forex robot are not as claimed. Therefore, as explained in the managed account chapter, the most important element is choosing the reliable robot, for this particular point, please read 5 Easy Steps To Find The Best FX Robot (EA);
Quick Comparison Among 3 Methods
- Cost: Social Copy Trading and Robot have cost advantage over managed account. Managed account trader commonly charge over 30% commission against profit (PAMM must be lower depending on each broker & money manager). As briefly explained before, you don’t pay any fee to the trader you copy in the social trading platform and most robots (there are also robots that charge monthly subscription fee though) cost you only one-time expense that is average a few hundreds $.
- Security: Obviously, Robot is the highest because you don’t involve any other human being that could harm you but just install the software within your own trading system. Copy Trading & PAMM are more or less the same though you may feel PAMM is less safer because with Copy Trading, no other persons except you trade your account. For this particular point, it’s more related to the next “Degree Of Control".
- Degree Of Control: PAMM is very limited. Your funds are allocated to the money manager for a set period of time and you accept the results at the end of this period. It’s absolutely hands-off. However, copy trading offers much higher control to you, because as said above, your fund never leaves to anybody else. Needless to say, EA is 100% under your control.
Allow me to repeat, trading Forex and making money from it is a hard task. Being a good trader requires a lot of study and work by doing homework on the markets every day, watching the markets for an opportunity and carefully entering into a trade. This arduous process is repeated for every trade, day after day. It is a lot of work and is very stressful. So, it takes a lot of practice and analytical thinking to become a successful trader and what if a collection of such analytical thinker made all your trading decision – this is the core concept behind the 3 methods here, using experts’ expertise regardless of human or robots.
Finally, you may decide if these Passive Forex Trading is right way for you by considering the balance between the fees & commissions and your free time based on your goals in trading Forex.
Once you decide to pursue any of the 3 passive Forex trading, suggest you conduct sufficient due diligence to select the right expert.
Hope these will help adding new way of achieving steady extra income.
Joshua Walker (bio)
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