Let’s face it. We’re not real smart about money and economics. If we were we wouldn’t be here.  Ok, maybe I should speak for myself. I’m not real smart about money and economics. I can’t even tell you in my own words based on my own comprehension of the subject what economics is. I can tell you vaguely that it has to do with money but I know it’s more than just that. In fact, according to Gwartney, Stroup, Sobel and MacPherson in the 11th edition of their text “Microeconomics Private & Public Choice”, “economics is the study of human behavior, with particular focus on human decision making.” So that goes to show you what I know, because they haven’t used the word money in defining economics, although, obviously a great deal of the decisions we make as humans are in some way centered around money.

Forex traders have to be smart about economics. They have to know how different economical factors will impact on different currencies. One of the main lessons I’ve learned thus far in my forex trading adventure is that oil price movements affect currency rates. I owe some big losses to my failure to appreciate just how large an impact changes in oil prices can have on the relationship between certain currencies. You can’t become a successful forex trader and not be smart when it comes to understanding how oil prices and other economical factors typically impact on relationships between currencies.

Kathy Lien is a professional forex trader who is supremely smart about money and economics. I visit her blog occasionally and try to pick up what little I can as I attempt to tear apart the forex trading concepts that are important to understand if I’m to ever become a successful forex trader.

Here is a video I watched today featuring Kathy talking to Polya Lesova of MarketWatch about the connection between the price of oil and US dollar as well as the euro.

I have no illusions about ever understanding forex on the level of a pro like Kathy Lien; but I might come away from this entire forex trading adventure at least a little bit smarter about money and economics and that can’t hurt can it? Source of Video: Video: Can the Dollar Continue to Rally?

This week I have spent more time trading in demo mode than in live mode because I have very little money in my live trading account. I find the more money you have in your account the less worried you are when entering into a trade. I suppose that’s not really a profound finding. It’s just common sense. If you have $5000 in your account you’re not going to be as worried about losing $50 as you will be with $100 in your account.

Speaking of having $100 in your account, it’s hard to believe that there are actually some brokers who allow you to open an account with $100. If you’re thinking about opening an account trading forex with a broker that allows you to open the account with $100, by all means if that’s all you can put up to open the account go ahead and do it, but wait until you build up a bigger balance to start any trading. In fact, I would suggest that you don’t open an account with $100 because in all likelihood you will not have the patience to wait until you build up a bigger balance to start trading, and you’re almost guaranteed to lose your money trying to trade with $100. Note: I caution you to take my advice as just a suggestion coming from a fellow newcomer to the world of forex trading. I’ve only been trading for a little while. As such I am not a qualified expert on the subject.

As for my trading week update, even though I said I would not open any trades after my account value dropped to $102, I still went ahead and entered a trade. It resulted in the loss of $10, so my account value is down to $90. I have decided to go ahead and deposit another $300. It’s really not enough money to trade with if you hope to make money trading, I am fully aware of that; but it’s all I can afford at this time so I will take my chances. I am not quite ready to give up yet.

Meanwhile I have recovered the $1000 lost in demo mode and added $500 more to my balance; so in demo mode I’ve made $1500 this week. Too bad it’s play money.

As for why I am doing better in demo mode than in real mode it’s really not that mysterious. With $5000 you can afford to take more risk than you can afford to take with smaller amounts like $300 for example. With $300 you’re almost setting yourself up to lose because you really don’t have room for error. $300 is probably okay for very skilled traders, but for newcomers who are learning as they go along it will be a miracle if you don’t lose your $300 in a couple of weeks.

I think the key to making money in forex with an account funded with as little as $300 is to get an account that allows you to trade very small lot sizes. I am trading with FXCM and the smallest they allow with a mini account is 10K. I remember at the beginning of the process while trying to figure out what kind of account to open I didn’t want to get the mini account because I was thinking about maximum profits; but after I demoed the mini account and realized it would still be possible to trade 100K lots with the mini account I decided to follow the advice of seasoned traders who advised against opening a standard account with less than $50,000. I opened a mini account, but now I’m thinking it would have been smarter to open a micro account which has even smaller lot sizes.

The thing about the smaller lot sizes is that your profits are smaller. I know for myself this was a huge consideration. I wanted to be in a position to make decent profits in the smallest amount of time possible so an account that limited me to lot sizes under 10K would not have appealed to me; but now that I have experienced trading forex and losing money trading forex, I can see how a micro account might have been better to start out with.  With a micro account your profits might be smaller but your losses are also smaller, which means you it will have more money at your disposal to try to recoup your inevitable losses. It would seem to me that with a micro account, you have a better chance of turning $300 into some kind of profit, assuming you trade smartly, than with $300 in a mini account; but again, I am no expert.

For now I will finish the week in demo while I look for $300 – $600 to deposit into my real account and decide if I want to stay with FXCM or try a different broker, like OANDA.

I’m down to $102 in my FXCM account. That’s as good as having no money in my account. I don’t plan on entering into any trades today. I did enter a few trades yesterday. All but 1 was a profitable trade but the losing trade wiped out the profits from all the others; and that’s the nature of the forex game in a nutshell. Your losing trades usually wipe out your profits from your winning trades. At least such has been my experience.

In my demo account I lost the $1000 I made on Monday ($1000 in 1 day trading forex). I’m back down to the starting value of my account; but having $5000 in your account makes a world of difference from having $102 in your account. It’s pretty much impossible to turn around $102 unless you’re a forex trading wizard which I am clearly not. I probably will not venture to enter into any trades in my live account for a while. I will have to trade exclusively in demo for a while and try to figure out whether or not I should put more money into the live account and keep on trying.

I’ve been thinking FXCM might not have been the smartest choice for a broker. While I enjoy using the FX Trading Station, the smallest lot size you can trade with FXCM mini account is 10K. It doesn’t seem like such a huge problem at first considering you’re only losing $1 per pip ( when you’re losing ) versus $10 per pip with the standard account’s $100k lot size; but $1 can turn into $25 in the blink of an eye. I’m inclined to think that for someone like me, being able to trade sizes smaller than 10K would be beneficial, which would have made OANDA a better choice than FXCM, presumably.

It wasn’t very long ago that I discovered the world of forex trading. My introduction to forex came about as a result of a web development project. I was hired to build some websites for a client, and the first website built was a forex website. My job was to build the site and fill it with useful forex content. Since I knew nothing about forex I had to do extensive research in order to create believable content for the forex website and that was how I developed an interest in forex trading.

The world of Forex trading seemed very exciting to me when I first began my research. The idea that I could wake up in the morning, boot up my computer, load up my trading station and have opportunities to make money every minute was more than a little bit tempting. With my financial situation in a perilous state I was looking for ways to make money that would not hinge on being able to get other people to pay me money for a product I would sell to them, or a service I would perform on their behalf. Forex trading seemed like the perfect solution.

After testing out a few forex trading platforms I settled on the FXCM trading station. I traded with a demo account for a little while and came to the conclusion that it would be possible to make up to $1500 per day trading forex based on my experiences with the demo account. Fast forward to the present time and I have almost wiped out the value of my account trading forex with FXCM. The experience of trading in real mode is not the same as the experience of trading in demo mode.

Based on my experiences trading demo, trading live, and trading live and demo simultaneously, you somehow end up with more profits than losses when trading in demo mode with FXCM, but in live mode, it’s difficult to finish a day with $1 in profit much less $1500.

I do believe that much of the difference in the experiences trading live vs the experiences trading demo come from the trader’s awareness that in one case there’s really nothing to lose since the money is only play money and in the other case there is everything to lose. In my first four days trading I lost $1000. It would be easy to suspect FXCM scams to be the culprit but I think it was more a case of panicking and making insane mistakes under the influence of my panic. It was also a matter of not really knowing enough about forex trading and not having any strategy or plan.

Once I realized that I was not really ready to be trading I withdrew all but $500 from my account and decided to focus on trading with that amount. I lost $365 of the $500 over the next several weeks. I then deposited $160 to bring my account to $295 and I now have $119 left in my account.

Can I possibly turn $119 around? I strongly doubt. My adventures in forex trading will either come to an end in a few days or I will deposit another $300, if I can manage to find it, and keep on trying. I would rather keep on trying because I am convinced that it is possible to make a great deal of money trading currency and I believe that I am capable of making money trading forex. That it took me 4 days to lose $1000, but has since taken weeks to lose the $760 I will have lost once my account runs out completely says to me that I have settled down considerably since my first 4 days. In the last several weeks many people have lost money in the market because of significant volatility and unprecedented events.

Considering that most of the the successful forex traders went through the same experience when they first started, I’m not convinced that I should regard my experience as as a failed experiment. I want to continue trading for a while. The problem is, I’ve used the rest of the money already. We’ll see what happens…..

I still have a few dollars in my FXCM forex trading account. I won’t tell you how few because I’m embarrassed; but it’s enough to open a few more trades before I run too low to open any trades. It has been an interesting experience thus far; but I am happy to report that I haven’t had any forex trading related stress or depression to deal with since my first disastrous week when I broke into tears over all the money I had lost.

My impression of forex trading at this point is that it is a pretty powerful tool to have at your disposal. If you’ve ever wondered what it would be like to have the ability to make money without having to do anything for anyone else first, without needing to rely on finding someone to buy your product or your service or pay you for some asset you possess that they want to use to benefit themselves, then trading forex has the potential to provide that experience. It’s an opportunity to grow money on any given day at any given minute; but there is knowledge needed of how to do this successfully, and this knowledge simply cannot be acquired in a few weeks.

I am not happy to have lost the better part of my deposit after such a short time, but I’m glad I opened the trading account and I intend to keep it active for as long as I am able to do so financially. There is a certain degree of comfort that is present knowing the possibility to make money is always there; and while I know the possibility to make money might not translate into actual money I can withdraw into my bank account in the form of profit from forex trading any time soon, having that door open gives me slight bit of hope.

Hope is not going to solve my financial problems, I am aware of that, but neither is hopelessness, and I would rather feel hopeful than hopeless. A sense of hopefulness makes it easier to persevere where feeling hopeless makes it easier to give up and start contemplating suicide; and as far as I’m concerned, even a false sense of hope is better than feeling like there’s no hope at all.

Since I am trading forex with FXCM and having some concerns about whether or not they are practicing underhanded tactics to wipe out the accounts of new traders who don’t know too much about forex tips and couldn’t prove they are being scammed even if they might suspect the possibility, it concerns me to discover that two of their top strategists have left them and signed with another firm. None of this of course matters to you unless you are trading forex with FXCM or otherwise trying to determine if you should trade forex with FXCM.

Why have Kathy Lien and Boris Schlossberg left FXCM? I would be curious to find out, although I suspect they probably wouldn’t be forthcoming if their reasons have anything to do with FXCM being guilty of shady practices when it comes to traders who are easy to take advantage of. They would probably want to protect their interests and not open themselves to questions about their own integrity; or else they are contracturally obligated not to discus FXCM’s business practices.

Whatever the real situation it is certainly cause for concern that two of FXCM’s top strategists have left them.

Update: seems Kathy and Boris left FXCM because they received a better deal with another forex company (GFT) Kathy Lien and Boris Schlossberg Join GFT after leaving FXCM

I wrote earlier about my concerns regarding fxcm stop-hunting. That’s pretty much where I stand with my forex trading adventure at the moment. I continue to lose money but I feel much better about these losses than the losses incurred when I first started. I’m not depressed about these losses mainly because I feel that I’ve been making smarter decisions. I have not been opening trades at random points and then panicking and closing them or doing any of the other crazy things I did in the beginning.

If FXCM stop hunts then it assures I will continue to lose money until my account is wiped out. I can only hope there is no truth to any of the accusations that have been made about them and that the observations I have made so far have no basis in reality.

I suppose I could take my money out of FXCM and try another broker but they have pretty much all been accused of the same thing. I can’t see that there would be much difference from one broker to the other.

If things keep up the  way they are it won’t be long before my initial deposit is gone. I suppose I shouldn’t feel too badly about it. As I understand it most newcomers to forex trading end up losing their entire deposit; but it apparently usually takes 45 – 90 days. I don’t know if I can hang on to what’s left in my account long enough to reach the 45 – 90 day mark. I think I’ll be setting a record for the shortest time taken to blow my initial account deposit.

So why then am I continuing on with this you wonder? Well, I am enjoying the experience of learning about forex trading; and I like the idea of having the possibility of making money just by booting up my computer, logging into my fx trading account and buying or selling currency.

I’ve had some feedback from a reader regarding my forex trading adventures. The reader wrote among other things that it is foolish of me to be putting my money into forex trading. He told me that the first time I made the decision to pull my money out of FXCM I should have stuck with the decision; that I am clearly too unbalanced to be trading forex for one thing, and for another I obviously don’t know enough about forex trading to be trying to make money as a forex trader.

I’m not sure I can disagree with the reader on the fact that I don’t know enough about forex trading. As for being “too unbalanced”, well, he may be right about that as well; but I made the decision to go in and I will see that decision through.

As things stand I continue to lose money; but I am taking fewer chances than last week when I went in and  basically went wild. I am over the forex trading related depression. Right now I am just playing things out with no expectation of a good or bad ending. I will discover how this ends rather than anticipate or dread winning or losing.

Today was supposed to be my official live forex trading start day; but as you know I was unable to wait and started last week and lost $1000, twice decided to close my account and run far and fast from the world of forex trading, and twice changed my mind about my decision.

FXCM sent me an email of tips every trader should know. The tips are from their Basic Trading Tips. The list of tips advises against pretty much every mistake I made trading last week, the biggest being over-leveraging my account. It’s interesting because I had written notes to myself not to be trading with 200:1 leverage. And I’d written notes to myself not to go against the notes I’d written to myself, but once I got in there and started trading I was like a mad woman unleashed.

Last week’s experience trading was a learning experience; and what’s scary is that I know I have a lot more mistakes to make and learn from before I get my forex trading act together.

Today I am taking it easy watching and waiting for an opportunity. Right now I’ve put aside my lofty goal of making $500 – $1500 per day. I’ll get back to focusing on that goal once I gain some confidence after trading for a month or two. Right now I need to focus more on learning and less on earning.

I have come to the conclusion that the key to succeeding in forex trading is to understand what makes the market move. By that I mean to say  it’s important to have a good idea  of where each currency stands, not just the currencies on which you are focused but the other major currencies as well. Because changes in the value of one currency in relation to another can be affected by changes in the value of an unrelated currency.

This means that you need to be aware of what is going on with the economies of the countries that hold the world’s major currencies and you need to know what things will cause currency value to rise and fall from moment to moment and how news coming out of one nation will impact on the currency of all the other majors.

This of course will not result in trading sucessfully 100% of the time; but it will enable you trade more confidently.

In my first week of live trading I traded in a manner similar to tossing up a coin. And most of the time if I went with heads it came up tails. If I went with tails it came up heads. I lost money. Trading forex is not about gambling on odds. You need to know something about what you’re doing. You need to know why you’re buying 100,000 euros against the USD.

And if you’re just beginning to trade forex and you don’t have a lot of money in your account, don’t make the mistake I made. Don’t trade with 200:1 leverage. It’s just plain stupid.