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The foreign exchange, or Forex, market is one of the largest and most liquid financial markets in the world. Each day over 3 trillion dollars are exchanged and this volume is growing each year. As the individual investor finds the US stock markets less than ideal for consistent returns, interest in Forex will continue to rise. Also, it is considerably harder for a group to manipulate this market due to its size and liquidity.

So, we know the Forex market is where it's at for the individual investor. This is also evident when looking at key word searches in Google as searches on Forex related content is up around 50% from previous years. How can the average individual investor earn consistent returns from investment in this market without losing it all? There are many methodologies out there on this very question but essentially there are three ways.

  • Learn the Forex market and become a trader

  • Purchase a trading "robot" that executes trades for you

  • Let someone else trade for you

Learning Forex is deceivingly simple as the number of symbols is tiny compared to other markets. This method requires a lot of time and still there are no guarantees that consistent returns are achievable based on the trading system you use. At the very least there will be a considerable time gap between first learning about Forex and earning a return on investment.

Trading robots or "expert advisors" are programs that use technical data to determine when, what and how much to trade. There is no trader present in this scenario, only the program that is making the decisions. The primary limitation of this software is the lack of fundamental data consideration. These programs can be disastrous to your investment capital.

Letting an experienced trader handle your trading for you is a safe and effective method for managing your capital, as long as the trader is reputable and has a proven track record of success. The best method to acquire this is through transparent trading history preferably from an unbiased third-party. There are three primary ways to let a trader control your account.

  • Open a managed account under the trader

  • Open a brokerage account that allows auto-trading

  • Subscribe to trading signals to execute in your account

Managed accounts work by opening an account and signing a power of attorney to allow the trader to execute trades in your account. The trader takes a certain percentage of your returns and usually charges a maintenance fee based on your account balance. While you do have access to your account it may be difficult to stop trading or remove funds based on your agreement with the trader. Also, most managed accounts require large deposits sometimes in excess of $100,000.

Auto trading with a specific broker requires you to open a new account and set the trader as an introducing broker. This means that the trader gets a commission on every trade that is executed. The hooks are in-place so that when a trader opens a trade it is executed in your account, but the problem with this method is the trader is rewarded for the amount of trades they issue not the quality of those trades.

When you subscribe to trading signals, usually with a fixed monthly fee, you get information on what trades to take in your own account. This is a great way to trade your account with a professional while maintaining control of your account. The only limitation is you must be available to enter the trade, preferably immediately, including while you're sleeping, working or otherwise indisposed. Entering a trade just minutes later can have a dramatic negative impact on your returns.

Signals are executed in around 5 seconds, so you'll get the best fill possible. Better still, you keep 100% control over your account at all times. You can adjust your risk by setting how lot sizes are determined while still maintaining your trader's ability to weigh certain trades over others. You can even disable trades for an entire currency pair if desired. To reduce your risk further, add multiple subscriptions to diversify.

S.Arvind
Founder, Forexnext.com
IB Alpari (UK)
Technical & Fundamental Forex Trader

*Hypothetical performance results have many inherent limitations. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown. In fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently achieved by any particularly trading program.

One of the limitations of hypothetical performance results is that they are generally prepared with the benefit of hindsight. In addition, hypothetical trading does not involve financial risk. Variables such as the ability to adhere to a particular trading program in spite of trading losses as well as maintaining adequate liquidity are material points which can adversely affect actual real trading results.

Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading, and seek advice from an independent financial advisor if you have any doubts.

Forex trading involves substantial risk of loss and is not suitable for all investors.
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