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A lot of people at our events have asked me about the benefits of Forex trading over other trading alternatives like equities, options, futures, and commodities. There are some great benefits of trading Forex and also some disadvantages. Here’s a quick snapshot of the reasons I feel are the most enticing. More information about forex trading can be found at the Fisk Financial education section.

Leverage
As you know from real estate investing, leverage is a powerful tool for seeking out substantial profits. There is a flip side – leverage can accelerate both profits AND losses. Forex offers up to 400:1 leverage, which means only $250 in margin can control 100,000 units of currency. For example: if you put on a 1 lot trade (100,000 units) and the currency pair increases just one pip (the smallest movement the currency pair can make – 1/100th of a penny in most cases), then you have made $10 on your $250 “investment”. That’s 4% on just one pip.

Taxation
Forex contracts are taxed as 1256 contracts. These contracts, according to IRC 1256, are taxed on a 60/40 basis. 60% of profits realized in less than one year are taxed at short-term capital gains rates and 40% are taxed at long-term rates. Compare this to equities and options, and you have a significant advantage. Also, if you’re trading stocks, make sure you’re aware of the wash sale rules – this could completely destroy you when it comes time for taxes. More information on Forex taxation works here.

Volatility
This is one of the double-edged swords of Forex. Volatility is when the market moves quickly. The ranges experienced in the Dow in a one-week period can often be expereinced in mere minutes in the Forex market. This is good because you can realize the same amount of profit in a short amount of time, increasing your rate of return. Unfortunately, without proper risk management, the opposite is true as well.

There is more information at the Fisk Financial education section for those who are interested!

As we all know, Forex offers an incredible amount of leverage that can offer both incredible opportunities for profit and loss. The key is to manage your risk through the use of hedging positions and stop losses and only trade high-probability, low-risk setups. Here’s a screen capture of a quick little trade I put on last night for the USD/JPY. An extremely strong trend channel formed on the daily chart. I narrowed the focus to define my entry by reducing the time frame of the chart down to 5 minute bars. As you can see from the screen shot, the trend wasn’t violated once and there were several touches. Not surprisingly, some touches were consistent with Fibonacci retracements, further confirmation that we have a continuation pattern emerging.

Right now, I’m up roughly 50 pips, which is about $540 on this trade. I traded 1 standard lot ($100,000 base currency) on 400:1 leverage, which is only $250 margin. So the rate of return on cash for this specific trade is 216% in about 9 hours.

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I’m very excited to announce that I’m headed on the road with Financial Superstars. I had a great meeting down in Orlando and it is a great opportunity that I’m going to give all I have. For all my friends all over the place in this great country of ours, check the Schedule page on this site to see where I’m going to be so we can meet up!

For any mixed martial arts fan in Denver, make sure you’re heading to Ring of Fire at Magness Arena. I’ve purchased booth space for Divinity and my good friend Kerry will be manning the booth while I’m out of town. We’ll have some great event only pricing so make sure you drop by our booth if you’re going to be there. The card for this event is SICK – nice work Sven! Get more information