Over the years, I’ve seen it all, the good, the bad and the ugly. I have tried to always keep my clients informed and have helped guide them along the way.
There have been a variety of responses, but in the end, my client knows that I am here to help and that I have their interests at heart. As far as new fund managers go, the reoccurring noticeable mistakes I have witnessed would be (in no particular order):
1. Not using stop losses
Taking 5-10 pips profits is great but staying married to a position that is 200 pips against you is dangerous. Basically, your strategy is 30 wins equals 1 loss. This strategy usually results in your account balance going to zero.
– Leverage is simply borrowed capital, and overuse of leverage is dangerous. It is probably best to start out by using lower leverage as being over-leveraged tends to have the effect of draining your account quicker.
– Leverage allows for larger positions, and those larger positions cost money, in terms of margin for the trade, in commission and swaps. Remember, the resulting P&L from your leveraged trading is real money, not leveraged so just because you can trade at 100:1, doesn’t mean that you should.
3. Unaware of news or trading events
– Having a trade open and not being aware that massive news is coming out, or that perhaps a major monetary announcement is imminent, is careless and to be avoided.
– Charts are a useful tool and should be looked at as a guide to entry and exit points and trends. But FX market movements are predicated on interest rate differentials, economic fundamentals and monetary policies.
4. A demo is NOT the same as LIVE account
If you back-tested from the 1980s until today in a demo environment then your strategies mean nothing, 100% nothing, until you can test them live. So, don’t go full bore until you test strategies live. Start with small live trading.
5. Only use technology you understand
– A FIX API is faster, but if you haven’t used one, then stay away or find someone who has experience with this type of connection to help guide you through the process and functionality.
– Don’t try to create an algorithm if you have never coded before.
6. Don’t get married to a position / You are here to make money, not be right
– As the old trading adage goes “The market can be irrational longer than you can be liquid”.
– There have been so many conversations with funds that are trying to figure out why markets move the way they do, as they hold onto positions for far too long, right until the point of liquidation.
7. Blame the broker for all your problems
– If you are unaware of the trading account swap rates, leverage, margin calls, or how anything works, it is not the brokers fault. You are operating the account, the broker is just facilitating trades between the account and the primary market.
– Make sure your broker assigns you a person who can walk you through every aspect of the account. Find out all of the ins and outs so you are not surprised.