Like some of our readers, I studied finance at university and worked in the industry first-hand. I also happen to come from a family that worked in the investments sector as well, so I was no stranger to the idea of trading. What was foreign to me is currency trading. Having had good success in the stock market, I decided to try my hand at Forex trading. This was years ago, but it taught me a valuable lesson; one that I hope readers will not repeat.
Here is how I made and lost $10,000 within four days.
The first day: I opened a trading account with a well-known online Forex broker, and deposited roughly $2000. I traded with that for a day before losing almost all of it. So what did I do next? Deposited more money, of course!
This time I decided to deposit slightly more than $5000. I figured that the $2000 I had started with was a good learning experience, and that I would now be more successful and discerning when trading currencies.
Day two: I started trading with my new deposit, I made over $3000 in a matter of six hours. I was on fire! One trade after another, I racked up profits, sometimes within just 10min of one another. It was insane. Do you know that scene in Good Will Hunting where Matt Damon is trying to explain how things like organic chemistry are easy for him, that he ‘just gets it’? that is how I imagine myself. ‘Of course,’ I thought to myself, ‘it is so obvious that I am the next George Soros!’
I took a leisurely lunch at a nice restaurant that day to pat myself on the back for a job well done.
Day three: I continued using the same strategy I used in day one, which was to set my leverage at 500:1, trade 90% of my account value on one pair, and wait for the magic to happen. Just as the day before, I made more than $3000. I was getting smog, texting one of my friends with every trade profit: $600!…(35 minutes later) $250!…( 14 min. later) $820!… You get the picture. My friend warned me to stop while I was ahead, and even though I had one or two losing trades that day, I had now racked up over $6000 in profits for doing little more than clicking a few buttons.
Day four: like they say, if it ain’t broke do not fix it, so I continued my high leverage strategy, this time messing around with more exotic pairs. I will spare you the details, since it is a little more than a rehash of the previous two days, but I made over $6000 that day. My mind turned to thoughts of philanthropy, thinking how, even if I only managed to be half as profitable as I’d been to this point, I could easily help out some worthy charities.
As I walked down the street during my lunch break, I think I stood about 3 inches taller, looking man twice my age and twice my size in the eye well aware that I had made far more before lunch than they had probably made in a couple weeks. I was on top of the world. But, as the Good Book says,
Pride comes before destruction, a haughty spirit before a fall.
When I got back from lunch, I decided to roll the dice and put everything on what I considered was a sure-fire winner. The only problem was I forgotten that I had a big meeting later that day. When one of my colleagues stopped by my office to tell me that the boss was waiting, I had to leave my trade and run into the boardroom. ‘I’ll be ok’, I thought, ‘the trade looks stable.’
The meeting dragged on far longer than it was supposed to, and when I surreptitiously looked at my smart phone app to see how my trade was doing, my heart sunk. I had gotten on the wrong side of the trade big time… I had over $17,000 in my account before the meeting, and now I’d lost everything but a couple thousand dollars.
I was sick, but there was nothing I could do at this point.
By the time I got out of the meeting I had a margin call and my position was automatically closed out.
Once I got home that evening, cursing my lack, I decided to put on one more trade. This was sort of a Hail Mary pass, against all odds, in the hopes of regaining my money once again. Needless to say, it did not go so well, at least not as well as I had hoped, and by the next morning I had basically made and lost $10,000 in the 72 hour period.
The moral of the story is, the market has a paddle large enough to give everybody a spanking. No matter how successful you are, you are not immune to the illogical, irrational movement that is part and parcel of currency trading. When I traded for acts as if it was some gambling table in Las Vegas, I experienced the highs and the lows that go along with a lack of money management. Since then I have learned to be more conservative, and I am pleased to say that I have never repeated these mistakes in my training history. It may have cost me thousands of dollars, but I consider those days on the rough seas of Forex trading to be the most formative education that I have ever had.