Not every financial market is a zero sum game. Stocks for example is zero sum because there has to be a seller and a buyer on every side of the equation on every sell and buy order because you need to sell to willing buyers and they need to buy from willing sellers. This has equal on both sides so by the end of the day it has zero sums. But for forex and contracts for difference (CFD), the chances are the broker acts as the market maker and you’re dealing against the broker such as eToro. Now in case you don’t know, eToro is among the top brokers that are chosen by traders for trading forex and CFDs along with other known brands like Oanda, FXTM and Pepperstone. Wikitoro can be your good source of information for knowing further details about this broker and how it compares to other popular brands we’ve mentioned including eToro alternative options.
So why are you making trades? If you go into this without any reasons then you are most likely to fail. When you ask this question, the most naïve people will answer that it’s easy or good money. Although this is true, high reward still comes with high risk. That’s the case with most businesses, they want a business because they don’t want the high stability of a job so they want the high rewards but this comes with job instabilities and high risk and eventually if they succeed then they will make a lot of money. Same thing with dealing which is active income, you have to work hard and put in time and effort to trade. It’s also not passive like investing stocks. It’s an unstable income which has psychological and emotional implications that can affect your lifestyle.
Basically, you need to make sure that you know what you’re getting yourself into and you know why you are doing it because this will affect how you approach this.
Different modes of thinking:
These are the people who are looking for something fun or productive. However, dealing is not a hobby because it is not cost effective unless you’re profitable or you like losing money which is obviously irrational. It also depends on how much pleasure it provides you but if you’re treating this as a fun hobby then this is not cost effective. This must be treated as a competitive hobby which can be very productive. You need to trade in a competitive nature like a business which means you need to work hard on it, avoid messing around and be determined. Always push yourself to become the best that you can otherwise you’re basically wasting your time. Make it 10% fun but 90% competitive.
This is the most proper way to approach trading because the goal of this psychology is to supplement your income. There’s no rush, no pressure and you can start on your own pace. How you treat your money is your own judgment.
This is the most predominant type. These are the people who are looking for rush and have the anticipation feel. They love the rush and this feeling is great. If this is your mindset then you are better off going to a casino and not in an online trading environment.
You don’t need be scared about cost because this it basically exists for every business and in this case it has fixed and variable types. Fixed cost is the same regardless of the output. Variable costs on the other hand changes per unit of output. This goes the same for spreads which have fixed and variable types (depending on the broker you’re signed-up with).
The right mindset is to consider every deposit you make as a loss. As soon as it leaves your hands then consider it as a cost. You don’t get a benefit until you withdraw. This is considered as a fixed cost because it doesn’t change. Another mindset is for you to go into every session ready to lose the first and last trade. These are considered to be variable costs, dependent on the session.
Every business in existence has one common goal and that is to maximize the profits and to minimize the losses. Now the question is, do they all profit? At one point or another, more often than not they do profit especially for the big names but they also have losses but the key thing is to maximize the gains and get through with it. Think of business cycles which go up and down. For example, in a recession businesses usually belly up and for those that can get through all the hard times, they’ll reap the rewards during the expansion that follows. As you put more time and effort into it, and you approach trading with the right psychology then you are most likely to succeed.