Why do some forex traders fail while just a handful succeed?

Why do so many new and intermediate traders blow up their accounts (again and again?) How can you prevent blowing out yours?

It’s not the answer you likely want to hear.

The answer is not to have the best strategy.  You should be well aware that there are many, many forex strategies that  work well – technical strategies, trending strategies, price action strategies, scalping strategies, and even discretionary strategies and so on.

So why does one trader trade a strategy successfully and another trader trade the same exact strategy unsuccessfully?

The answer is this:  The successful trader uses good money management.

I could write a lot more on the rationale for this. But I don’t want to bore you or start preaching about it.

Instead I will just tell you what to do to make sure you are using good money management.  Ready?

Again, it’s probably not something you want to hear.

Rule 1 ) 

Never risk more than 5% of your account on any one trade.  (If you want to know why, then just do a google search for the rationale.  I’m not here to preach this to you or convince you. I just want to keep it simple so you can apply the guidelines and start successfully trading quickly. )

Rule 2)

 Stop Loss – Set your stop loss so that you never lose more than 5% on any one trade.  If you see a trade set up, but you also see that the set up requires a stop loss that will  cause you to risk more than 5% on the trade – then DON’T take that trade.  There will be another trade that fits your parameters soon. Take the good trade that allows you to stay within your money management parameters.

Yes, I know that applying forex money management seems to take some of the fun and excitement out of Forex.

But if you want to trade Forex as a business and for profit, you will treat it as such and always apply proper money management.   Money management is the difference between the person who is “gambling in forex” verses the person who is successfully managing their forex business.

 

 

 



By: Ann Pevey

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Starting a new business? You’ve got all sorts of ways you can complicate your accounting and your taxes. But if you want to keep your small business finances clean, lean, and low-cost, follow these five tips:

Accounting Tip #1: Don’t Incorporate

Yes, incorporation may reduce your taxes (in same cases). And, true, incorporation typically reduces your legal liability. But unless you really need a standard, old-style corporation, you should keep your accounting and your taxes simple and more straightforward by staying “un-incorporated.”

Here’s why: Incorporation means annual corporate income tax. And even if you’re the only person working in the business, incorporation means annual and quarterly payroll tax returns. That’s just too much paperwork for your new business.

By the way, if you are concerned about your legal liability, know that you have another great option for protecting yourself. You can set up a limited liability company. You should get the same legal protection. And if you’re a one-owner LLC, you’ll be able to treat your business just like any other sole proprietorship, which means no corporate income tax returns and maybe no payroll tax returns.

Accounting Tip #2: Setup a Simple Accounting System

If you own and operate a business, you really do need a simple accounting system. Don’t fool yourself. Invest the time (an hour?) and the money (about $100?) to get a simple accounting system like Quicken Home & Business or Microsoft Money Home & Business.

You’ll need an accounting system to track your profits anyway. That’s actually the law. Furthermore, by starting out with a good accounting system, you’ll much more effortlessly capture tax deductions that will later save you money.

Accounting Tip #3: Use a Separate Bank Account for Your Business

You don’t want to co-mingle your personal and business accounting. Get your business its own business bank account. Use that account for your business’s deposits and for your business’s payments.

Only bad things happen, accounting-wise, when you pay personal expenses out of your business account and business expenses out of your personal account. For example, you’ll miss tax deductions. You’ll inappropriately count personal expenditures as business expenses. And you’ll lose your ability to precisely measure how much money you’re making or losing.

Accounting Tip #4: Make Quarterly Estimated Tax Payments

One of the responsibilities you shoulder when you become self-employed is paying quarterly tax payments using the 1040ES form (both form and instructions are available from www.irs.gov). But this makes sense.

Someone who is an employee doesn’t have to worry about paying income taxes on their wages. Their employer automatically deducts taxes from their payroll checks and then remits that money to the Internal Revenue Service.

But you need to pay the income taxes on your business profit. And you should do so in quarterly chunks as the year progresses: one-quarter of your tax bill on April 15, another quarter on June 15, another quarter on September 15, and, finally in the next year, the last quarter on January 15.

In general, you’ll owe a combined tax of about 20% to 25% of what your business makes.  So you want to use your accounting system to regularly estimate your profits and then you want to set aside 20% to 25% of that profit in a savings account for later paying your income taxes.

If you make $80,000, for example, you’ll owe $16,000 to $20,000 in tax. And you would pay $4,000 to $5,000 a quarter in estimated taxes.

By the way, the big crisis you want to avoid here is not a penalty. That’s the least of your troubles, in a sense, if you don’t make quarterly payments.

The big crisis is having April 15th roll around and then finding you need to pay a surprise $16,000 or $20,000 tax bill. Ouch.

Accounting Tip #5: Don’t Put Personal Assets into the Business

And a final tip for keeping your accounting clean, simple and low-cost: Don’t put personal assets like cars or home computers into your business and then think or try to write off the purchase.

The accounting rules for expensing these kinds of “easily-used-for-personal-stuff” assets are cumbersome. You’ll find the rules hard to follow and easy to break. And if your accountant charges for the extra work he or she needs to go to on your tax return, the money you save is embarrassingly modest.



By: Stephen L. Nelson, CPA

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