Chapter 2: How much money do you REALLY have at your disposal to trade with?
How much money do you REALLY have at your disposal to trade with?
In chapter 1 we discussed why you aren’t going to get rich quick in forex starting with a relatively small amount of money. Now that you understand why the amount of money you can ultimately make each week or month in forex is dependent upon how much money you have at your disposal to trade with, as well as whether or not you correctly manage your risk, let’s discuss how you know if you really have any disposable income to trade with and how to know how much you really have. Many forex traders start off trading with money they could actually be using to pay down debt or perhaps fix up their house, it is important to only trade with money you truly don’t have any immediate use for so that you begin your forex trading career with the correct trading mindset.
Disposable income can be defined as the part of a person’s income after deducting all taxes, bills, food, clothing, savings / retirement, and any other living expenses. If you can pay all of these necessities each month and still have money left over, than this money can be considered disposable. Disposable income would be money you might spend on “fun” things, like movies or sky diving, or anything else of the sort. This is the money that you can safely deposit into your forex trading account; because you don’t really need it for any other living expense it will not have as much emotional bearing on you if you lose it in the markets. Where many traders get themselves into trouble is by trading money they need for bills, or any other living expense, it is at this point that traders begin to feel like they “have to” make money in the market. Once you feel pressure to make money in the market, because you feel like there will be real consequences if you don’t, you will most certainly lose the money you have in your trading account and probably a lot more if you cannot see the mistakes you are making.
Emotional trading is the enemy of the consistently successful forex trader, unfortunately many if not most beginning forex traders’ start off their trading career on an overly-emotional foundation by trading with money that is not actually disposable. The biggest issue with emotional trading mistakes is that they can be very difficult, if not impossible to recognize. It’s sort of like that old saying “you can’t see the forest for the trees”, because many traders get so caught up trying to make money in forex; they don’t even realize they are going about it the entirely wrong way. When you begin trading the forex market with money that is not truly disposable, you essentially begin trading emotionally from the very first trade you make, thus not ever even giving yourself a real chance at consistent profitability.
So if you are really serious at becoming a forex trader that makes a profit every month in the market, than you must understand how important it is to trade with only disposable income. Sit down and make a budget for yourself, start with how much you earn each month after taxes, then subtract from that ALL of your monthly living expenses including bills, food, and clothing, subtract out money that you should be saving away in a conservative investment account too, IF you have money left over after all of these expenses and you have a strong desire to try and become a consistently profitable forex trader, than by all means begin your forex trading journey. Forex trading can be a very easy way to make some decent extra money each month, or even to make a great living, but if you aren’t starting on the right track by only trading disposable income, you will most certainly run into many road blocks and greatly decrease your odds at success.
Chapter 3: Simplicity is one of the keys to making money in Forex.
