Here's one trader's perspective of what big banks will mean to Forex.

I actually think the development of the big banks coming to Forex is a good thing. They delayed their entry for years because of the "reputational risk" that exists when average joe trader does not like a fill or Trusting Joe lets Shady Jim blow, I mean manage his Forex account, and post nasty things about the dealer.  The good thing is that their entry makes Forex chic to a huge number of people who did not know about forex or who were sitting on the fence. Their marketing budgets are much deeper than that of the large FCMs. With more traders coming on board, the clout of retail trading will just get much bigger than the 10% of the daily turnover that we currently represent. I think a thing or two should be said about the "smart money" that is already part of the system. The logic is: smart money -> more operational sophistication -> more safety for investors. Of course, money alone will not be sufficient to make Forex free of Refco-like implosions, but it will make it less likely. Several very well funded private equity firms are equity partners of multiple Forex dealers: Gain Capital: 3i, VantagePoint, Tudor Ventures, Edison Venture Fund, Cross Atlantic Capital Partners, and Blue Rock Capital; FX Solutions: Francisco Partners; Interbank FX: Spectrum Capital; Oanda, GFT, the list goes on. . . most FCMs with $10m or more in adjusted net capital today have private equity money helping them to compete with the likes of DB and Citi. I think it makes it very interesting for all of us going forward.

Forex on Top was updated this evening with the latest and greatest traffic rankings. Check them out at http://www.forexontop.com

Citi has been in the retail FX market for a couple of months now but it signals a continuing trend of big financial institutions trying to get a piece of our forex action.  Deutsche Bank was the first big bank to get in a couple of years ago (from what I remember) but it's interesting to note that all these big banks did was partner with the bigger forex firms.  They blew up the sub-prime mortgage business, will they do the same to Forex?

Here are the notable partnerships between big banks and forex specific firms: 

Deutsche Bank is partnered with FXCM.

ABN Amro and UBS are partnered with Oanda.

Citi is partnered with Saxo Bank.

Goldman is partnered with CMC Markets. 

Trading forex takes a lot of commitment and unfortunately in May I lacked it.  I paid for this dearly with my worst month in a long time, losing 10% of my equity.  While this is disappointing, it's understandable.   On the surface, I didn't step outside of my trading or money management plan yet what I did was plain reckless.  I traded sporadically throughout the month, watching the market and opening positions some days and ignoring the market altogether other days.  Trading strategies are meant to be followed.  While trading sporadically could have just as easily put me up 10% instead of down, the point is that if you have confidence in your strategy, each and every signal should be acted upon.  In doing so, a balance can be obtained.  On the days that I ignored the market, I could have possibly profited by opening a position.  I only opened 8 positions this month compared to my average of about 20-22.  Typically I'll open a position each and every day but look at the dates of my last 7 losses:

May 7, May 13, May 14, May 15, May 16, May 27 

There are huge gaps here where trades could have been profitable.  I would have most likely had losses also but there is no balance here and that's the problem. 

So the bottom line is that trading forex cannot be a part-time job.  I've treated it as such this month and it hurt me.   The great thing is that I don't have to go back to the drawing board or work hard to find out what's wrong.  In June, the solution is to follow the market each and every day and follow my trading plan.  

So this ought to be a lesson to all of you traders.  Remain consistent or face the consequences of losing a majority of the profit you made the previous 4 months.  Out of the 80 or so trades I made between January and April, seven inconsistently spaced trading days in May wiped out most of my profit.   

Let me first say that I'm not talking about my Forex Project.  A reader brought my attention to the other Forex Project which I have heard of before and the owner Luis Rivas, who is facing lawsuits and creditors.  Apparently, Mr. Rivas promised to make boat loads of money for people and never followed through.  "The investors initially received payments, then the flow of money stopped..."  It appears that the other Forex Project abandoned their corporate offices back in April, 2008.  Some people are out as much as a half a million bucks due to Rivas' "fraudulent Ponzi scheme."  

It's interesting that another visitor asked me about Rivas months ago and supposedly had a friend who was getting paid.  Here's what he said:

"They also sell promissory notes that pay between 5 and 8% a month.  I have a friend who is involved with one of these promissory notes and has been getting his interest payments regularly but it doesn't feel quite right to me."

I hope he didn't follow his friend into this mess.  This leads me into another point that I'd really like to elaborate on in another post.  A comment was posted a couple of weeks ago asking me why I bother trading forex on my own if I only expect to make 20% a year.  According to him, I could invest with a financial institution that could make this for me.  The reason why I don't are because of people like Luis Rivas and companies like Bear Stearns.  Who do you trust? 

Read more about this at http://www.chattanoogan.com/articles/article_128551.asp

My full-time job and only job is trading forex.  I make $100,000 a year doing so and need to make at least this much to keep up with the cost of living in New York City.  The first year I started, my expectations were to have returns of 20% a year while risking only about 1% on any given trade.  Based on my calculations, I needed $500,000 of starting capital to realize these expectations.  I withdrew a half million dollars ($500,000 USD) out of my bank account to use as my initial capital.   This was just money I had laying around and could easily afford to lose.  I'm doing great.

This is not a true story but I figured I'd write it as a way of answering a comment I recently received.  The comment was:

".... I don't understand why do you need a job... if u know and understand so much about forex ... why do you need a job?"

I'm not berating the commenter.  It's a great question and one that I felt needed to be addressed.  Does my make-believe story answer this question? I'm sure it is possible to make a six-figure salary trading forex with less capital but at the expense of using higher leverage consequently taking on more risk.  But don't be lured by the marketers promises of untold riches.  The bottom line is if you want to make money trading forex, you need money.  How many sites have you seen pop up over the years that are dedicated to turning $1000 into a million dollars in a year trading forex? I've seen quite a few.  They last 30 days and then the person running the site mysteriously disappears never to be heard from again. 

The May issue of Currency Trader Magazine is out.  Highlights include:

• Forex Margin - You have access to extremely high leverage in the forex market, but that doesn't mean you have to use it.
• Can anything stop the Euro?
• Time the Euro using short-term momentum.
• Currencies and stock markets.
• The latest on the Aussie and kiwi dollars.
• Bank of Japan get a new chief.

You can download the issue for free at http://www.currencytradermag.com

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May 2008 was a very inactive forex trading period for me.  I only made 7 trades compared to my average of about 20 per month in previous months.   I was still able to increase my year-to-date return.  I was up 2.1% in May to bring my return for 2008 to 15.7%, which is almost the high for the year. 

All of my flash performance graphs are up-to-date as of tonight and can be viewed always at http://www.forexproject.com/My_Forex_Graphs/. 

I'm not back into the routine of trading yet but I'm starting to feel it again.  The key is to get into a routine at my new job which is starting to happen.  Another key to get back into trading is to start writing here more consistently.  All of these things are happening and it's a good sign that I updated my May performance graphs and also Forex On Top today.  (The Forex Project has plummeted in the rankings over the last couple of months due to my inactivity)

It's been a while; a little over two weeks in fact since my last blog post.  

My last trade was 18 days ago and today was the first time I opened up a chart since then.  

Am I quitting? Has the forex market taken its' toll on me?

No and no.

I started a new job about two months ago and it has been so draining mentally and physically that I just haven't had anything left for forex.  Trading forex has since fallen to the bottom of my priority list next to watering my cactus.  The unfortunate thing is that I took this new job because I thought it would give me more time to concentrate on forex.   

I feel like my added responsibilities are started to loosen a bit though as I become more acclimated to my new full-time job.  The fact that I'm finally posting something on my blog for the first time in two weeks may be evidence.   

The question will be whether I jump head first back into trading forex or ease my way back in.  Either way, I'll probably wait until May 1st for psychological reasons.  I'm up 2% for the month and I'd rather not threaten this by trading hastily before month end.  

Stay tuned.  I'll be back soon.  Hope everyone else is still chugging along making progress and money.