By Louis H-P on September 1, 2022Reading Time: 4 minutes
When we write about my Forex funds we are focusing on a trader’s cash. Although not helpful in making money, focusing on your Forex funds could increase your success. It goes without saying that it could also save you money if something were to go wrong with your Forex funds. History has proven this is possible!
Earn interest on your cash balances
How a spiderweb can lose you money
Why thinking ahead will ensure opportunities are never missed
Because of total return. Many traders will focus on the profit from their trades without looking at their costs or ancillary income opportunities. Investment platforms do not pay, or pay little interest, on your cash balances. For traders with tens of thousands or more in their trading account this can mount up over time. Never forget the benefit or compounding.
Goldman Sachs has launched a retail saving bank account called Marcus which if of interest. You earn interest daily and this is paid monthly. Their current interest rate of 1.5% per annum is free money (Marcus is covered by the FSCS compensation scheme). Why not hold some of your cash with them until you really need it?
Although you may not be a lawyer, being prepared to look up a legal structure could help you protect your assets. Many of the trading platforms that Forex traders use are foreign and/or based. As a result of EU passporting rules, (which are likely to change as a result of Brexit) they are allowed to operate in the UK.
Their ‘primary’ regulator may therefore be foreign. A regulator in a country such as Cyprus (where many Forex platforms are based) may not be as stringent or able to protect client’s funds as much as the FCA. You may be a client of a fictional company called ABC (UK) Ltd but the parent company is ABC (Cyprus) Ltd.
The web of companies which are incorporated in different countries may lead to a lack of clarity in the jurisdiction of the broker in. This may impact whether such a company is part of and covered by the FSCS compensation scheme.
Operational risk with regard my Forex funds is rarely talked about. Let me give you some examples. You have earmarked a portion of your cash for trading, but only pay in half into your trading account. You are maybe doing this to earn some interest. But then you need access to your cash…
When you choose to pay it in, your bank’s systems may be down. Typically this will be just when the market becomes volatile, therefore plan ahead. Or at least ensure that you have a % of cash already free to trade in your trading account. Banks can also make it difficult to transfer money to a broker due to AML legislation as brokers are seen by banks as higher risk.
You may also consider trading with more than one broker. If a broker’s systems crash, you can still use your other. Broker’s systems tend to ‘fall over’ when a mass of clients want to trade at the same time.
This typically occurs when volatility increases, and when trading opportunities appear! Although not a rule, brokers who has been around longest will often have more knowledge on managing risk (and not going bankrupt). Indeed they often handle increased volatility better – allowing you to focus on trading.
When you consider my Forex funds you also need to consider any extra costs. Some platforms will charge you when you send your money back to yourself (eToro $5 per transfer) but others will not (such as IG). The cost can defy the point of moving money to a high interest account.
It is worth watching currency exchange rate. Some brokers will nominally work in a currency which is different from yours. You will pay in Sterling but your account will be denominated in dollars for example.
If and when you do withdraw your money, why not withdraw it in the currency they have been accounting in? Currency rate may have moved since you paid your money in. You could make a currency gain on top of any investment gain (or loss).
A great source of cash… is profits from trading! Therefore if you have a trade which is comfortably in profit, why not reduce/sell it? This will not only return capital (cash) to your account, (ready to trade again) but regular profits will increase your cash balance.
If you trade a ‘standard amount size’, these regular profits could end up being a whole new amount to trade with. Rather than trading a larger amount per trade, you could trade two different securities, adopting a risk-focused approach.
In the film, the founder the lead character is made aware of an opportunity he had missed. We are not suggesting managing your cash better will make you rich, but it will increase your overall return.
Having the intellectual flexibility to focus on something boring (cash management), will ensure the ‘plumbing’ is in place. This in turn will mean your mind is clearer and allow you to trade with increased serenity. A calm mind is an active mind, which for active traders is necessary to ensure you trade successfully!