A look at forex trading contests
As forex becomes more competitive, forex futures commission merchants (FCM) and introducing brokers (IB) are resorting to offering prizes and incentives to attract customers. A common incentive is a monetary bonus with many firms offering $250 or more to open an account. Another form of incentive is a rebate on training or tuition or offering partial payment for taking a course offered by the firm. Recently, forex contests are being offered where traders get to trade simulated accounts and winners get awarded cash prizes and opportunities to trade real money.
It harkens back to the days when banks offered toasters and televisions for opening a Certificate of Deposit. Is this what the forex retail environment is coming to? This kind of account-opening incentive might be a passing phase for firms looking for a competitive edge, but the real contest in forex is not participating in some marketing game, but between the forex traders and themselves.
Every day the forex trader pits his or her trading insight against the market and tries to achieve winning trades. Yet, if this daily trading contest was to be formalized into a series of competitions, what would it look like?
First there would be the simulation phase, where the trader tests skills and strategies that would be used in real trading. After a period of simulation, there would be a mini-account process whore real money Wt)LiId be ut risk. Finally, mere would be a trading competition with big lots. At this level the adrenaline starts flowing when each pip can result in a win or loss of $10.00. It certainly adds up for any size account.
A reality-based forex trading contest should incorporate each of these phases and provide different successive challenges at each level. For those traders just starting out with demo accounts, contests can be constructed that are designed to offer learning experiences rather than simply declaring the winner to be the one who has accumulated the most profits. The beginning trader simulated trading performance should be required to reach different levels before moving on to trading with real dollars. One trading performance challenge is to achieve profitable trading within a pre-determined reward/risk ratio. For example, a trader would try to maintain a maximum drawdown of 10% through a one-month period. If a trader can achieve that, the next step would be to repeat the performance.
Forex demo accounts can provide a valuable tool to test drive a variety of trading techniques. During a demo phase, trading techniques and processes are as important as profitability. By improving trading procedures, future performance will be enhanced. Simulated accounts can offer the ability to stmcture the trading experience. Instead of their current design, contests involving simulated accounts should look to award performance in trading that achieves diverse goals. How about a prize for the trader who achieves the highest average pip per winning trade throughout a period of time? How about a prize for the trader who has the lowest average pips per losing trade?
Taking contests into the realm of trading real money offers more exciting possibilities. A conventional winning criteria is awarding a prize for the account that achieves the greatest gain in percentage increase. It might be argued that it’s easier to double a small sized account than a larger one. However, there are other variations for selecting a group of winners. For example, we can have a contest where prizes go to traders who achieve 10 or more consecutive winning trades of 10 pips or more. Such a contest would reward consistency in trading. The prizes offered can range from cash to opportunities, like the chance to trade proprietary capital.
But the forex trader need not wait for an FCM or IB to offer a contest. There is nothing in the way of turning your own trading into a set of challenges that offers rewards. Anyone can create his own contest by simply listing trading goals, then setting out to achieve them. Any forex trader, whether in a demo, mini, or real account, can become a winner by accomplishing the following;
1. Achieve a win/loss ratio of 60% with 25 round turns.
2. Achieve a win/loss ratio of 60% with 50 round turns.
3. Achieve seven winning trades in a row.
4. Achieve seven winning trades with a 15 pip average gain
5. Achieve three 50-pip winning trades in a one-week period.
6. Limit a drawdown to less than 20% in any one-month period.
7. In a series of 20 trades, limit a series of losses to three consecutive trades.
8. Trade 50 consecutive trades with a 2% per equity per trade risk while maintaining profitability.
9. Find the next 10 economic news releases, which occur mostly at 8:30 a.m. EST, profitably.
10. Trade four different currency pairs during a three-day time period with a 70% win/loss ratio.
While trading contests will continue to be primarily marketing tools, they can be used to measure achievement. The forex trader’s goal should be improvement in his or her methodology through developing discipline and consistency. Every forex trader should set benchmarks for improvement.
Note: For a list of forex contest Web sites, see www ./uturesmag.com/forextrader/20050706. htm.
Abe Cofnas is president of Iearn4x.com LLC. E-mail: Iearn4x@earthlink.net.
Copyright Futures Magazine Group Aug 2005
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