Forex trading is gaining popularity as a home business. But do you know the real difference between trading forex for a living vs forex trading for wealth building. Actually it is just a thin line between both of them but we will discuss a bit since many people are getting confused about it.
Here’s the first definition for trading forex for a living. If you are using the profits of your trading to pay for your daily expenses like food, housing rent, tax, utilities bill etc, then trading is like a job to you and the profits you earned is the salary you are getting. You put all your time in it and you take home the pay (although some full time traders do not spend too much time in front of their computer).
On the other hand if you are trading forex to build your wealth, then you mostly you will not be using the profits of your trading to pay for your daily expenses. Instead, you will be trading on longer term and treat it like an investment and keep on building on that.
So What Are The Approaches For The Both?
1) Mindset – If you are trading to pay for your living expenses, then that means you will have to make a certain amount of profits every month, and that income has to be somehow constant. Of course there will be some months you’ll be making more and some months lesser, but there can’t be too much variation or else you risk not being able to pay the daily expenses.
So what does that mean? It means you really have to be an experienced and skillful trader before you consider being a full time trader. Even that, you’ll need to have some savings as precaution because a very good trader can even lose money sometimes. A trader who builds wealth from trading, on the other hand, is able to afford some drawdowns because he does not use it to pay for general expenses.
2) Trading Frequency – Those who trade for a living tends to look for smaller profits and trading on regular basis. But my advice is, you can even trade for a living with larger profit taking targets because you only look for quality trades and not high frequency small profits trades.
But full time traders do not necessary have to trade everyday to be considered trading for a living. Traders who aim to build their wealth will not trade too often. Once they find a short or long swing opportunity, they will go in and wait for a few weeks, or even months to take their profits.
3) Risk – Drawdowns do not affect wealth builders too much because their know future profits will make up for it and make even more than that, so they are taking bigger risks. For a trader who trades for a living, his forex strategy have to be different.
A drawdown will mean the account size can reduce and that puts pressure on the trader as the future income will be affected. Therefore, he has to using a forex trading system that have smaller drawdowns and of course the position sizing will have to be smaller.
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