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​The ​Business​ ​Plan

forex business plan

​Let's now ​get into the details of setting up a Forex business.

The ​first and most important thing to ​work on, is the development of a​ client-focused trading ​strategy.

As the ​core of ​the ​whole operation, the type of ​strategy you employ makes a big difference to how quickly your​ business can grow.​

As the name implies, ​a client-focused ​strategy ​is centered around ​characteristics that appeal to investors and customers.

​​​Client-focus​ed ​Strategies

Client-focused strategies have the following 5 characteristics:

  1. Above-market returns
  2. Sub-20% drawdowns
  3. Low volatility growth
  4. High capacity
  5. Durable

1. ​​Above-​market ​returns

​The minimum acceptable ​return for ​any trading strategy is the industry benchmark ​of 8% per annum, which is ​based on​ ​the historical performance of the S&P500 index⁽¹⁾​.

​Any less, and passively investing in the S&P ​is​ preferable.​

​In my experience, ​a good target to ​aim for is ​​an average annual return of 15% - 30%​.

​This level of ​performance ​is ​reasonably ​achievable for independent traders, while being ​attractive ​to ​both ​small-to-medium ​scale ​investors/customers (clients).

Now ​if ​15% - ​30% per ​year seems like a low ​target​, consider that ​the goal is to maintain this performance over the next ​10 year​s in an industry where most traders don't last even ​​​2 years.

The ​aim is not to ​generate high returns over​ ​the next 1 or 2​ years, but to generate above-market returns over the ​10 years.

​2. ​Sub-20% ​drawdowns

A ​significant part of ​any trading business ​is​ about keeping your ​clients ​satisfied.

This means that they ​should ​never ​have to ​worry about ​significant capital loss, which is generally ​achieved​ by keeping​ ​drawdowns ​smaller than 20%.

​Put simply:

Drawdowns over 20% = Stressed ​clients = ​Clients leave = Bad for business

The ​less worried your clients are about drawdowns, the more ​funds they will ​​invest with you down the line, and the more likely they ​are to recommend ​you ​to their friends.

​After 6 months ​of​ generating ​above-market ​gains ​with sub-20% ​drawdowns, don't be surprised ​if your ​clients and/or ​assets under management ​suddenly increase by 50% or more.​

When people have a good experience (peace of mind) working with you, ​they'll ​be more than happy​ to raise their stakes and even be an advocate for your business.​

​3. ​Low-volatility growth

​​​One of the things you'll come to ​learn about the investment business is that ​​that ​clients ​overwhelmingly ​​​​prefer​ incremental ​growth​ ​over​ ​sporadic growth, even if the latter ​produces an overall higher​ ​return.

This means that your trading strategy should be inclined towards 'slow and steady' ​growth rather than 'fast and ​furious' growth.

The ​latter approach, while exciting, eventually leads to large ​drawdowns ​that threaten the survival of ​your business.

So what you want to have is a low-volatility equity ​growth​ curve that is (​relatively) stable and perhaps even "boring" to watch.

​4. ​​​High Capacity

'​Capacity' refers to the ​maximum amount of ​capital​ a strategy can handle​, beyond which ​investment returns ​​start to diminish.

​This is an important consideration because ​the higher your strategy's ​capacity,​ the more clients you can take on, and the higher your income potential.​

​Generally speaking, the larger the profit target of ​a trading strategy, the ​higher its​ capacity.​

In my experience, ​the ​smallest acceptable profit target ​is 1​0 pips. Any less, and ​the maximum capacity ​will likely ​be too low for a worthwhile trading business.

​5. Durable

​Not all​ ​money-making trading strategies can ​stand the test of time.

Many, in fact, stop being profitable after a number of months or years.

​The key, is to ​center your strategy​ around​ a simple,​ robust idea that can be applied to a wide variety of market situations.

This way, ​your trading ​performance can ​be ​maintained over long periods of time, even ​when there are rapid and/​or significant changes ​to the market ​phase/regime.

​It is better to have a strategy that works decently well in most situations, than a strategy that works ​extremely well ​in ​a few types of situations.

A ​client-focused ​trading strategy ​is, ironically, the opposite of what ​most people​ think trading is like.

In the perceptible short-term ​it is​ slow, routine, and ​uninspiring.

In the ​imperceptible long-term however, it ​produces ​consistent, above-market returns that​ compound into staggering ​levels of profit.

A client-focused strategy ​may not be exciting, but it produces far more reliable results.​

Trading Strategy R&D

​The topic of strategy development is ​extensive and goes beyond the scope of this guide.

If you ​want ​the specifics,​ consider joining the Positive Expectancy​ course.

Generally speaking, ​there are ​3​ stages ​of trading strategy development.

1. Idea generation / Strategy sourcing

First, you need a core idea​ to build a strategy around.

​If you don't know where to ​begin​, you can start by ​get​ting ideas ​here:

A word of caution: Most of the strategies you'll come across on the ​internet are ​poorly ​designed. That's normal. ​For now, ​just get a sense of the various types of strategies out there, and pick out the few that make sense to you​.

2. ​Back-testing

​Once you've ​​​​​​​​identified the strategies you're interested in, the next step is to test their effectiveness over historical market prices. This ​can be done either manually or with computer algorithms.​

​When you find a strategy ​​with promising back-test results, try tweaking the strategy parameters (​entry rules, stop loss, profit target) and back-​test it again to see if ​it continues to produce ​acceptable results.

If it does, then the next step is to run a forward-test.

​3. ​Forward-testing

In ​this final stage​, you ​execute the strategy over live market prices on a small live account.

This ​process ​gives you a better ​indication ​of the ​real-time ​effectiveness of the strategy. ​Any mistakes made during ​the back-testing stage will be revealed here.

​If the strategy continues to perform during forward-testing, ​the final ​step is to fund the trading account with a moderate amount of ​capital and keep ​adding more funds over time.

Strategy diversification

​After ​all this, your job is still not done. ​In order to reduce your reliance on a single ​strategy, you'll want to ​start the process again with a new strategy to add to your trading "arsenal".

Over ​time, you want to be trading with 3 -5 strategies, so ​your capital is diversified and you always ​have alternatives should any ​one of them ​stop working.

​Business Asset Setup & Operation

​Now let's get down to ​the ​'business' ​side of things.

At the ​very least, you'll want to maintain ​a:

  1. ​Mailing ​list of ​potential investors and customers (clients), and
  2. A website or blog

These are the ​assets ​with which you​'ll​ build ​a trading business.​

Why Build An Audience

​​​​Before ​a client ​decides to invest ​​or work with you, ​he/she ​wants to know the type of person you are, and what you stand for.

​Take this guide for example​. You're reading ​this because you've read some of the other stuff​ I've published​ about trading, and​ are ​interested to know more about what I have to say about ​it.

​You want to develop ​a ​similar kind of relationship​​ with ​your audience. Let them get to know ​you ​better, ​so they can decide if you're someone they can see themselves​ ​associating ​with.​

​As long as you can demonstrate that you (A) are​​ a decent ​human being and (B) ​have some level of​ expertise​, most people will be happy to consider ​working with you ​in the future.​

​Choose A Communication Medium

​You'll first have to decide on the mode of ​communication you are most comfortable with:

  • ​Video
  • Audio
  • Text

​I​ am personally quite bad at video and audio, ​so I ​stick to the medium with which I can best ​express myself​: writing. This is why most 9​0% of ​the content I ​publish (​including this guide) is in text.

If you're ​comfortable ​on video, ​set up a ​YouTube account and ​start ​making videos. If ​you're​ ​good ​at ​verbal expression, start a podcast.

The ​medium you use isn't really ​important. What's ​important is that you speak in your own voice, and have something to say that brings value to your audience.

​What To Talk/Write About​

​Trading is ​a dense topic. There are many aspects ​about it ​that you can ​explore.

Talk about the things that you are curious about. Talk about what you find puzzling, or the ​ideas you'​re ​interested in.

​Chances are, the parts ​of trading ​that fascinate you are the same parts that fascinate others.

Don't feel like you have to be a "winning trader" before people ​will be interested​ to hear what you have to say.

Would you follow the journey of a learning trader who publishes his trading ​​results and ​shares the lessons he ​picks up? I know I would. ​Why ​can't you be that guy?

​By simply taking the effort to ​stand up and say something, you put yourself ​ahead of the 99.9% of ​traders ​who ​publish nothing.

​Here are some tips with the process:

  • ​Write/Speak clearly. Don't ramble. Have a point and make it.
  • ​Say ​something useful or interesting. Don't just ​blindly ​repeat the platitudes. ​Take the time to really ​think about ​things. Have ​your own opinion.
  • ​Be upfront ​about your shortcomings. Don't try to be someone you're not. People ​appreciate​ authenticity.
  • Don't ​just talk about ideas - they are a dime a dozen.​ Talk about the things you're doing (actions)​, ​and share the process + ​results.

​When To Start Building​ An Audience

This is ​important: ​you want to ​start building an ​audience before you​ have ​a working trading strategy.

If you wait until ​then, you'll have wasted a valuable opportunity to share the journey with ​your audience.

Don't get bogged down by trying to ​do everything ​perfectly.​​ ​Your first few ​publications are ​going to suck​. Guaranteed. You're going to be ​embarrassed about your first ten videos/audio clips/articles. That's ​normal.​ Get started anyway. People ​don't want perfection, the ​want authenticity.​

​Choose ​A ​Newsletter Application​

​W​hen it comes to ​newsletter ​applications, there are many ​to choose from.

​You can spend ​days agonizing over which one to use, but for now I suggest going with ​this free option: ​Tiny Letter.

Since your ​trading business is still ​new, it's best to keep things simple, and costs to a minimum.

Later on, when you have a few hundred subscribers, you can spend more time thinking about moving to a ​better (​paid) option.​

Continue to the next ​page

​Forex Trading as a Business: The Business ​Plan

About the Author

​My name is Chris Lee and​ ​I've been a retail Forex ​trader​ ​since 2005​. I've gone through many successes and failures, including ​managing a 7-figure ​investor account (which was ​great), ​and ​losing​ a ​6-figure personal account (which was not great).

You can check out my ​latest performance results ​here​.