____________________________________________

I truly love the Forex markets and soon, you might love them too!  The Forex or FX market can be traded from anywhere in the world from a laptop, from a standard pc, from an internet cafe, etc; hundreds of thousands trade from home everyday and some make an INCREDIBLE living from trading.  This is possible because the FX market truly is an incredible market to trade on a part or full time basis.

But.., there are serious caveats....

I know some of you reading this article have traded for a long time.  Possibly some stocks, futures-- usually Eminis or regular commodities like beans, corn or wheat.  Others of you have probably traded the financials, bonds, eurodollars, and currencies on the futures exchanges.  Or like me,  have traded for years any market that can be bought or sold-- including Forex. 

Then again, some of you who are researching the business haven't yet started trading anything yet.  You are the lucky ones!  You don't have any bad habits to unlearn.

You are going to be presented with an unprecedented trading advantage that I couldn't have imagined 30 years ago when I started trading.  Opportunities exist which can permanently change your life for the better, if you proceed correctly.

Primarily in the last five years, there has been a growing revolution of small players trading the  Forex bank instruments.  There is tremendous hype played out on late night television (infomercials) about how it is so easy to make thousands of dollars just following some green or red arrows on a screen.  "I quit my job. It's the best thing I've ever done. There's nothing to it!" claims one fetching lady on TV.  Type FOREX into Google and you will find over 50,500,000 results.  Type in Soybeans, you only get 4,600,000.   

It could be very easy to think this Forex investment option is just some more sucker bait or simply a lateral blip in our increasingly electronic trading way of life.  It could easily be that for some, but the majority of serious traders might want to get more involved.  Why?  Some of the best risk/reward opportunities on the planet are only available in the Forex market.

Forex Market Promotion

There is no need for me to make a large production about all the details of Forex.  There are tons of free books filled with clear details. There are also many reliable sources of information on the web which help with this.  One typical example is Investopedia.com.

Investopedia Says:
"The foreign exchange (also known as "forex" or "FX") market is the place where currencies are traded. The overall forex market is the largest, most liquid market in the world with an average traded value that in 2010, exceeds $3.0 trillion per day and includes all of the currencies in the world.

There is no central marketplace for currency exchange, rather, trade is conducted over-the-counter. The forex market is open 24 hours a day, five days a week, with currencies being traded worldwide among the major financial centers of London, New York, Tokyo, Zurich, Frankfurt, Hong Kong, Singapore, Paris and Sydney - spanning most time zones.

Forex is the largest market in the world in terms of the total cash value traded, and any person, firm, or country may participate in this market."

Then, this free service goes on in detail to help individuals create a  Medium-Term Forex Trading System which they claim should require less capital to trade than either a short term system or a long term system.  According to them, short term systems require large capital due to the high leverage needed to profit from small movements, while long term systems require large capital to cover market volatility against open positions.  

Maybe.  Maybe not.

This is just one example of the rampant advertising of ways and methods to make money in Forex.  It seems everyone knows how to profit in this "new" market.  Hundreds of auctions a day on Ebay advertise "Holy Grails" for operating in Forex.  

EBAY Auction Headlines for May 23, 2010:

"Literally Download £FAP Turbo "The real money FOREX robot", "Trade my forex signals, 13,470 pips in April", FOREX PHANTOM EA ROBOT, AMAZING FOREX INDICATOR: 95% WIN RATE, Million Dollar Forex System, Forex Trading Machine, Forex Signals +1000 pips/month minimum guaranteed, The "I-Never-Lose Forex System"..., and on and on.

You get the idea. I'm sure you've seen other offers just as outrageous.  If trading this new phenomena is so easy, how come anyone is still working at McDonalds?

Forex Danger

Because just like the older brothers of Forex, the futures markets; the huge majority of participants are losers.  Many of the web links which one gets assaulted with leads the interested to Forex firms who hawk their wares.  Even narrow 3 pip bid/ask spreads (1 pip = $10) instead of commissions are equivalent to $30 and as high as $50 dollars on full lots depending on the currency pair.  High leverage is offered and encouraged-- 50:1, 100:1, even 200:1 at some firms.  Which works for you when you have a winning trade--and against you when you lose.  This two-step combination empties the majority of the money from the average account in the first week of trading.

Only a small portion of Forex trades are done by large financial groups for real needs in foreign currency. Most of the Forex trade is speculative. Speculative trade for profit takes more than 85 percent of the daily trade in the forex market.

People want to believe that there is a simple answer to their financial problems, and are happy to believe that Forex trading, or gambling will be that answer.  Trading with such high leverage makes unrealistic demands on the ability of average people with no experience, and so as many as 90% of those who start trading lose most of what they start with.

Additionally, what most people don't know is; a large percentage of the clickable advertising and referal links to forex firms are from individuals or companies who get a piece of the bid/ask spread from every customer they refer.  Many system sellers who refer  their customers to a certain firm that "they have found to work well with their system" often are double-dipping by getting shares of the bid/ask spread from their customers.  

You trade. They win.

The Forex market is still extremely unregulated.  This doesn't stop trading professionals from making good use of it.  But this also makes it easy for people (read: borderline criminals) who never have traded themselves, to profit handsomely by telling you that you can easily make money.  No wonder the CFTC is having fits with all the hype and claims out there.  There is a "wild-west" atmosphere  surrounding the industry that will likely be reined in as the money traded gets even bigger and enough regular citizens get hurt by some of the ebullience.

The FX market is considered an Over The Counter (OTC) or 'interbank' market, because transactions are conducted between two counterparties over the telephone or via an electronic network. Trading is not centralized on any exchange, as with stocks and futures.
In this FREE Forex blog I will take a REAL trading account of relatively insignificant size: $500.00-- and trade it so as to make it grow at a rate of more than 50% annually. The goal is $150K..., in significantly less than 10 years. I completely reveal, for FREE the exact systems used to accomplish this task.  Watch this blog for the volatility in returns that are inevitable when a professional trading account is traded for serious capital gains.
Forex Market Unparalleled Benefits

This brings us to the most attractive trading incentives truthfully advertised and actually delivered by Forex firms.  The magic word FREE really comes alive when people with a little money and big dreams collide when the apparent solution is Forex trading.  Forex firms provide the lowest possible entry cost for trading a leveraged trading vehicle.  These firms provide completely free real-time quotes and interactive trading platforms which represents hundreds of dollars of value a month, fixed costs that you don't need to pay for.  After paying an average of $500/month for decades for quotes futures traders see great value.

And that's not all.   Most online Forex firms offer free 'Demo' accounts to practice trading, along with breaking news  and charting services. These are incredibly valuable resources for traders who would like to test their trading skills with 'virtual' money before opening a live trading account.  The  'virtual' trades operate just as well and as bad as the "real-money" trades.  

Richard Dennis, in an interview about the traders he trained, was quoted to say that when a person was new at trading, he was as bad as he was ever going to be.  Now, with Forex trading costs as low as they are, with demo accounts and "mini" accounts available---learning to trade correctly has never been so attainable for so little upfront cost or initial risk.

A very few years ago it cost me $25K to $50K to open an FX account.  Now, some Forex firms offer these "mini"  trading accounts with a minimum account deposit of only $200 trading small increments with no commissions. This makes Forex much more accessible to the average individual, without large start-up capital.  

Unlike any other financial markets, investors can respond to currency fluctuations caused by economic and political events at the time they occur, whether it's day or night.  The way the interbank system handles these events is one of the reasons that there are additional opportunities for speculators.  More about that soon.

Forex Edges

In Forex there is always a bull market going on.  

A trade in Forex involves selling or buying one currency against another. Thus, a bull market or a bear market for a currency is defined in terms of the outlook for its relative value against other currencies. If the outlook is positive, we have a bull market in which a trader profits by buying the favored currency against other currencies. Conversely, if the outlook is pessimistic, we have a bull market for other currencies and traders profit by selling the weaker currency and buy strong currencies. In either case, there is always a bull market trading opportunity for a trader.

Recently, this has been the case for the Aussie Dollar vs. US Dollar (AUD/USD) cross rate.  People previously were buying the Pound and selling the Yen from 2006 to the middle of 2008. It seemed that the profits would never quit.  

Stop!  

What follows, if exploited prudently, will permanently change your life!

Online forex chatrooms abound, some with the same fervor that I only recall occuring in the late '90's during the dot-com boom.  Starting in March of 2006, one gentleman posted for months about the beauty of buying the  GBP/JPY spread and holding instead of trading it.  By the time he covered it, he made over 400% annualized return for a half year on his money, with relatively low leverage.  I have no doubt he got that return, as that kind of positioning is the epitome of correct trend trading, the mainstay of hedge funds today.

That worked great when the trend was up. But what happened when the market trend changed in 2008 without any warning? Many who followed his advice lost tens of thousands; a good friend lost a million dollars in a week when the GBP/JPY turned down.
 


Unique Edge 1

What is so special about trading currencies in Forex, is that you automatically receive the current floating interest on the currency you've purchased, but must pay the interest on the currency you sell.  GBY is currently receiving 5.50%, while JPY is receiving .50%; a difference of 5.00%.  So right now, if you buy the spread; you'll receive 5.50% interest on 100,000 British Pounds and pay .50% interest on 22,200,000 yen----all for $3,700 USD at the firm where I trade.  (Figures as of 2/07/08)

Think about this for a few minutes!  Modern day alchemy at work!

If the market oscillates in a narrow range for a year---which isn't likely to happen---going higher is more likely--- I would receive approximately $8,850 in interest after paying for the Yen.  That figures to 227% return on my $3885 USD.  Add to that any gain that the British Pound increases vs. the Yen and you can see why the CARRY TRADE is one major device that hedge funds rely on to make the big returns they strive for every year.  And even if the British Pound declined vs. the Yen during the year, it would have to be a major rout (which you can protect yourself from) to erase the gains from interest alone.  Do you see the potential power you have by carefully exploiting the native benefits of Forex trading?

It's obvious that with a simple calculator and an accurate trading method you can dial in better returns than your bank ever will give you in your savings account.  You get to choose your tolerance for risk.  Fortunately there are protocols determining which favorable spreads are under accumulation for long periods.  Imagine if you were able, with a combination of interest received and robust trading methods; to average 47% return per year for the next 10 years.  A $10K Forex account would turn into $1,100,000.  Too hard to do?  At 25% return per year you would achieve the $1,100,000 in just under 19 years.  What if you added an additional 5K a year to your forex account to help the account really build?

I'm sure you're seeing the potential.  You wouldn't have to labor for all of your life.

My recommendation is for anyone seriously interested in keeping and growing their wealth to eschew any ideas of daytrading Forex as a form of weekly income.  Especially for those who still need to work a job to make ends meet.  

Is consistent daytrading Forex possible? 

Under ideal circumstances, which some skilled traders have created for themselves--- a guarded "yes".  Regardless of claims by many system sellers and seminar presenters, PROFITABLE daytrading off-floor in Forex by non professionals is virtually not repeatable without a MAJOR change in your lifestyle. And large financial reserves.

Proof:
And think about this!!! Oanda FXTrade, one firm I use; has a spread cost calculator that you can use to find your trading profile and cost of doing business. With a 3 pip (tick) spread on your preferred market, with a $10K trading account, 50:1 leverage, and only trading twice a day, it calculates your trading costs at $75K a year.  If you are able to trade half of a 12 pip swing--when you win you will barely get a couple of pips, and when you fail, you will lose all your variation plus at least 3 pips spread at a time. 

My best suggestion is: forget it!  The only people I know who are able to consistently day trade Forex are bank traders.  Virtually no spreads when they trade, and they can see ALL of the orders --this means yours and mine.  The only time profitable daytrading is possible for regular account holders is under very special, exceptional circumstances.

In this FREE Forex blog I will take a REAL trading account of relatively insignificant size: $500.00-- and trade it so as to make it grow at a rate of more than 50% annually. The goal is $150K..., in significantly less than 10 years. I completely reveal, for FREE the exact systems used to accomplish this task.  Watch this blog for the volatility in returns that are inevitable when a professional trading account is traded for serious capital gains.

Unique Edge 2

Large Exception:  News reports of large magnitude, which happen once or twice a month.  Fortunately, unemployment numbers, Fed Chairman anouncements, other earthshaking information is all tabulated and archived on special free websites which make sure that you know exactly when the info will hit the world so you can trade accordingly.  Feel free to email me for these sources.  I'll be happy to send them to you.

Because there some FX banks which guarantee no slippage on your buy stops and subsequent stop loss orders, you might have a rare opportunity, with extremely low risk; to trade news breakouts which oftentimes go 100+ pips (ticks) in a few minutes.  These breakouts can be consistently traded as short term trades, but you need a definite trading protocol to have a winning edge.  

Figure 1

Fig. 1 is a 30-second chart of the Non Farm employment news event at 7:30 am CST, on Friday, Oct. 6, 2006.  Which I traded from my laptop at my favorite coffee haunt.  Selling the EUD/USD in the direction of the trend, I was able to gain 75 pips (ticks) with a 15 pip risk in less than 20 minutes.  The key to these trades is knowing that the market will definitely move from the area.  And usually, very fast!

I prefer to use these situations to add to (double down) a winning position or exit an  existing trade in the case of a reverse move.  As the accompanying stop loss protection in these situations creates a low risk opportunity, you can often place substantial positions in the direction of the main trend that you are already riding.  After a successful "newstrade" entry you can leave the "newsday" stoploss in place and wait until your primary trading method's trailing stop catches up before following it.

Three years ago I doubled my currency trades' annual returns (from 90% to 180%) due to 3 extremely low-risk "newstrade" additions to my existing position trades.  I was able to let my system's trailing stop advance to protect the additions, so doing I converted the "typical" newstrades of 80-100 ticks into trades which gained 1800 ticks.  With only a slight additional risk.


Unique Edge 3

Options are another huge opportunity center.  For example; especially for small traders, you have an opportunity to sell premium in a futures account and be able to tailor EXACTLY the deltas that you are exposed to in the Forex account.  There will be no option structure that you won't be able to offset after you learn how to create incremental positions in your 'mini' account.  Also, many Forex firms are preparing customized options for their customers.  In most cases you can create the option to your own specifications, and they will price it.   Then you have the choice to accept or not.

This is a much larger opportunity than most can imagine.  I know that a properly trained option hedge trader, with just a few extra hours a day; can expect to make around 35% return annually on his capital - with relative safety.  Just a few years ago a currency option trader required at least $100K to do this properly.  With the incremental positions available for trading now, you can do even more efficient option hedging with less than $5,000 to start.    At 35% return, $5K will compound to more than $160K in a decade.

For an exceptional understanding of options and option trading check out this book:.  Option Volatility & Pricing: Advanced Trading Strategies and Techniques
by  Sheldon Natenberg.  His book is as good as it gets to explain the principles and methodologies of option hedging.

When there are special (read: volatile) market situations, like the currency panic we saw in 2008 and even more recently in early 2010; the returns from option hedging can go up to 50% or 60% annually.

I can't imagine a trained option hedger ever having a losing year if he followed standard operating protocols. There is too much latent opportunity available.  


Unique Edge 4

Since the liquidity of Forex is superior to futures you have the opportunity to arbitrage futures against Forex contracts.  There is a carrying charge in CME futures contracts which at times can be a gift to arbitrage against, especially with interest considerations on both ends.  You can sometimes retain interest from a long Forex position and sell the appropriate amount of futures against your position to guarantee a large built-in profit.  Of course, this would entail separate Forex and futures accounts.  Many brokerages handle both.

Unfortunately, the situations where arbitrage between futures and forex are getting fewer.    So those who've wished to exploit this type of edge have gone into arbing 3 or more different currencies at the same time.  Example:  trading the Gbp.Usd pair, the Usd/Jpy and the Gbp/Jpy.  

Due to price shocks in one pair the effect of changing the other related pair's relative values is inevitable.  So there is opportunity to temporarily buy better/sell better for a short period of time after the price shock.

This can mean long hours waiting for something that may happen when you are getting a quick rest or cup of coffee.  

This is definitely not for everyone.


Unique Edge 5

Now we are in the area which can mean real financial freedom to those who have the willingness and temperment to succeed.  First, remember that highly leveraged vehicles are a threat to your financial position.  If you understand the risks and not just the rewards, you can continue.

Completely liquid 24 hour trading, "no skid" fills and incremental position sizing gives a professional trader; even one with limited funds; unparalleled power over his positions.  Lack of skid on your entries and exits guarantees that you can be certain where you are filled and eliminates the bad positioning that happens all too often in all futures markets.

For years CTA's and market professionals have heralded that the currency markets are among the all time best markets for trend traders. Dozens of well-proven trading models exist.  Some of these proven systems, with advanced position sizing money management, have averaged more than 75% per year for decades---for traders who will tolerate some large drawdowns.  

Simple breakout systems like the Donchian continue to work very well.  Simple moving average crossover systems have worked continuously for years and are still being traded.  The famed "turtle" system popularized by Richard Dennis has proven itself as durable as it was in the '80's. One of the loudest complaints about it is that it requires too much money to trade.  Not anymore! 

The incremental position sizing possible with Forex makes it possible for you to trade any system which would normally require $500K to trade CME futures, with less than $5000 on a Forex platform with BETTER precision than the futures model.  With proportionate commission costs and returns, but no slip for the Forex model.  


For example; you can take a trade in the EUR/USD and get your risk profile exactly right with no worry of an overnight gap.  If you are risking 2% of equity per trade you can risk exactly $100 on the trade with your mini account by using your trading firm's calculators to determine how many units to place in the trade for a given stop.  Doing this makes it possible to trade as many of the currency pairs as you feel willing to monitor.  

To show how easy and profitable a Forex trading business can be structured is by viewing the theoretical results of a well-known public system that I've traded ever since Joe Krutsinger gave it to me (and everyone else) at a trading seminar fifteen years ago.  It was Joe's custom at every seminar he spoke, to give away the currency trading system One Night Stand to the attendees.  He stated only one person in a hundred was able to keep trading it because of the perversity element required.  He did say that he believed it worked so well due to the human tendency to resist staying in the currency markets over weekends, and expected it to continue to work well into the future.  

I've traded it in the currencies ever since.  And the system works just the same as it did a decade and half ago.  It isn't hard for me to trade because I'm used to buying new highs and selling new lows.  The rules I use (just as given by Joe) are as follows:
 

Pretty simple.   But it still seems to work very well- despite how long it's been since discovery- as you can see from the theoretical results below in Figure 2. The results cited are for trading the Swiss Franc, DM/Euro to present, British Pound, Japanese Yen.   Traded with fixed-fraction money management applying 4% of capital per trade, it's had an annual rate of return of 68% and a profit factor of 1.87 with 59% profitable trades. 

There is no guarantee that results like these will continue on forever. But, I'm still taking the trades every week! 

Thanks, Joe Krutsinger!


Figure 2



What is not usually appreciated by those investigating this system is: these returns are accomplished staying in the market less than 15% of the time!  You might structure a high rate of interest by creating a correctly positioned Carry Trade to utilize your funds in the meantime.  Or trading another non-correlated system that has a good edge.

In actual Forex trading, I average 15% better returns by using Forex units instead of trading futures contracts.  Most of the reason is better and consistent fills.  

Interestingly, a large number of important government reports come out on Fridays, and have for many years.  That probably helps too.  I do believe the main reason One Night Stand still works is for the reasons Joe Krutsinger gave many times.  Individuals and banking institutions are reluctant to stay heavily positioned over weekends if they don't have to.  And they don't have to.  So, traders like us pick up a risk premium for doing what others are unwilling to do.  

20 years ago, an old successful CBOT floor trader told me that the ONLY way we are able to profit as speculators is by taking trades which others are unwilling or unable to take.  

He's been right.

 

Joel Rensink has been a professional futures, floor and forex trader for more than 25 years. In addition to his daily active trading, he is a consultant for determined traders, trading firms and hedge funds seeking robust trading models.  For any comments or questions on the article above or the markets, e-mail him at: leonardo@infiniteyield.com.

_________________

FOREX TRADING & COMMODITY TRADING involves high risks and you can lose a substantial amount of money. Commodity trading is not suitable for many investors. Any performance results listed in all marketing materials represents simulated computer results over past historical data, and not the results of an actual account. All opinions expressed anywhere on this website are only opinions of the author. The information contained here was gathered from sources deemed reliable, however, no claim is made as to its accuracy or content. Different testing platforms can produce slightly different results. Our systems are only recommended for well capitalized and experienced futures traders.

CFTC REQUIRED RISK DISCLOSURE

HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR TRADING PROGRAM.

ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR TRADING PROGRAM IN SPITE OF TRADING LOSSES ARE MATERIAL POINTS WHICH CAN ALSO ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS IN GENERAL OR TO THE IMPLEMENTATION OF ANY SPECIFIC TRADING PROGRAM WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF HYPOTHETICAL PERFORMANCE RESULTS AND ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL TRADING RESULTS.


Links Exchange

ZZ Link Exchange Directory
Squidoo Directory

Click here to submit your free, permanent ads to TheFreeAdForum.com!

MyLinkExchange.Net