FX Trading

Presented By Swede

WHERE DO I START?

To open this segment I need to make a few comments about the reason for wanting to become
a trader. New traders have the perception that trading is easy. They reason...."open a chart,
decide on direction and take the trade...after all, one has a 50/50 chance of being correct. "
They couldn't be further from the truth! Those are good odds for a gambler in Vegas, but for a
dedicated trader the odds are terrible. You will start to see why later in this article.
New traders often have $$$ signs in their eyes, and Lamborghini sales literature in their
pocket....if that describes you, please, do yourself a great favor, give the money dedicated to
trading to your favorite charity where it can do some good, because you will not have the funds
for long. Trading really is high risk unless you mitigate most of the risk by gaining a very solid
education about this industry before you place your first trade. Would you let the Lot Boy run a
major Toyota Dealership, or a first year Dental Hygienist perform a root canal, or a Nurse to
perform brain surgery??? Not a chance, so why do novice traders think they can be the next
Warren Buffett or Sam Sniden without knowing anything about their new found career?? The
internet sells the idea it is easy, why? .... to attract the unsuspecting to an industry that thrives
on greed, using YOUR money to fund itself. So, let us start of with some basic knowledge.
My first point is to know the market you are trading. The North American stock market has
rules....many rules to protect the trader and the broker from illegal or fraudulent activity. They
also have strong rules regarding margin and because of these rules, you need a considerable
amount of cash to open and maintain an account. Both the Stock Market and the Futures
Brokers maintain Segregated Accounts, in other words, they cannot use your cash to fund their
expenses or the CEO's latest vacation. Even if they default or go out of business tomorrow, the
balance in your account is yours provided you have closed your positions in whatever market
you are trading and have a cash balance.

The Stock Market and the Commodities exchanges trade from 9:30 Eastern time to approx 4:00
Eastern. Nearly all of the trading is done during this time period, although some overnight
trading exists on the Globex and other overnight exchanges. The Stock Market and
Commodities exchanges trade on a centralized exchange where orders are managed and
completed as buyers and sellers make their moves. Often the software available gives you a
picture of the order flow, the Depth of Market, and other factors that give you information in
your decision making. It is quite organized and structured to be fair and honest in dealing with
you the trader even though the Brokers are making the market, taking the other side of your
trade. (that in itself is open to many questions) Because of the many regulations though, it
helps keep corruption to a minimum.
The Forex market is another animal altogether. It is considered the Wild West in the trading
world for several reasons, one being the 24 hour nature of the trade executions, another being
the lack of a centralized exchange since it is totally electronic in nature, another being the lack
of reporting of discrepancies or disputes, another being the lack of accountability, another the
sheer volume being 100 times greater than the Stock Market or the Commodities Market. Here
is a quote regarding the size of the market and who the major participants are..

" According to the Bank of International settlements, the preliminary global results from the 2013
Triennial Central Bank Survey of Foreign Exchange and OTC Derivatives market activity show
that trading in foreign exchange markets average 5.3 Trillion per day in April 2013".
That is Trillion Per Day, not billion or million, TRILLION!!. With that kind of volume how
can you trade from things such as Time and Sales reports, or Depth of Market (DOM) or other
indicators of the market in place. You may see the best trade set up ever, only to see it fall apart
by the arrival of a 50 billion dollar sell order for Euros from Uganda or something. My point is
you can have the best platform, the best broker, the best charts, the best trade set up ever...and still
loose badly with a poor entry because you had no idea what was lurking in the order flow
background. So how, may you ask, can anyone make headway trading this market? Well, the
good news is you can, but you must start with some ground rules.

Rule Number 1.....do not, I repeat, do not open a live account for at least 6 months from the
first time you look at a chart or place your first trade. There are hundreds of brokers who offer
live Demo Accounts that trade almost exactly like a real account funded with real money. You
need to understand platforms, the best time of day to trade, risk management, news influence on
currencies, when markets are volatile, and so on. You need to understand Supply/Demand areas,
the best charts to trade, how to identify trends, how to place trades using limit orders etc. All of
this is a start. Every trader should have a news feed that is checked every day for up coming
announcements... a good one is....... http://www.forexfactory.com/
Rule Number 2.....find and set up a demo with a broker who is truly an ECN broker with STP
capabilities (Straight Through Processing). A true ECN Broker does not take the other side of
your trade, he only facilitates the trade to the best ask or bid that is showing by the Big Banks
who are buying and selling from them and ultimately you. Usually the trade is executed
instantly, never is there a requote.
A good ECN Broker for demo ....... http://www.tradersway.com/
A list of ECN Brokers can be found here..... https://www.100forexbrokers.com/stp-ecn-brokers

Here is an example of the Dealing Desk Broker you do not want to trade with......

Here is what you need in a Broker........

A few years ago I was trading with a Dealing Desk Broker, FXCM just after they opened their
MT4 platform. Usually I do not trade around news announcement, but this day I had one long
position (standard lot, 10.00 per pip) with a 10 pip stop loss (100.00) When the expected news
came out the Yen spiked nearly 80 pips, at which time I decided to close my position with an
$800.00 profit. Not bad for a few minutes work right? Well, the broker being a Dealing Desk
broker would be forced to take the other side of the trade. His loss, my gain. But this broker was
not going to let that happen so instead of routing my order, he froze my platform so the order
could not be executed...nothing would work, no quotes, nothing. I called him instantly and he
said the problem was probably at my end as his platform was fine. In about 10 minutes my
platform worked again but guess what???? the yen retraced back down to not only break even, but
even taking out my stop for a 100.00 Loss. I complained loudly, but they denied it was from their
end. The second time it occurred, they said they had too many orders and their server could not
handle the volume. So, after several more episodes, the exact same thing happened, a frozen
platform 5 minutes before and 5 minutes after major news announcements, I finally got the
picture and closed my account. You see, you can be the best trader in the world and not make
headway with a less than honest broker. To this day they deny liability, but I know what they
were doing and so I warn everyone to stay away from dealing desk brokers, I have scars to prove
it..
Rule number 3.....Practice until it hurts, but only with demo dollars, not your own. Learn all
there is to learn about support/resistance, stop runs instigated by the banks, supply/demand zones
and how interest rates play into the currency markets. The best traders not only look at the
technical aspects of trading, they also look at the fundamentals that drive currencies. For
example, when the Bank of Japan decided they needed a weak currency in relation to the US
Dollar, to give them back the edge for their exports, every time the Yen showed some strength,
the Central Bank would step in and do what was necessary to stay the course, regardless of how
the technical charts looked. While hundreds of traders have taken short positions at every pause,
overall they would have to scramble to get on the right side of this mother of all movers...here is
the chart, do some research on what was behind the move from 2012 to today and you will come
to realize technical charts do not tell the whole story.

So, those are just a few points every new trader should keep in mind. Trading can be great if you
prepare, learn, adjust and adapt to what you see in front of you. It is a starting point to your
career....and then there is the psychological aspect that also needs to be addressed....but we will
leave that for another lesson... Happy trading all...And don't ever let this happen..........