Why should you trade Forex to begin with?
Whether you are just starting to trade the currency market, or adding it to an existing strategy and portfolio here are the reasons to do so:
Trading 24 Hours A Day:
This is a popular marketing point often touted to promote forex trading – the fact that you can place trades 24 hours a day – 5.5 days a week. So those who have day jobs can check the market and place trades during their lunch break or after work, and before they go to bed, etc. Like many things in life, this is is both true and a bit untrue.
It’s true in the sense that you can place trades 24 hours a day 5.5 days a week. The market is certainly open and the spreads during the Asian, usually lower liquidity session are usually still very competitive. However, what they don’t usually tell you is that most of the “action”, most of the day’s move and best opportunity to trade usually occurs during the European and NY session, which is usually around 3pm to 12pm EST. So while you can place trades outside of those hours, most of the interpretation of information flow and charts and the placing of the big trades, usually occurs during that time period.
That being said, if the opportunity is big enough, if there is a swing trade coming that you can hold for several days or weeks with the market making a multi hundred pip or 1,000+ pip movement, then you can most certainly place this kind of trade at any point in the day. The opportunity is so big that you don’t have to wait for any specific session. You can basically place this kind of trade at any point in the 24 hour cycle. So that is the benefit of forex trading, that you don’t normally get with trading stocks. There is both an after market and pre market in stocks, but it’s not the same like in forex. In forex the market is truly 24 hours a day.
Market Liquidity and Volatility:
They tell you the market is trading trillions of dollars a day and so the market is liquid, and if you can just get a small slice of that pie, then you can get rich. Again, this is both true and not so true. Yes, it is true that there is a lot of volume generated on a daily basis. It is true that the volume has grown from a few hundred billion a year in the 1980’s, to several trillion in the 2010’s. This is all true. However, what they don’t usually tell you is that high volume does not necessarily equal high liquidity. Just because there are a lot of transactions as shown by high volume, doesn’t necessarily mean that there is a lot of liquidity – meaning sizable bids and offers in the form of limit orders. It’s a decent indicator. High volume usually means high liquidity, but not always.
And also, market volatility is not really a function of how much liquidity there is or how much volume there is. Market volatility is basically a function of the global macro forces. If the global macro forces point to a big move, it will tend to happen. If it doesn’t, then the market can chop around.
Also, if you are just starting out, you are generally not going to be placing orders for tens of millions or hundreds of millions of dollars. So those kind of liquidity considerations don’t really come into play at that point. What you require is to get your account size up – preferably fast too.
So the whole argument that “There are trillions of dollars traded per day, therefore my opportunity to make money is higher,” is not completely true. You still need global macro forces pointing to volatility meaning market conditions are suitable, and then have the know how to read those conditions and then positioning your trading account/portfolio in such a direction. George Soros made close to $100 million trading currencies back in 1985, as shown in his book, The Alchemy of Finance. That was back then when forex was not yet trading trillions per day. Now that there are trillions per day trading, does that reason alone mean it makes it easier to make $100 million from trading currencies? Probably not. You still need skill. Nowadays, it can be easier due to the technology and everyone basically gets the information at the same time, etc. But the logic that since there is trillions traded per day and purely because of that reason your probability to make your fortune is higher, is not completely true.
Still though, it is exciting knowing that a forex trader is in a GROWING industry. Unlike others who are in a shrinking industry with their jobs threatened, it is nice knowing that you are developing skills in a growing industry. And also that the skills you develop as a forex trader can also be easily migrated to trading other financial instruments. This is assuming of course that the skills you developed were in the strong foundations of trading success, with such secrets shared in the Mastery Course.
Low Transaction Costs:
If you take a look at what the trend in the broker industry over the past few decades has been, the trend is towards lower transaction costs. This has obviously benefited the average trader.
Lower transaction costs means a lower barrier to entry for the aspiring trader.
They can open up an account with a smaller amount of money, thus getting much needed experience much faster.
Their account balance is not eaten up by the commissions as much as before.
They can also profit from smaller movements and don’t require super sized market moves, which also means their maximum opportunity set increases as well, which is almost always desirable.
The above three reasons are in my opinion, the less important reasons for trading forex.
The more important reasons for trading them are revealed below:
Trading in currencies offers you a degree of leverage which amplifies both profits and losses. Some degree of leverage is what you are looking for in your trading portfolio. You shouldn’t be using anywhere near the often touted numbers of 50:1 or 100:1 or 400:1 leverage. That’s just plain marketing language by the retail broker industry designed to part you with your money in short order.
I have an acquaintance who many years ago just winged it. Didn’t gain any solid knowledge to base trading decisions on. He fell for the trap and opened up a forex account with a few thousand dollars. Just swinging for the fences with massive 50:1 leverage, etc. (he was also the one that fell for investing in dumb real estate in a far away state, etc). He didn’t place a trade with any rhyme or reason. He didn’t follow any criteria from The Perfect Trade Blueprint. He was soon parted from his money in short order.
That didn’t have to happen. He could have learned about and implementing simple strategies that prevented that from happening and that identified when the next big move was going to occur in the market.
Heck, some of the strategies to mitigate losses are simple plug and play. You know you do this, you know not to do this.
Obviously the more sophisticated analysis comes with the interpretation of information flow.
If you have ever experienced a big loss, I have good news for you. Your past need not be your future. Let bygones be bygones. You can bury and forget about the past and start a new chapter in your trading – TODAY. It is a joyous moments shedding those false beliefs, ideas and strategies, and systemically replacing them with more profitable ones. Tons of dead weight will be lifted off of your shoulders and your mind will start expanding and racing from possibility to possibility. And your account balance will thank you for it.
Back to leverage in forex trading.
When someone is engaged in active trading, they generally don’t just want to make 3% or 5% or 10% in a year. You desire much more than that. You may have a desire for 50%, or 100% or 300% returns in a single year. In order to achieve these kinds of returns, one of the criteria for doing so, besides conducive market conditions, is the judicious use of leverage. Noticed I said the smart use of leverage. Not the dumb use of leverage.
The most leverage I have used during my more wild times was around 20:1 to 25:1. So every 1% move in the market meant around a 30% move in my trading account balance. This is still very high by most standards and it was only done with a smaller account. And when I did do it, I did it with very tough criteria for entering a trade. The criteria called for knowing with a high degree of accuracy whether the market was going to immediately move in my favor, thus allowing me to get my stop to break even. (for knowledge of these strategies, CLICK HERE for the Mastery Course)
Nowadays, leverage in the main account is a lot less. Large hedge funds to the tune of billions of dollars don’t usually use that much leverage. Because the orders they place are so large already, they may find liquidity challenges. And it’s just plain dumb to leverage a $20 billion hedge fund 10x. The ones that do use a lot of leverage and try to get really fancy, typically run into problems and blow up. You can read up on the Long-Term Capital Management fiasco, part of which was caused due to excessive use of leverage.
But still, you’d like the use of some leverage, because typically currency pairs are not going to move 40% or 50% in a single year. They can trend 10% or 20%, but typically not more than that, for reasons revealed elsewhere. So when a currency pair moves 10% or 20%, you’d like maximum benefit and profit, and that typically requires the use of some leverage.
And yes, it is a very big thrill placing a nice trade with leverage, even a intraday profitable trade, and watching you make more percentage return in a day or a week, than most make in a year. It can be one of the most exciting feelings in your life. As Paul Tudor Jones said during the week of the 1987 stock market crash, where he was on the path to a 200% return that year: “The week of the crash was one of the most exciting periods of my life.”
You too can have one of the most exciting periods of your life when you are right on the market and have smart use of leverage.
Profit in Both Market Directions
Great ease in going long and short. In forex there is great ease in being able to go both long and short, thus meaning you can profit greatly in both market directions.
I’ll never forget in the first year I got into trading learning about how I could both go long stocks, and more fascinating, able to SHORT THEM to profit when they go down. That was very cool to me when I was just a teenager. Having the ability, not the guarantee, but the ability to protect your money, grow your money, and even ability to make a fortune when the market, when the financial instrument goes down, that was very fascinating to me. Coming from a family that didn’t have much money, scarcity conversations at the kitchen table, etc, this was extremely appealing to me and one of the cornerstones of my desire to keep up my education and be a trader.
Yes, you can go both long and short in other markets such as futures and stocks. And in futures it is almost as easy as in forex, in some cases just as easy. But in individual stocks, it is not always as easy to do so. In forex, it is very easy to do so. Whether a small trader wants to go long or short $100,000 of EUR/USD, that’s easy. If a large hedge fund wants to go long or short $5 billion of EUR/USD, that’s easy to do as well.
In 2008, George Soros, the man who Broke the Bank of England, made $1 billion primarily because of the strength of his currency trading. Were it not for his currency trading, he may not have made money that year.
In current market conditions where it seems the stock market is doing well, a lot of people get lulled into a state of complacency. They think that since the market has gone up since the 2008 crash, that it will keep going up gradually. That’s what they automatically think. Well, what you want to do is be much more flexible than that. To use your strong interpretation of the information flow and charts to know if that is the proper likelihood or not. And also to be an active trader so you can profit in both direction – long and short. Forex trading easily allows you to do that.
Uncorrelated Trades & Maximum Opportunity Set
One of the huge, killer advantages of forex trading, is that during certain moments in time, such as of this writing, and over the past few years correlations have broken down between currencies and other markets, particularly the equity market. So where the EUR goes for instance, is not necessarily correlated with where the S&P goes. There is no strong correlation of 1 or of -1.
When these kind of market environments happen, then that is when your trading profits can explode. The reason being, you can find NEW trades to place into your portfolio, that have a different “underlying drivers” than existing trades you have on. When you can do this, then what I call your “maximum opportunity set” increases, sometimes drastically so.
The top traders, especially top global macro traders, are ALWAYS looking for these kinds of trades – the uncorrelated trades that have different underlying drivers. So they can embed within their portfolio multiple independent drivers, each with a good perceived win rate and reward to risk ratio. You want to learn how to do this and BE doing it as well. Certainly a bit more sophisticated approach which is covered in the Mastery Course.
This is not a trading idea I saw talked about in many books. I had to develop a good chunk of it by myself. Even some people you see on the Forbes wealthiest list, such as Warren Buffett and Carl Icahn, do not always fully understand this power of expanding your maximum opportunity set via global macro trading.
Currency Movements Can Predict Other Markets
There are certain situations where currency movements can aid you in predicting what is going to happen to the global economy or a country’s economy. These hints that currency movements can give you, will be kept from you forever, unless you actually follow and trade currencies!
Take for example the 2008 financial crisis and the spring 2009 recovery. Knowledge of currencies could have helped you predict that. The AUD/USD started to rally and breakout higher around April / May 2009. This could have tipped you off that the global economy would have recovered and that it would be an Asian led recovery. Which you could have played all sorts of ways such as long AUD/USD for capital gains and carry interest. Or go long China. Or to go long US stocks.
If someone was following only other markets and not the currency market, perhaps they would have missed what was dubbed “the rally of the century,” or gotten in later than usual.
Plethora of Currency Pair Combinations
The advantage of trading forex on the unregulated exchange – such as spot forex, as compared to the futures forex contracts, is that in the spot forex market you have a choice of so many different ways to express a trade idea.
The contracts available on the futures exchange for currencies are typically limited to only trading the EUR, GBP, JPY, AUD, etc, ONLY vs the USD. However, what if you believed that the best trade idea at a certain moment in time is in EUR/GBP or in EUR/JPY or in EUR/AUD?
You struggle to express such a trade view on the futures exchanges.
However in the spot forex markets – you have free reign to choose among the best currency pair to express your trade view. You have the freedom to match up what you believe to be the strongest currency with what you believe the weakest currency is going to be. And this freedom is a very nice thing to have!
Fellow trader, I know how hard it can be to figure out what works and what doesn’t. I know how hard it can be to know what is truthful and what is not. I get it.
I can show you how to increase your trading profits via forex trading – even if you have never placed a currency trade in your life. There are simple ways, plug and play ways to stack the odds in your favor – starting today, no matter your age or experience level. What I’d like you to have is the most revolutionary trading strategies for breaking through the clutter, for forgetting about all the pirates and charlatans out there, and finally putting yourself on the path to trading success.
The Order Flow Mastery Course is the most complete, most authoritative, most revolutionary and useful guide to trading ever released. Get it today by CLICKING HERE.