The foreign exchange market in general, the broader trends that the stock market as a whole. Why? Equity market, which is really an individual fellowship, governed by the dynamics of certain micro-enterprises. The foreign exchange market, by contrast, is driven by macroeconomic trends can sometimes take years to develop. The best trends are manifested by the lead partner and the currencies of commodity block. Here we see this trend, analyze where and why they occur. Then I also see this type of tide offers the best opportunity for the range for commercial purposes.

Major Currencies

There are only four major currencies currency pairs, which makes it very easy to follow on the market. They are:

  • EUR / USD - Euro / U.S. Dollar
  • USD / JPY - Dollar Yen U.S. / Japanese
  • GBP / USD - British Pound / U.S. Dollar
  • USD / CHF - U.S. Dollar / Swiss Franc

It is easy to understand why the United States, European Union and Japan have the money the most active and liquid market in the world, but why the UK? After all, in 2005, India has a larger GDP ($ 3.3 trillion compared to $ 1.7 trillion for the United Kingdom), while Russia's GDP (1.4 million) and the GDP of Brazil (1.5 million) is roughly the total economy of the United Kingdom. Explanation, which applies to many foreign exchange market, it's tradition. English is the first time in the world economy for the development of capital markets and sophisticated at the same time was the British pound and U.S. dollar, which serves as a global reserve currency. Because of this heritage and the supremacy of London as a center of world trade currencies, the pound is still considered one of the major world currencies.

Swiss franc, meanwhile, took its place among the big four known that Swiss neutrality and fiscal prudence. At a time when the Swiss franc is 40% backed by gold, but for many traders in the forex market is still known as "liquid gold". In times of crisis or economic stagflation, traders turn to the Swiss franc as a safe haven.

The main partner of the largest - in fact, most liquid financial instruments in the world, is the EUR / USD. This pair is trading nearly 1 billion per day of notional value from Tokyo to London to New York 24 hours a day, five days a week. The two pieces are the two largest economic entities in the world: United States, with a GDP of U.S. $ 11 billion and the euro area, with a GDP of about $ 10.5 billion.

Although U.S. economic growth was much better than the euro area (3.1% vs.1.6%), the Eurozone economy generates net trade surplus, while the U.S. has a chronic trade deficit. Superior balance sheet of the euro area and the size of the euro area economy has made the euro an attractive alternative reserve currency to the dollar. Thus, central banks, including Russia, Brazil and South Korea have diversified some of their reserves in euros. Obviously, this is a time the diversification process has so many events or changes that affect the currency market. This is why one of the main attributes of a positive trend in the forex market is a long-term.

Long-term observation of the importance
To see the importance of long-term perspective, we look at Figure 1 and Figure 2, using three simple moving average (three SMA) filter.
Figure 1 - EUR / USD exchange rate of March 1 to May 15, 2005. Consider the price action suggests choppiness and the possibility of a downward trend since the beginning of each line of three in each other SMA.
Figure 2 - EUR / USD exchange rate from August 2002 to June 2005. Each bar represents one week and one day (as in Figure 1). And in the long-term chart, a completely different view has emerged - the uptrend remains intact every time down to nothing more than provide a starting point to new heights.
Three-SMA filter is a good way to measure the strength of the trend. The basic premise of this filter is that if the trend of short-term (seven days SMA) and the medium-term trend (20 day SMA) and long-term trend (65 day SMA) are going in one direction, then the trend is strong.

Some merchants may ask why we use the moving average of 65. An honest answer? Do we take this idea to John Carter, a futures trader and educator, as these are the values ​​used. But the importance of the three secondary filters are not in the values ​​of a particular school, but in the interaction of short-term trends, medium and long term provided by the school. While using a reasonable approximation for each of these trends, three SMA filter provide valuable insight.

See the EUR / USD from both points of view of time, we can see how various trends may be a sign. Figure 1 shows the daily changes for the month of March, April and May 2005, showing the jerky movement with a clear downward trend. Figure 2, however, charts the weekly data for 2003, 2004 and 2005 and shows a very different picture. According to Figure 2, the EUR / USD is still in a clear uptrend despite some very strong corrections along the way.

Warren Buffett, the investor famously known for trading long-term trend, has been widely criticized for holding a long position on EUR / USD has suffered losses along the way. Looking to the creation of Figure 2, however, it becomes much clearer why Buffet may have the last word.

Currency Block Commodity

The three commodity currencies higher liquidity in the forex market is the USD / CAD, AUD / USD and NZD / USD. Canadian dollar, known as the "loonie", the Australian dollar as the "Aussie" and the New Zealand dollar as a "kiwi". The three countries are commodity exporters and extraordinarily strong tendency often in conjunction with the application of each of its major exports.

For example, see Figure 3 showing the relationship between the Canadian dollar and oil prices. Canada is the largest exporter of oil to the United States and nearly 10% of Canada's GDP includes the areas of energy exploration. USD / CAD trades inversely, the strong Canadian dollar so that creates a downtrend in the pair.
Figure 3 - This table shows the relationship between the Canadian dollar and oil prices. The economy of Canada is a rich source of oil reserves. The graph shows that oil price increases, it becomes more affordable for people who have dollars to buy Canadian dollars.
Although Australia does not have a lot of oil reserves, the country is very rich source of precious metals and is the largest exporter of gold the second largest in the world. In Figure 4 we can see the relationship between the Australian dollar and gold.
Figure 4 - The graphic aspect of the relationship between Australia and the gold price (U.S. dollars). Notice how the rise of gold from December 2002 to November 2004, coinciding with a strong upward trend in Australian dollars.
The Crosses are The Best for The Range

Unlike Major League Baseball and the currencies of commodity block, offering traders the opportunity of the strongest trend and more, which shows a cross currency swap is the best jump. In Forex, the cross is defined as the currency pair that does not have the dollar as part of the couple. EUR / CHF is a cross, and perhaps best known for the range of commercial partners. One reason, of course, there is little difference between the growth rate of the European Union and Switzerland. The two areas of current account surpluses and stick to a prudent fiscal policy.

A strategy for operators is to determine the parameter range of coverage for the spouse, divide the parameter with the center line and just below the middle of buying and selling there. Classification is determined by the parameters of high and low prices fluctuate during the given period. For example, the EUR / CHF, traders can go, for the period May 2004 to April 2005, set at the 1, 5550 1.5050 top and bottom of the range of 1.5300 to the axis of the delineation of areas of buying and selling. (See Figure 5).
Figure 5 - This chart EUR / CHF (May 2004-April 2005), with 1.5550 as the upper and lower range of 1.5050 and 1.5300 as the midline. A comprehensive strategy trading involves the sale in the mean and median purchase below.
Remember range traders are agnostic about the address. They want to sell under relatively overbought and oversold conditions on purchase.

Cross currency is so attractive to the time range of strategies as they represent the two cultures and economies of these countries, the imbalances between currencies, as it often returns to equilibrium. It's hard to imagine, for example, that the Swiss will go into depression, while the rest of Europe is growing briskly. The same tendency toward equilibrium, however, can not say that the share of a similar nature. It is easy to imagine how, for example, General Motors could go bankrupt, even though Ford and Chrysler continue to do business. Because currencies represent macroeconomic forces that are not vulnerable to risks that occur at the micro level, as stocks of individual companies. The currency is because it is safer from trade.

However, the risk is present in all the speculation, and the merchant has no pair trading range without a stop loss. A reasonable strategy is to use a stop in half the total amplitude range. In the case of the range of CAD / CHF is defined in Figure 5, stops above the seeds 250 below top and bottom 250. In other words, if the pair reached 1.5800 1.4800 or, the merchant must be stopped outside the store because of the high probability of damage.

Interest Rates - Final Part
While the USD / CHF has a relatively narrow range of 500 pips in recent years is shown in Figure 5, a pair like GBP / JPY has a much wider range in 1800 nuggets, shown in Figure 6. Interest rates are the reason why there is a difference.

The interest rate differential between the two countries affecting trade in the range of its currency pairs. For the period shown in Figure 5, the Swiss interest rate by 75 basis points (bp) and the rate of the euro area is 200 basis points, creating a spread of only 125 points basis. However, for the period represented in Figure 6, however, interest rates in the UK is 475 basis points, while in Japan - which is held by deflation - 0 bps rate, 475 basis points overcome the difference between the two countries. The golden rule in the Forex is a differential interest rates higher, the more stable partner.
Figure 6 - This chart of GBP / JPY (December 2003-November 2004). Consider the pair reach almost 1800 pips!
To further demonstrate the relationship between trade and the interest rate, the following is a table of different crosses, their interest rate spreads and the maximum pip movement up and down during the period May 2004 to May 2005.

Currency Pair Central Bank Rates (in basis points) Interest Rate Spread (in basis points) 12-Month TradingRange (in pips)
AUD/JPY AUD - 550  / JPY - 0 550 1000
GBP/JPY GBP - 475 /  JPY - 0 475 1600
GBP/CHF GBP - 475 / CHF - 75 400 1950
EUR/GBP EUR - 200 / GBP - 475 275 550
EUR/JPY EUR - 200 / JPY - 0 200 1150
EUR/CHF EUR - 200 / CHF - 75 125 603
CHF/JPY CHF - 75 / JPY - 0 75 650

Although the relationship is not perfect, is certainly big enough. Notice how the couple with a wider interest rate spreads typically trade in a wider range. Therefore, when reviewing the strategy in the range of forex trading, traders should be aware of differences in volatility and interest adjustments. Without taking into account the interest rate differential can change the range of ideas to lose potentially valuable proposals.

The forex market is very flexible, adaptable to both trend and range traders, but as with any successful business, the right knowledge is the key.

You'll love this lesson. Using pivot points as a trading strategy has been around a long time and was originally used by floor traders. This is a fun and easy way for merchants floor to get an idea of ​​where the market is heading during the day, with only a simple calculation.

The pivot point is the speed at which changes in market direction for the day. Using some simple arithmetic and the previous days high, low and close, a number of perspectives. These points can be critical support and resistance. Pivot levels level support and resistance calculated from what are collectively known as pivot levels.

Every day, the market must follow the fence open, high, low and to date (in some markets like forex are 24 hours but generally use 17 hours EST on open and closed). This information basically contains all the information needed to use pivot points.

The reason pivot points are so popular is that they are predictive rather than delay. It uses information from the previous day to calculate potential turning points for the day is going to trade (today).

Because many traders follow pivot points you will often find that the market reacts at these levels. It gives you the opportunity to negotiate.

If you prefer single axis shows the formula used is:

Resistance 3 = High + 2 * (Pivot - Low)
Resistance 2 = Pivot + (R1 - S1)
Resistance 1 = 2 * Pivot - Low
Pivot Point = (High + Low + Close) / 3
Support 1 = 2 * Pivot - High
Support 2 = Pivot - (R1 - S1)
Support 3 = Low - 2 * (High - Pivot) As you can see from the above formula, just by having the previous days high, low and close you eventually finish with 7 points, 3 resistance levels, 3 levels support and the pivot points real.

If the market opens above the pivot point, then through the day is long positions. If the market opens below the pivot point, then through the day is short for retailers.

The three pivot points are the most important R1, S1 and the actual pivot point.

The general idea behind the pivot point of negotiation to find a change or a break of R1 or S1. When the market reaches R2, R3 or S2, S3 the market already overbought or oversold and these levels should be used to leave the place of entry.

Ideally, the entire market opening above the pivot level and then slightly since then to R1 and R2. You go to a break of R1 with the aim of R2 and if the market is almost half is very strong in the R2 and R3 stations with the rest of his position.

Unfortunately life is not that simple and we must deal with each trading day the best way possible. I chose at random the day of the week and what follows are some ideas on how you can be traded that day with the pivot points.

On August 12, 04 Euro / Dollar (EUR / USD) as follows:
High - 1.2297
Low - 1.2213
Close - 1.2249

This gives us:

Resistance 3 = 1.2377
Resistance 2 = 1.2337
Resistance 1 = 1.2293
Pivot Point = 1.2253
A = 1.2209 support
Support 2 = 1.2169
Support 3 = 1.2125

A glance at the map below 5 minutes

The green line is the pivot point. The blue lines are resistance levels R1, R2 and R3. The red lines are support levels S1, S2 and S3.

There are many ways to trade today with the pivot points, but I will walk through some of them and explain why it is not good in certain situations and why some are bad.

Breakout Trade

In the early days we were at the pivot point, so our tendency is for short operations. Channel formed so you would be out of the channel, preferably downward. In this trade must sell entry order just below the bottom line of canal with a stop order just above the upper channel line and the goal of S1. The problem today is that, S1 was very close to the breakout level and there is enough meat in the trade (13 pips). This is a good entry technique for you. This does not correspond to these days, does not mean it does not come the next day.

Decrease in trade

This is one of my favorite game. The market through S1 and then deleted. A control input is placed below support, which in this case is the last low before the withdrawal. A stop is placed above the back (the most recent high - high) and the target set for S2. The problem once again, that day is that the target of S2 is closed, and the market did not support previous, which tells us that the market sentiment began to change.

Overcoming resistance

As the day progresses, the market began to return to S1 and formed a channel (congestion area). This is another good game to trade. An input command is placed just above the upper duct line, with stops just below the bottom line of the channel and the target will be the first pivot axis. If trade in more than one position, then cover with half of its market position is close to the pivot axis, tighten the market action from the top, then look at this level. As it happened, the market never stopped and the second goal became R1. Also be obtained easily and closes the rest position to this level.


As I mentioned earlier, there are many ways to trade with pivot points. A more sophisticated method is the use of a cross of two moving averages as a confirmation of the break. You can even use a combination of indicators that will help you make the decision. Perhaps the crossing of two ways, but also MACD must be in buying mode. Waste time with some of your favorite indicators but remember that the signal is the rest of the confirmation of the level and the only indicator.

Even in models around pivot levels or failures but that's not the point of this lesson. I just want to introduce another possible way to negotiate.

Happy Trading!

As you know, the currency market (Forex / FX) is an unregulated market is not traded on exchanges, which means that the price you see and get a dealer may vary from those of other riders . There are mainly two types of runners. One type is the ECN (Electronic Communications Network) and other market-maker.

Market makers "make" or set prices on their systems based on what they think is best for themselves as compensation. This is because every time you sell, you should buy, and when you buy, have to sell. That is why we can offer fixed spreads, as it is setting the supply and demand prices. Many of them, then it is to "protect" or "cover" in order to transmit it to others, however, some may decide to take your order, and thus trade against them. This can lead to a conflict of interest between the retailer (you) and market makers.

NEC, however, delivered prices of some banks and market makers and other traders in the ECN, and display the best bid / offer on the basis of this input. That's why sometimes you can get no spread in the NEC, especially in a highly liquid currency pair. How to make money ECN? They still charge you a commission for each transaction.

Here are some pros and cons of ECNs and market makers:

Market makers


  • Usually provide free graphics software and news service
  • The price may "soften" and less volatile than ECN prices (this can be a disadvantage if the resale or trading very short)
  • Often has an interface more user friendly trading and analysis


  • They may trade against them. In this case, there will be a conflict of interest between you and them
  • The bid price may be worse than what could be in REC
  • It is possible that can trigger stops or not let your trade reaches its target level of profits by manipulating prices
  • During the stories, there will usually be a large amount of slip, the system can also lock or impossible to put in hours of high volatility
  • Many of them to prevent damage and to resellers in "manual execution", which means that orders can not be met in the price you want



  • Generally, you can get a better supply / demand, because they come from various sources
  • The differential between supply and demand can not spread or spread small, sometimes
  • If they are true ECN, they will not work against you, but you deliver your order to a bank or other clients at the end of the transaction.
  • You will be able to offer a price between supply and demand with the possibility of filling
  • If they support Stop-Limit Order, may prevent it from slipping during the news, to ensure that your order will be executed at the price you want or not at all
  • The price may be more volatile than it would be better for scalping


  • Many do not offer integrated graphics
  • Many did not offer new integrated
  • Many of the trading platform is less easy to use
  • Variables because of differences (between supply and demand), may be more difficult to calculate stop loss and profit target in pips in advance.


It is important that you observe carefully the pros and cons of each broker before choosing the one that best suits your needs. You can also have a number of brokerage accounts to reduce risk, and so you can compare supply / demand and trade in the hallway the best price for the direction you want to trade. Due to the unregulated nature of forex, U.S. officials are not required to keep your money in an intangible asset that you can access if they collapsed. As customers of Refco (was one of the largest brokers in the world) found that reporting unprotected unsecured creditors, and therefore tend to get their money than those who had obtained loans to Refco. What this means is that customers' money to pay other creditors.

Moral of this story:

Less money deposit with your broker that you need to trade and take profits when they exceed a certain amount. Keep the rest of your trading capital in your own bank account can be provided by the government.

The last time I say that with the use of clarity, we must distinguish between what is available (100:1, 200:1, 400:1, 500:1) and what you can choose to use. I show how the marketing people deceive operations assistant with very high leverage, and assured them that this is a good thing. These people are not aware of the adverse effects of leverage on your account. It's like speeding on a mountain pass, but I think they are on the floor. You can terminate a way ... disaster.
We conclude that:
  • What is commonly known as leverage is really necessary margin expressed as a ratio if you use all the power brokers will allow you to borrow.
  • The real influence is determined by dividing the capital into the value of your position.
  • Real influence will vary from trade to trade and promote trade with the simultaneous (open position).
  • The margin requirement has no effect on the risk, if the trade properly with modest influence within your means and should not be used as a principle for calculating the risk margin.
I also want to cover, on the more fundamental question of leverage, ie the exact calculation.
Leverage is about to borrow money. To calculate the leverage you need to know first how much you have, and then divide the amount to be negotiated with (a measure of where purchased, or in substance, loans).
Say you have € 20,000 and make a change (buy EURUSD 100,000). The lever is 100,000 / 20,000 = 5.1. For each € 1.00 you really trade with € 5.00.
Now, more precisely, the euro is one example I want to make sure they understand the difference between "leverage operator" and "use the teacher". I saw this in part 1, but only in passing, and this is important because I want to make very sure you understand what I mean.
I think many readers BWILC (book) has adopted Part 3 - "All that Jazz" or flipping quickly and missed the part where I explain leverage. Also may have lost a very important little paragraph in the base currency and exchange agreements. Distributors for real money in the room of the bank comes to these things are very important and it is second nature to them, but for some reason, to retail currency speculators see as less important and therefore creates a major error in the calculation of risk.
You see, if you look at the operations to leverage on the futures market or the stock market is really the only calculation - as in the example above. If you live in India and make a leveraged transaction in the stock market of India and the rupees you got a few rupees and you trading stocks listed on the stock exchange. This is a very obvious calculation: divide what you have in the value of your offer. But things are not so simple in the currency market.
Minor complication is making sure you know what you have. In other words, the currency of your account? Suppose the U.S. dollar. (I think a lot of traders in the United States should diversify their trading accounts to other currencies as a way to reduce the risk of having all your eggs in one basket.)
The problem with the calculation of debt in foreign currency must be divided apples to apples. Accordingly, you should express the base currency of the currency pair you are trading in the currency of your account.
So, back to basics. What the hell is the base currency? This is not the currency of your account. The base currency is the currency called for the first time in the quote currency. When we say that EURUSD, Euro is the base currency. When we say USDJPY, the U.S. dollar is the base currency.
When we say that the price of the EURUSD is 1.2755 / 8, then it means that for every dollar you have to pay U.S. $ 1.2758 if you buy euro and sell euro if you do, you will receive 1.2755 U.S. dollars. Say it with a $ 10,000 account to trade our money to buy a "standard lot" of (€ 100,000) EURUSD. The value of transactions in U.S. dollars is $ 127, 580. We have $ 10 000 and because our loan is 127580/10000 = 12.75:1. For every dollar that we are negotiating $ 12.75 - made use of, or 12.75 hours directed to our account. (There is no difference between "influence" and "loan".)
However, it has become commonplace in the world of Forex retail to express this operation just to get leverage of 10:1. This ignores the fact that there are two apples and pears and divide only 10K to 100K. It is interesting to ask why it has become common practice, and I take the time to explain why I think it is.
A little history
In December 2003, the U.S. regulator, TFCC, which in terms of the Commodity Futures Modernization Act (2000) began to oversee the OTC (Over The Counter) rules on the exchange of foreign bank issued new requirements. I think so far assistant advertising marketing leverage of 100:1 or 200:1 (or a margin requirement of 1%) without understanding what is the base currency of a particular transaction has a significant impact on the the margin they need. They do not care. All the money in U.S. dollars and charge only 1% of the total 100,000 units of currency and U.S. dollar both. At that time, most of the currencies traded in the pair - EURUSD - worth less than a dollar per euro, this has no effect, because the margin was more than 1% of the contract value. For example, when negotiating EURUSD at 0.9250 a contract valued at $ 92 500 and $ 1,000 more than the 1% ($ 925).
That changed when the euro has significantly increased in value by $ 1.00 per euro, and suddenly the margin they charge less than 1%. CFTC also issued rules in 2003 that the margin requirements for retail Forex broker OTC (OTC vs exchange-traded) must be compatible with currency futures. This caused a stir because of the margin required to be up 4% - 8% and minds marketing wizards who lose money to companies that are not regulated.
The objections which they work (as we all know now), because the margin requirement is only 0.25% depending on the size of the transaction, the most common of about 1%. What the regulator does the force calculation (exact) in the right margin as a percentage of the amount of the basic contract.
Understanding the initial amount is fairly substantial trade, people will think. You might also think that retailers pay a good price for business advice, or training, e-book for a classroom course or courses of study at home, receive the proper guidance in this area . Unfortunately, this rarely happens.

Using very strong trading career kills potentially promising

Leverage amplifies the volatility in the market trading account with leverage by leverage.
Let me explain this with the story of two friends, Frank Buck and Sterling brands.
Frank was a professor of history and do a PhD on ancient civilizations and Buck is a computer programmer. Annual leave, Frank decides to visit Stonehenge in England, and has consulted Buck began exploration in currency trading, helped by the eBook "Forex Trading for idiots."
They went to a free seminar, but Frank is not decided by him. Buck, but branched over $ 1500 for a weekend, with free prices, charts, without that, and the system is to raise $ 3,000 to $ 1,500 for trading days through the open book "in London "thereof.
Buck struggled at first, but recently, they have no control and earn less than $ 70,000 demo. Frank Buck asked a little surprised at how well he did and what the essence of this system. Bucks respond? "The rules of the game to their friends, the leverage effect". (I should also add that Buck had a gambling $ 50,000.)
So Frank, consciously delayed his trip to England to ask Buck to let you know when it is best to change money per pound and requires Buck, he showed 5 minutes, 15 minutes and 60 minutes, when the current graph was to buy sterling - stochastix screaming "buy" and Fantastix promises of wealth. At the top of the hour, Frank was quick to the Exchange Office and pay $ 1.88 for each of its 5,000 pounds. Global paid $ 9400. Buck, who wrote a software demo money on your Easy-Forex has just 15,000 pounds of money overnight. Frank becomes jealous.
Buck explained to Frank that the crocodile was reversed with a white flag hanging from the rope that hung Doji yesterday, the resistance is the launch of their weapons, while support is building new bases close to the action on the daily chart, and lucky star was in the right iliac fossa, because the Czar became paralyzed right hand brake. Translated, the Frank Buck said, means that if Frank bought another € 5000 when I was in what he will make a small profit, because "" the trend is the pound sterling and the trend is your friend "said Buck paging through Forex for idiots.
Frank rushed to the Exchange Office and others to buy £ 5000. Buck is right now, Frank paid $ 1.89 per pound. Total income: $ 18 850 to 10,000 pounds. At the time of Frank on the plan, Buck launched the careers of real money trading, commission free funds, two pips on the majors, commercial accounts 200:1 leverage Capital Partners money to a deposit of $ 20,000.00 clock.
A few weeks later, Frank had a wonderful time in England and decided to revisit one week before the Arlington Racecourse and play the horses. USD is currently trading at 1.95. Of course, Frank Buck think rolling in money - the trend is a friend. Frank has his fortune and win £ 10,000 by Long Shot Pick Six after winning 6 races with a wet nose.
At home a few days later change (10,000 euros) for a dollar at the airport to the level of 1.92. Frank has received $ 19 200. He made $ 350 after a holiday. Not bad. Buck, however, have to be a millionaire today!
First day back at work by Frank Buck is absorbed into a computer program. Trade in the second blank screen.
"You're right," Frank said with admiration. "The trend is your friend." He put the gift on the desktop brand of Arlington. "I have an exciting vacation and after that I was in the dark, thanks to you are a genius .. What the book trade at the moment?"
"I do not know," said Chief Buck.
Frank asked a little surprised by the Tsar paralyzed, if the resistance is still building a base, and if the executioner was very busy. "I do not know," says Buck, "I'm not interested." He looks sad. Wed to Frank.
"How much is lost Buckey?"
"Twenty-K". Frank Buck was surprised to delete an answer.
"The rules of the game to their friends, the leverage effect".
Then, a conversation between two with more detail and reveals the sad story. Buck said:
"The problem is that at first I was a little too conservative I made a bargain with a leverage of 50:1 few .. In other words, I made $ 100.00 per pip . Success 1.9500 pounds, I have $ 40 000. So I decided to up the ante a bit and I took advantage of the 40K 80:1, in other words, I will 320.00 $ per pip. I have to put the stop bit closer, because it is the work of an idiot Money Management. So I put a stop 15 pips idiot, what happens first? I can get 3 times the same day, U.S. $ 14.400 in the tube .. What happens next market turned? and head toward me, just after he leaves aside. In fact, my third stop took place in the march down and 20 minutes of the last two I will be trading in the money ".
"Well, the next day and bought the tendency of 80:1 Now another 30K, 240.00 per pip then I realize that this is a bit volatile EUR - The King and I always stop, this time Well call 30 pips stop me .. I did for only 5 pips This is worth $ 7200, I realized that the double top at 1.95 and has a sign that the trend has changed - .. Parabolic SAR. . min 15 is very clear to me ..... time selling $ 200 per pip.
So what happens then? I'm not sure at some point, I was 50, then all hell broke loose and good, I left the road well. It is $ 6000 and from there more or less long. I have to use a tight stop because I did not do much in my account and is thus held time and again. I began to realize that the volatility of the real money is a bit different from the volatility in the money demo. I can not explain, it seems larger. I stopped looking like a magnet attracts the market. Ping! Order, the market turned and went my way. Well, two days after he left 3K. The Capital Partners own cash-for-clock the rest.
Let me tell you something Frank, leverage is a double edged sword -. It is the bloody guillotine and my head on the block"
Buck has faced changes in your account has been created by market volatility and amplified by leverage. Frank apparently kicked the ball, and Buck lost money in a hostile market. In fact, both are games of chance, the only difference is that Frank knew that his victory in the horse is a matter of luck. This is part of our psychology that we do well when you consider that with our talent and when we do wrong is supposed to bad luck. Often it is just luck, nothing more and nothing less.

The cost of debt

This story, with different nuances, but the same theme, repeated every day, as on behalf of a prospective forex trader on the fire.
Besides the fact that high leverage to force him to stop coming - the bread and butter income forex broker - and dramatically increase your chances of being victim of a random very short-term foreign currency market, but also cost you a stroke.
Many traders think that there is no cost to trade because of the spread does not look good, other than loss or glitches glitches they do. This is wrong because the transaction has two parts. The cost and income below. Cost is the amount deducted from its capital account, if you close your trade is opened immediately, without any change in market prices.
Say you have an appointment GBPUSD 1.8650/55. You buy at 55 and if you sell will sell quickly at 50. The cost of management is 5 points. His agent sold to 55 and you buy at 50. We can say that the real market is 5 points from your position. You can not ask spread, unless you perform a winner - if the market moves in your direction, it becomes widespread. But if you make a losing trade is 5 pip cost, in addition to what has been lost due to adverse price movements. The higher the cost of distributing more debt than you are, bleeding money from your account
Let me give you a concrete example. Currency speculators leveraged very detail will jump at the opportunity to use the trading system is not 35% of the time, but due to reduce losses and run profits are sure will succeed. They are wrong.
If you're anti-leverage, the only way you can lose all your money if you keep the currency loses value.
Operating expenses from the perspective of Frank, when he bought it possible to pay £ 15 pips on the Office of images. Because he lost all his money on something that would have happened in sterling made him lose all their value - a meteor in the sky to eliminate England. It's impossible. Thus, the value of GBP Frank remains relatively stable. But when you add a lever to strengthen their own, creating instability, as the story of Frank Buck and illustrated.
But what I really want is this: If you take a high degree of leverage from a dealer who is not on, say, in the 40 months of trading on the leverage of 20:1, the real cost of trading before gains or losses due to price fluctuations start to play a role. Mathematics is as follows: trade 40 pips x 5 x 20 (min) = $ 4,000 lot. If he had used the wrong trading system for 35% of the time (which stands for a short stop) costs which can not afford the $ 1.400 or 14% of its capital. This is a direct cost to your business, and it is these costs that the attack - this is the "head" is very questionable if you think that trade is a business.
If a trader uses a trading system equilibrium point is a very good operator. But in the long run end up losing support, in addition to everything he does, which deplete the account.
If you understand the randomness of you know that are 35% of the trading loss can come at any time. They can be the first 14 months of negotiations. The impact of the loss of high indebtedness of operator actions, once by running very bad, can destroy your account. To maintain the "system" that it should drop the size of your transactions, especially after a difficult period. Therefore, there will be many more to make a loss. In this process, despite their small transactions, leverage its always the same (very high), because of its low margins.
If you really want to work with you, then you have to work the back, is not expressed as a percentage of their range, but as a percentage of the value and the total cost of the transaction.
Leverage amplifies everything in your account - at the same time, we have not changed much in the market.
Another consequence of the influence is that it strengthens its capital variance account. And it (the variance) has nothing to do with an ongoing lucrative business.
In the short term, days, weeks, months, (some would say a few years) if you see the results of the company, there is a good possibility that everything you see is random variation hidden under the appearance of the system commercial smart. The data are insufficient to show that what you see is the result of any edge or skills you have.
Go absolutely crazy for Frank, after a visit to Arlington, to begin a career as a bet. But as it was just a little less naive Buck thought he had broken several weeks of positive change in the demo account.
If you know something about the possibilities that you know the chances are very high that a series of coin tosses will expire 50/50, either heads or tails. But did you know that if you take a series of 100 develop the range of 50/50 will be mainly between the 38/62 with very little outside of this parameter.
Unfortunately, it seems part of human nature (behavioral psychology has shown that) that we tend to see a model or series that do not exist. And we used to do on the basis of insufficient data. Novice traders who so dearly want to do well are very likely to read a brief set of benefits that have a certain edge and the edge of the success of long-term career in commerce. Once you open a real account, the possibility of lifting the head and bite.
I want to be very practical.
8:01 p.m. Say you use the lever to all trade shows and reached a circulation of good luck and a positive end, so that 20% this month. Remove the harness and reinforces the variance of the equity in your account and earnings may be 2% - and is good for the short term. What if you have a longer period, say, four months with three "bad"? Where are you from. If you maintain a high degree of leverage that will be losses in bad times that may outweigh the benefits for good racing.
With the task of deciding the final good leverage height is now ready for real trade is exactly the kind of thing that Capital Partners money-for-clock wants you to do, because they know they will receive money for jam - of you.
What I mean is how the change in the strength of your account after changing your thought patterns and negative. You can not focus on the market, which is a trader should always be done. Instead, they are obsessed with the clutter in your account. What is the price you have, what factors you should know about? I do not know. Your energy is used in the wrong place altogether. In short, you have lost a kind of perspective you need to trade successfully.
You are in a situation where you can not manage the natural changes that occour and setbacks in market trends.
The variance of this magnitude due to the increase not only steal from your cash account, which deprives them of the opportunity to negotiate meaning. In short, be able to buy low and sell high, you must have an idea of what is base and which is high on the market. But, is that you lose perspective, paralyzed by fear of further losses on their own instead of "losses" in other currency markets.

Can you make money trading with low leverage?

Well, some would say, with low leverage of the system, do not miss much, but can you really make money? The value of your time? I think I can, and most of the trajectory in BWILC where I show how I do 74% in two months because of trade with low leverage, which can show how others are doing. To make the strategy forex money trading should be based on the original edge to overcome the possibility of 50/50 on a commercial basis.
I developed a strategy that offers benefits. I call my strategy 4x1: one currency, one way, a lot-one percent. This is my E = mc2 and Einstein's formula was like some of the things taken for granted the positive side, this formula is the kind of orthodoxy and wisdom in books sold as Forex trading for idiots.
The following is an interesting story, if one of my clients. When he started with the mentoring program to answer the question - assuming that you fought so far, what do you think of that? - East:
Most of the struggles that I have to believe what I read in the trading system. The biggest problem was stopping too close to random price moves to limit my risk% of the general account. You are the first to expose this madness to me. However, now worry about how to make "real" money with so little gear.
That was in January 2006. In March 2006, funded a trading account of $ 5,000 in late August 2006 and his account is already high. After five months of negotiation, using the above formula and low leverage right saw an annual return of 278%. Your actual result is 129% - in the book to all who should be considered as money "real".
Oh, and accuracy of their trade is 90% (eg 10% loss of trade), operating loss is generally higher than the typical commercial profit and the biggest benefit is 4% of capital investment original, indicating that there is a real advantage, not a one night stand on a large scale operation which ensures the "brightness" had just discovered.
Leverage is not even a double-edged sword, the guillotine - and head on the block - PART 1

Dr Forex says - Let me explain once and for all the influence that is not what the broker allows you to use, is what you decide to use.

I'm finally at the point where bird watching in Lion Country newsletter is ready for publication. If you have not received one before, do not start watching the mail spam filter. This is the first newsletter.

Choice of subject is a difficult problem, but the "leverage" is always high on the priority list for the first edition. Recently, once again realize clearly how misunderstood the concept is important for all aspects of money. In my mind, there is no doubt that most of the problems that traders have begun to exploit. I dedicate this first newsletter, then this concept - and the destructive power of influence in the world of retail forex trading.

Some data

I have not personally seen a trading account deletion does not use too high.

There is also no record of profitable trading account and trade-oriented and sustained high leverage, short stop.

I ask my clients since the early mentoring what they believe is the reason why the earlier losses. Most answers are something to do with leverage, I do not understand at all, or only partially, or underestimating once they understood.

The leverage is so, it is ...?

I receive many questions as follows:

I read your book and I liked it. You give me information where I can get 1:01 of the company to exploit you mention on page 108 of your book? I use a demo with only $ 1,500 in the account with 200:1 leverage, and I am a bit worried by this contract, including a mini with a coin.


I am advised to contact your agent can operate with less than $ 10,000 with low leverage, but only offer a leverage of 50:1 to 3:01, and not as you suggest.

It is clear that leverage is misunderstood and this misunderstanding is the source of forex trading and the loss of a vain attempt to overcome these losses without tackling the root causes.

Regulatory warnings that leverage is a double edged sword that can work for or against going completely ignored and a warning "past performance is not indicative of future performance" is flatly ignored.

Using the most misunderstood by the marketing wizards of forex (the friendly forex broker) have a little trick of the hand that moves the focus of this very important fact of how many of the levers for the operator amount of trading capital forex marketing wizard is ready to provide the merchant.

Everything you read on the influence to do with the maximum leverage you can achieve, and very little about the application of prudent leverage in the forex trading system. In other words, the agent tells you how so you get if you want, not how much you should take, if you know better.

Warren Buffet said - "The risk of not knowing what you do."

People talk about 100:1 leverage - "I trade with 100:1" without knowing what it means. I'll show you later how this is his greatest enemy by being stupid about this important concept. I hope that many of you will get a big "AHA" experience of the newsletter.

Definition of debt

This is a general definition:

The mechanical strength or the benefit obtained by using a lever.

The definitions contained in said lever is:

The extent to which an investor or business is using borrowed money.

Closer to forex trading:

The use of loan funds or loans to improve its ability to speculate and to increase the rate of return on investment, like buying securities on margin.

Introduced the concept of "margin". Make sure we understand what the margin is:

Definition of margin

Number of customer deposits with the guarantee broker when borrowing from a broker to buy securities.

Here's what to do if you open a forex trading account. Your deposit guarantees to request foreign currency trading. In fact, you do not need to borrow, but you can if you wish.

When the loan is at stake is public knowledge that the amount the lender will be willing to lend has certain limitations. Obviously you can not lend in unlimited amounts.

Something that most traders is that connects the marketing wizards use the term "influence" and "margin" very loosely and interchangeably. This causes much confusion. I'm sure this is done deliberately, as forex broker interest that traders do not see high leverage as a problem of destruction, but as an opportunity.

Make sure we understand first "leverage" and "margin".

To understand the use for marketing purposes, we will use the well-known concept. Want to buy a house, you do not have the capital available, but you must pay the salaries and fees on a regular basis, then go to the bank and borrow money to pay for the house. So, increase your income / salary. There are limitations based on, among other things, the income which means that the amount you can borrow based on your income is limited. There is a maximum you can borrow. Obviously, yes, but very important concept for the lender - the maximum that should be given to maximize the return on capital without overexposing the same risk of default on their side.

(Think of the touchline. If forex trading is largely with borrowed funds why not call upon the agents of interest .... Think about it?)

Remember this: The lender focuses on high, while the borrower should be concerned with the minimum - to borrow unless it can, but still get a bang for the buck.

We now return to your trading account: Want to improve your speculative capacity by leveraging their investment, therefore, borrow money to negotiate with your agent.

Before your broker will lend you money to put aside, you want the lever. His agent, being a prudent businessman has calculated the risks in advance and quick to tell you what is the maximum that you can borrow. In forex is typically a few hundred times their capital, but also could be two hundred times their capital, even four times its capital. It is a part of the equation:

"Dear customer, you will be able to use your money (200:1, 400, 1) 100:1. Hope we can have one. Long and mutually beneficial"

The other side of the equation is how many of these loans are available to use in efforts to speculation.

What influence is to apply its own decision and not something you can force the broker to you.

Here's a test:

We start with an example of the stock market.

You open an account with a stockbroker, with say $ 10,000. You can buy the stock worth $ 10,000. Say you do. Do you use your funds?

No, you did not borrow a penny from a broker. You have $ 10,000 to the value of your shares when you buy is $ 10,000 (not counting the cost for the moment).

How is the leverage?

It divides the capital into the value of the transaction and to declare that the report of the "transaction value": "Capital".

In the above example splits $ 10,000 / $ 10,000 = 1:01

Well, your online broker an easy day to send the message that now allow trading on margin, and you can borrow money to buy shares at the current value of its shares. For convenience, we say that the value of its stock is still $ 10,000. In other words, you can now buy another $ 10 000 worth of shares, while its capital contribution remains at $ 10,000.

How, after you have just received a hot tip and now has a transaction value of 2 x $ 10,000 = $ 20,000 divided by $ 10,000 of capital leverage = 2:01. Or you can choose not to you. Vital for the broker: do as much as possible

Maximum leverage can be applied (as opposed to how much you want to implement) is the decision of its agent:

It is important that you should look at the example above is that you used all the influence which is authorized by the broker. This is very important. Officers take a big risk of lending money and therefore have certain rules they must obey. There is a limit to what you can borrow. The upper limit is used 2:1 or from another angle range of 50%. You must be at least half of the total value of transactions available in the margin (collateral in other words, if you're not as hot as you think traders).

Reach is typically expressed as a percentage, while the use expressed as a ratio.

Marketing assistants currency realized the fact that they can offer very high leverage to your advantage to attract investors online in traditional markets. In addition, many online investors that hold the shattered by the fall of 2000 and the loss of up to 90% of previous profitable stock portfolios became commonplace - more leverage with plans stock options stock.

As a result, began to look on the roof of the lever of 100:1, 200:1, and with the introduction of mini accounts, even 400:1 and 500:1 are available.

Terms such as "trade with 100:1" leverage became the agenda.

An uninformed public trading and do not include online swallow this hook, line and sinker, and is negotiating with "100:1 to 200:1 leverage," do not understand what they do.

In fact, the agent would only say "that will lever your margin up to 100:1, 200:1 or 400:1 at the absolute maximum, if you use all the capabilities of your loan with us."

But you must remember leverage is a double edged sword. You can work for you and against you. Then began the race in the forex losers out there: where is the highest leverage, lowest margin and spreads narrow on the offer? As if this lethal combination that contribute to the success of the ...

So if you go to a nice corridor that offers lots of 100K and 10K mini lots you will find that many of 100K typically have a maximum of 100:1 and 200:1 leverage on mini accounts 400:1 or .

Therefore, it is the point of online currency: It allows a maximum leverage of 100:1, 200:1, 400:1. Vital for the trader: minimum necessary harness

Last seen in (dealer) on your side?

The questions asked by your side is: How many rooms for what I need to trade a certain value of the transaction? The answer is simple, if they offer what I can lever my funds 100 times, then it is 1/100 = 1%, 1/200 = 0.5%, 1/400 = 0.25%.

Returning to the example of the stock market does not at least a question of leverage, because if you have limited funds, then it would be wise to buy shares at low prices in order to invest in basket of shares.

But in the currency market, where the value of the transaction was 10K or 100K minimum initial and shocked online trading public is attracted to use the "advantage" of the high leverage to account for only $ 2000 - $ 3,000 or mini accounts from $ 200 - $ 300, the minimum leverage certainly played role.

For all this, I will stick better to use concrete examples:

Several years ago a company now defunct tip service has made a study of market Forex trading has many typical 100K. Average account size was $ 6,000.

There is no doubt that the average trader would have to borrow money by the broker, the use of funds. The question is "how"? To perform a minimum transaction is divided 100 000 100 000 to 6,000 and that's the answer: 100000/6000 = 16.67.

In other words, it must borrow 16.67 times his money to do a minimum of a transaction and then use a minimum leverage of 16.67:1. Just to make a ridiculous trade. Commercial success: Know your real influence

I would not be too technical about the exact influence in this example.

In fact, if you have an account in U.S. dollars, must disclose the transaction value in U.S. dollars before calculating the appropriate leverage effect. So if you trade 100,000 GBPUSD trades in dollars to the value of £ 100,000, which is both writing about $ 190,000. There is a difference between $ 100,000 and $ 190,000. (As Warren Buffet said: Risk of not knowing what you do ...)

With the flexibility offered by mini lots (10k), many micro (1k) and many variables (size of the operator sets), it is easier today to determine the real leverage of a person, as they operate in extreme cases of indebtedness minimum maximum leverage.

Let us return to the previous question:

You give me information where I can get 1:01 of the company to exploit you mention on page 108 of your book? I use a demo with only $ 1,500 in the account with 200:1 leverage, and I am a bit worried by this contract, including a mini with a coin.

"Can you give me information where I can get one one lever?"

Given the influence that is the transaction value divided by capital is an important aspect of the capital and size of the minimum position, because to be able to negotiate 1:01 You must be at least the same minimum capital transactions. In your case, you will have to negotiate with a broker that offers a large number of variables or batches of not more than 1500 micro-units.

"I use a demo with only $ 1500 in the account with 200:1 leverage"

You see here to get the maximum, or the maximum amount you can borrow. This is a fixed amount (percentage) applicable to the entire transaction and the transaction is not affected at all as long as you stay within this limit.

"I'm a little worried about it, even on a mini contract with one currency."

First do not have to worry about "200: 1. Leverage" simply means that the maximum allowed for trade, not what you have to negotiate (it's your choice!). For maximum trade is completely ridiculous. His real influence if you trade a mini contract with $ 1500 will be in the region of 6:01 or 7:01. (10000/1500).

It is interesting that you mention one currency also, because you should know that if trade 2 or 3 pieces of greater influence. Say you trade a mini lot EURUSD, GBPUSD and USDCHF, the total value of units = 30,000 (3 mini lots) and its capital is $ 1500.

The leverage is 30000/1500 = 20:1. He was raised. You borrow 20 times what you have. To trade forex profitably, you need a calculator for $ 3.00 is $ 300.00 per month mapping service.

Here's proof:

Speak of "leverage" 200:1.

I hope you understand now that this refers to the maximum the marketing wizard will allow you to borrow and you can borrow much less to maintain its influence healthy and your account afloat. But if you go to extremes to be really desperate or stupid, and for all practical purposes already on the way out.

So what is the currency of the marketing wizards call "leverage" actually expressed by the ratio of margin requirements, rather than as a percentage, the more reasonable and have no impact on their business, unless removed or , essentially, about to be.

Let's say a trader has $ 10,000 and trade in the corridor that offers "flexible leverage".

You can select the "leverage" its, 400:1, 200:1, 100:1 or 50:1. What this means is that you can choose your margin requirement (which will determine the maximum amount you can borrow from them) to 0.25%, 0.5%, 1% or 2% of transaction value.

Trader decides to buy 5 mini lots EURUSD, is € 50,000 and the transaction value of the value of a pip on this transaction is $ 5.00. Let's say he made a profit of 100 pips is $ 500 or 5% of its capital.

Is the margin requirements are flexible, generally called "leverage" on this result?

The answer is "no."

  • Leverage = 400:1 = 0.25% = $ 25 X 5 = $ 125. After 100 pips move Trader makes $ 500.
  • Leverage = 200:1 = 0.50% = $ 50 x 5 = $ 250. After 100 pips move Trader makes $ 500.
  • Leverage = 100:1 = 1.00% = $ 100 x 5 = $ 500. After 100 pips move Trader makes $ 500.
  • Leverage = 50:1 = 2.00% = $ 200 x 5 = $ 1000. After 100 pips move Trader makes $ 500.

It is important that you understand this:

Only variable in global trade this year is the real influence, no margin requirement.

In the example above the market moves 100 pips, regardless of the margin requirement.

The only distinguishing factor is the amount of the operator borrows from what is available. Depending on the amount that the trader will have different results.

In the example I gave you five times the capital, was in debt and 5.1 is $ 500.00. If you paid ten times its capital and leverage of 10:1, to be held in the same market moves U.S. $ 1,000 or 10% of its capital. If paid twice his capital 2:1, 2% and so on.

Margin - Leverage - Risk

People mistakenly think that to assume the risks associated with margin requirements, the "leverage" market participants exchange.

How many times have you found a money management or risk management system that says you should not risk more than x% of their capital in a trade?

Let's say our operator uses this technique and not "take the plunge over 10% of its capital" in commerce.

In the example above, in the case of the 2% margin (50:1 "leverage") Trader "uses" 10% of their capital (as margin). (I hope you now realize that in fact runs the risk of their capital 10 times!)

So if this approach is that the risk has been defined in terms of margin that is "prepared" in trade for the following cases: using a calculator!

Trader has $ 10,000 and is willing to "risk of 10%"
  • Leverage = 400:1 = 10% 0.25 / 0.25 = 40. That is, 10% "risk" will be a great 400K 40. Leverage real = 400/10000 = 40:1. The pip value = $ 40.00.
  • Leverage = 200:1 = 10% 0.50 / 0.50 = 20. That is, 10% "risk" will be 20 lots or 200K. Real increase = 200/10000 = 20:1. Pip value = $ 20.00
  • Leverage = 100:1 = 10% 1.00 / 1.00 = 10. In other words, 10% "risk" will be 10 lots of 100K. Real increase = 100/10000 = 10.1. Pip value = $ 10.00
  • Leverage = 50:1 = 2.00% 10/5 = 2.00. That is, 10% "risk" will be 5 lots or 50K. Enjoy the true = 50/10 000 = 5.1. Pip value = $ 5.00
The strategy of risk management itself, and then said in general, do not risk more than x% of their capital in potential losses, therefore calculate your stop loss points before a percentage of capital. Therefore, the stop loss is usually set at 2% or 3% of the capital.

In this case, if 2%, the maximum loss would be $ 200 (2% stake in $ 10,000). However, as is currently the first to calculate the pip value based on the false principle (for the influence of traders), while the traders who are considered "at risk" of 10% stake in four cases.
  • Leverage = 400:1, the pip value = $ 40.00, "the risk of 10%." The stop-loss of 2% must be 5 points.
  • 200:1 Leverage = pip value, = $ 20.00, "the risk of 10%." The stop-loss of 2% should be 10 points.
  • Leverage = 100:1, the pip value = $ 10.00, "the risk of 10%." The stop-loss of 2% should be 20 points.
  • Leverage = 50:1, the pip value = $ 5.00, "the risk of 10%." The stop-loss of 2% should be 40 points.
About clearly indicate that the lack of understanding of leverage can destroy your chances of success.

It also shows that the call management system of money is totally wrong - the theory of the spreadsheet - and it has nothing to do with real profitable business.

Suffice it to say that while "400:1 and 200:1" option is not used much, you'll be tempted by the selection of 100:1 and 50:1 as suggested by most experts there below, accompanied by the required 20, stop 30 pips and 40 all time hit (followed by the direction of market movement inevitable sooner than expected).

  • What is commonly known as leverage is really necessary margin expressed as a ratio if you use all the power to borrow agent allows.
  • The real influence is determined by dividing the capital into the value of your position.
  • Real influence will vary from trade to trade and commerce with a simultaneous increase.
  • The margin requirement has no effect on the risk, if the trade properly with modest influence within your means and not to be used as a risk to the calculation of principle.