Trade the Market Like the Pros

Today’s investor has a wealth of tools at their disposal that were unavailable to previous generations. With the use of the Internet based and mobile trading platforms, “Day Traders”,”Speculators”, and Hobbyists are better equipped to wage battle on their own terms rather than be at the mercy of the market. A professional is one who has taken the time to perfect as best they can their methods of trading from which they derive their income.

However, for the average investor out there the waters that enter into are a vast ocean infested with not only delectable and compelling treats but its also filled with dangerous creatures looking for their next prey. We won’t jump into the deep end just yet as there has to be training in the shallows to ensure that you’ll have a fighting chance to survive in the vast ocean known as the forex market. The terms “forex” or “fx” are acronyms for the term Foreign Exchange. The forex market is the largest market in the world trading in excess of $4 billion daily. It is the king of all markets being that it is at least 30 times larger than the combined volume of all U.S. equity markets.

So what exactly is the forex market you ask? If you’re in the U.S. you probably don’t have that much of practical experience when it comes to foreign exchange but in Europe and Asia the conversion of money to do business has been going on for centuries. In Europe with introduction of the Euro most forex exchange has been eliminated but in Asia it still is a way of life. Traders either buy or sell a currency against their own to either profit or hedge against the possibility of losses due to the exchange rate. For the simplest example of how this works lets look at the British Pound vs. the U.S. Dollar. When it was at its strongest the Pound/Sterling (GBP) was close to 2.00 to the U.S. Dollar (USD) for Americans traveling to the UK this meant that all the prices you were presented with were some 100% above the value of the USD. For Brits this meant that to travel to the U.S. meant that everything that you wanted to buy was at a discount of 50% when converted into pounds. So Brits could take lavish and longer vacations to places like Florida or

New York and of course real estate was a great bargain as well. Americans would be faced with cups of coffee costing almost $5 and to go out for a meal in London for instance at an average restaurant or pub could easily set you back $100. So foreign exchange is very important and for those who trade back and forth for profits know that the fluctuations in currency values represent major opportunities for profits. By now you know the USD has weakened significantly and the result has been that the Euro (EUR) as well as the Pound (GBP) please have strengthened in tandem with dollar weakness. In another installment of our series we will go over the reasons for this USD weakness and why it can actually be beneficial to the U.S.

We’ve all seen the brokers trading in the “pit” or on the trading floor in an open outcry system bidding and buying and selling all types of contracts. Understand that brokerage firms are not necessarily trading on your behalf, but of course on trading on theirs. In the case of the futures market brokers are not ever cheering for you to have a winning trade unless you are in the same positions as themselves. Just like in a casino the odds are not in your favor. This isn’t meant to scare you off or deter you from trading it is just the reality of the marketplace. There is a “zero sum” game afoot here and just like in the casino when you are winning its probably best not to press your “luck” for too long. Sooner or later the house will recover their losses due to payouts.

The pros know how to trade as we have been doing it for many years, but we all had to start with the basics and although I know many of the major players in this market and honestly like me they put their pants or skirts on one leg at a time and there aren’t too many “experts” only those with years of experience under their belts. So you must understand the basics and you will have to learn how to control your emotions as they will motivate you to act in a way that will usually make you very very sorry you didn’t keep them under control.

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