Hi Guys

It’s hard to believe how quickly the weeks go in.

Welcome back!

As promised in the last Newsletter I am going to define some of the most common terms and discuss their importance for you.

I will split them up into basic forex terms and then I will discuss two types of trading which are commonly employed by most traders.

‘Pips’

These are the units that comprise a forex currency quote. For example the USD/CHF (dollar/swiss) is trading at 1.0250. This means that you would get 1.0250 Swiss Francs for every $1. Now say that the price is now 1.0265. This means that there is a difference of 15. This number is the pips i.e. ‘15 pips’.

What you may not know is that the pips per currency differ in how they are applied. For example JPY (Japanese Yen) are quoted against the USD as follows 103.75 or 103.60 - the pips in this case are to 2 decimal places whereas the CHF and most other major currencies are quoted to the 3rd and 4th decimal place.

A good place to see these ‘pips’ in action is your local bureau de change or your banks quoted currency rates for travellers’ checks etc.

‘Pairs’

Forex is quoted in pairs i.e. GBP/USD, that is pounds (often referred to as Cable or Stirling) against USD, that is £1 to $1 i.e. how many dollars to the pound. This is a bit of an anomaly which is historical but just bear with it for the present. You are probably more familiar with USD/JPY, USD/CHF, USD/CAD - now do you get the picture?

You can’t buy a currency unless you sell the one its ‘paired’ with!

‘Position’

A position is a purchase/sale of a currency pair at any one time that is currently open and is the net amount exposed to the market. This position would be ‘long’ dollars (bought) against ’short’ currency (sold), or vice versa.

‘Quotes’

A currency will always be quoted as a buy/sell price i.e. 1.0250/65. The price that is offered by the bank/broker can be a little confusing at first but remember it this way. The left price is the bank buys USD off the customer and the right side is to sell USD to the customer. So lets say that you deal i.e. buy and sell at these two prices - what is the net effect on your bank balance?

OK, lets assume you have $100,000 and there are no broker charges.

You sell $100,000 at 1.0250 (remember, that’s the price the bank buys the USD at) you get CHF 102,500

i.e. -$100,000 +CHF 102,500

You then sell CHF 102,500 i.e. buy back USD from the bank and they are buying at the rate 1.0265, this means that you have to ‘pay’ CHF 102,650 to get the $100,000 back or receive 102,500/102,650 x $100,000 = $99,854.

i.e.

-$100,000 +CHF 102,500
+$100,000 -CHF 102,650
_________ ______________
0 -CHF 150

This difference in this case a loss is CHF150 or $146 and represents the spread of the bank/broker - the cost to you or me. Spreads are usually no more than 5 pips but it is always best to get the buy/sell quote so as you can see the spread - remember the narrower the spread the cheaper the deal.

You should practice with rates and familiarize yourself with this concept - it is a vital first step in understanding forex. It is also not unusual for your broker to give you a buy price or a sell price - I have found that it’s best get both sides!

‘The majors’

This is shorthand for the major currencies traded. There are 7 of them, these are the USD ($), GBP (£), JPY, AUD (Australian dollar), CAD (Canadian dollar), CHF (Swiss franc) and the EUR (Euro). These 7 currencies make up the bulk of the $3 trillion dollars traded daily.

Now onto Trading Styles

Day Trading

Day trading is pretty self explanatory. This involves the trading of currencies daily and can involve the taking of one position or many positions depending on market conditions.

Rarely are trades held for longer than a day as there is an added cost to rolling over a position to the following day - I will go into this in more detail in a future Newsletter. This is usually the ’safer’ of the two types that I will be discussing today.

Scalping

This is an opportunistic form of trading and positions may be taken for a few minutes and then squared (liquidated). This type of trading usually requires a specialist broker as many brokers frown upon scalpers and terminate their accounts.

I hope you have found some of these forex definitions useful

Next week we will look in more detail at charts and chart patterns!

See You then!!

Hi Guys

A Brief Introduction.

The primary reason for setting up the blog is to help individuals to be successful in trading currencies - that is making consistent profits!

First Things First!

You may already have asked the question - Why should you listen to me? What have I got that sets me apart from the vast majority of traders out there?

Well, the answer is simple. EXPERIENCE!

A Brief Biography is in order!

After University, where I gained a first degree in Business I worked for the merchant banking arm of one of the big 3 Australian Banks. I spent two years trading spots, forwards and crosses on an interbank basis.

I then spent the next six years working for one of the premier British merchant banks working my way up from junior dealer to assistant treasurer. My main speciality was trading crosses and managed positions (Investment currency positions).

After returning to the U.K. I spent 7 years working in corporate finance consulting and continued trading on personal account, mainly gold futures, CFDs and margin trading currencies.

So basically I have both “interbank” and “private account” trading experience. I have been successfully trading for 15 years.

So now you know a bit about me, let me provide you with the first nuggett of information which you may or not have been aware of but makes a crucial difference in the first step to making money.

Interbank trading is NOT the same as private account trading!!

The main reason: KNOWLEDGE!

This knowledge comes in two forms, Market Intelligence and Experience!

Interbank traders see moves “before” they happen. They see the back of large corporate buy/sell orders before John Doe does. They have better market intelligence than private account traders.

Secondly, they have access to information from other traders and can gain experience that helps make the right risk/trading decisions in an instant - their profit - your loss! (Never forget it’s a Zero sum game!)

So, what you must do is recognise that you have some “weaknesses” to initially overcome. These are knowledge about how to best exploit your position in the market i.e. recognising that your market intelligence is more limited and secondly you have to be smarter with the knowledge you will gain and use it!

Keep tuned for my next article which will cover essential terms that you must know and the “types” of trading available to you.