Speculation is Business not Gambling

I bought the book " The Alchemy of Finance" by Goerge Soros few years ago but put it aside. Recently, while I am involving in FX market, I need to read it again. To those who wish to trade FX, I advise you read this book. If you don't understand the contents and terms used by this legendary speculator, don't touch FX market. I feel a bit disappointed when the book tell a little about currency market.(Chapter 3 ) However, the whole book give a very impressive views how the market (both stock and currency market) and the participants interacted by postulating the reflexivity theory.No doubt after reading it, Soros is pro claimed as the legendary speculator.

His theories mostly related to psychology aspects and fundamentals values. Most of the novice investors dislike the terms "speculation" or "speculators". These words carry a bias of negative in their mindset, they prefer hearing "value investing" which is best to describe Warren Buffet.

Whether Buffet or Soros, both of them have one common in their investment priciples. They tend to discover the undiscovered truth before others. I would like to touch on Soros in this article.

As an active participant in FX market, I realise what he wrote is true especially in day trading. Most of my day trading is based on intuition and instinct, I tend to place an order before knowing the reasons behind it. I admit I am not a good day trader and do better in swing trading. However, I will exist the trade as soon as I feel uncomfortable about it. My exist can be profitable or incur losses.

The second element is speculations on the currency movement in long term. Soros admitted he is not good in catching the reversal points which most of the traders failed including me. I have a good friend from Bank of Mitsubishi Tokyo in Singapore who act as my adviser in yen trading. I was told yen will appreciate until 85 (which is a shocking figure to me). He is a pure fundamentalist and have some market information. I made a mistake by hedge it at 95, I set the the trigger at 90, I always provide margin of safety since my fund is limited. While I am writing this article, yen is heading back to 95. It reached 91.87. Catching bottom and reversal making me in doubt now. I rewrite my rules now; never predict the bottom and tops. As a conclusion, I contend speculation is business, not gambling.

Which pair you choose?

Forex Market is just like a market place with more then 50 products to choose. Are you looking something to buy/sell? Which pair you choose? Interesting questions for those who want to involve in FX trading business. Even though there are more the 50 pairs to choose but only handful of pairs that really attract forex trader, namely; EUR/USD, USD/JPY, GBP/USD, USD/CHF, USD/CAD and AUD/USD. (Refer live forex quotes on the right)

When we have the capital/equity(term used in fx trading), we need to choose the pair(s) we wish to buy. Keynesian said that with the limited capital, we always try to maximize our profit. Keep that in mind, all the pairs mentioned above have different characteristic and you need to do a careful selection before touching them. Some of these are very hot and can burn your fingers easily. It is not easy to place a trade, the moment you place it, your account is already incur a loses with the spread differences. The spread can range from 2 pips to 5 pips. The 2 pips carry a big amount in your account if you highly leverage it.

I started FX by selecting USD/JPY which I thought is less volatile at that time. I was wrong. In certain events, it turns to be the most volatile pair. Now, I started to look other pairs and start playing with it. I found that every pairs offer different risk/reward concept and also very volatile in certain time frames. Anyway, if you are smart enough to time your entry, every pairs promise you the return in the long run.

A lot of my prospects asked me."Are you guarantee to make money in Forex Market?" I replied them. "Are you guarantee to make money in any business you venture in?" Trading Forex is like running a trading business, you need to know and experience every aspects in the market place to find the opportunities to make money. It is important to see the track records too before you invest in the business. It does not give you 100% to make money, but if it is more then 90%, you should consider.

"In China We Trust"?

I was reading an article written by a local fund manager which he seem to "Pro China" economy performance. I amused by his views. Well, no doubt China has emerged as the biggest 'tai ko' (Big Brother) who is holding more then USD 2 trillion reserve. Wow! That is a big number! You will notice the term "USD2 trillion" and not "EUR", "YEN" or any other form of currency. Almost 65% of the reserve is still in "In God We Trust" hand. Other in Euro, Yen, Gold etc...

Why China is still buying "In God We Trust" paper printed by Treasuries of the USA despite premier Wen Jia Bao critics the safety of their asset under USD.

1.No choice! Yes, no other nation is big enough to issue that kind of debt and of course not to mention serve the debt.

2.Federal Reserve is still the de facto world central bank which have the license to print money and recognised by almost 99% of the nations. By saying this, China can resale the debt to other nations by selling USD dominated debt. (It is unlikely since no other country has the financial muscle to do that). Noted that most of the super power economy nations are already owned the debt of "In God We Trust".

3. The "win-win" situation deal. USA to China:"(Tung Zhi).... You buy my debt, I buy your products" China export the products in exchange for the 'crazy' spending of Americans.

The situation is changing since China want to reduce the dependency solely to USA. But then again, you just can't ignore the country with the strongest purchasing power of 330++ millions population.

Indeed, China is still very much depend on the USA market. The world is entering the state of economy re balancing after the painful lesson caused by the USA. If the USA able to emerge again and learn from their mistake, can we still holding the slogan "In China We Trust!" or should we revert to "In God We Trust!" ...Have a deep thought!

Is "Luck" playing the role in trading Currency Market?

"Is luck playing the role in trading Currency Market?" a good friend of mine asked. I am giving him the answer now. "No"... If you think one trader can make more then 5% per month consistently based on luck, I advise you go to casino. Forex Market(FX) is not for those who want to try their luck. Then what? I was told to conduct FX course too, I humbly quote " I am not qualify." I recommend those who want to spend thousand of dollars to learn Forex simply flip the newspaper and google it will find many "Gurus" in the market.
Many people who go in the FX with as little as USD5000, and thinking to make million out of it. This is totally a wrong concept, it is better you go to the lottery shop and spend your money there. I should turn that statement around, if you have US1 million, you can easily make USD5000 out of it. Sound too little, then you won't survive long in FX market.
Let me share my views with you. If you don't like it, please give me constructive views and not try to promote your stuff here.
Beside all the basic rules which you can easily find on the Internet, trading successfully in FX is based on the personal style.
There are so-called scarp traders can do very well in their trading and make millions per year. This group have at least 2-3 screens in front of them and treat FX like a printing money machine, they act like "money changer" which you notice in the hypermarket. Sell and Buy in the split second.
The second group is so-called "swing trader". They will wait patiently and enter the trade when the opportunity comes. It is not easy to be in this group too. "The more you trade, the more you fail" is applied in this group which is totally opposite compare to the scarp trader.
The third group views trading currency as long term investment and apply "fundamental" analysis 90-100%. The long term investor will buy/sell and hold. If you want to be in this group, please make sure you do your margin calculation carefully. If the market is in your favor, you can make a lot by looking at your screen less the 3-4 times per month. It may go the other way as well.
The final group which I call it the "Ultimate Trader", simple...it combined all the 3 groups above.
When you have big fund and combined with all the basic rules, you can join this group. Can you find the Holy Grail in FX? Nope, I don't think so...

Do Not Fall In Love with the Forex Market... Don't hate it too, the market is always RIGHT!

This is one of the Basic Rules : Like the Forex Market but please don't fall in love with Forex Market! Don't hate it too, the market is always RIGHT!

A lot of people will treat Forex Market "love at the first sight" and hate it once they fail to get her. To "marry" the Forex Market (she/her), it is similar to marry your wife/husband. It is not easy, you must understand the psychology of the person. If she had a quarrel with you and you kept it up, it would create a nasty ending. Once you know her, you will tend to keep quite and stay cool, most of the time the ending will be better. When the situation is calm, you start to talk to her again, then make her laugh, everything will be back to normal. Of course, most of the people go in Forex Market do the opposite way and resulting a nasty ending. If you fight with the girlfriend/wife, most of the time you are loser. If you fight with the market, same it goes. If you hate the market, you will never "win" her heart. To stay long in the "marriage" with the Forex market, you must treat "her" well and remember she is always right! (This might be true in our life too.)

95:05 (Warning: FOREX Market is not for everyone)

I have been requested by someone to write the concept of 95:05 in Forex market. Yes! listen carefully, 95% forex players/traders/investors/speculators (whatever you name it!) lose money in Forex Market. Only 5% can make it and profit from the market, the winners obviously will score high returns with average at least more then 3% per month.

There are no secret why this group of 5% can make money. In fact most of my blogs give a very clear picture on how the Forex market works. There is no short cut, it is just like other type of investment (stock market, mutual fund or even property), you need to know the basic rules. A lot of people jump in the game without apply the basic rules. (Can you use mutual fund style in FOREX? certainly a BIG "NO"). Once you can conquer the basic rules, you must like the game. It is just like any other games and great players; i.e.Tiger Wood hit 6000 balls per day to make him the indisputable world champion. Please don't get me wrong and trade as many as you can in Forex. (The rules in Forex is totally different with golf!).

Most of the players play Forex by treating it like a casino. They think their bets can give them 100% return instantly. Once their bets is right for few times continuously, the "GREED" horn starts growing from the head, they start high leveraging. Then... you know the ending. It is like the same scenario happen in the casino, you will see most of the players lose all the money and the house will always win.

For those who have the Forex account, do you notice there is a very small printed Risk Warning under the customer agreement stated "Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading, and seek advice from an independent financial advisor if you have any doubts."

My advice to those who want to trade Forex themselves read and fully understand every single word under this small printed clauses. It carry a BIG meaning before you go in to this "Dangerous BUT High Reward" game. If you think you are not suitable to play this game, stay away!