FX Insider

Preface
There are many books out there proclaiming to ‘tell all’
or to ‘reveal the secrets’ to foreign exchange trading, and
there are even more gurus offering advice and suggestions
on how to trade the market successfully. But do any of these
people have any real industry experience in trading foreign
exchange? The answer is invariably NO.
I worked on the front line for 18 years at some of the biggest
investment banks in the world and made over $70 million. If
you want to make money trading FX, then follow me!
Unlike a lot of people out there who dreamed of dealing
rooms and a trading career, I didn’t know anything about
the foreign exchange market until after I graduated from
Economics at University. Sure, I loved to punt, but the horses
and sport were as far as it went. I never owned shares and
never really had an interest in the stock market for that
matter. I just so happened to be playing rugby with a few
guys who were in the ‘game’. After a chat about what they
did (which all went over my head), they convinced me that
I had all the attributes to become a successful Forex trader:
confident, good with numbers, a team player, a risk taker and
an ability to handle pressure situations with ease. So I applied
for a graduate trading position at Citibank. Two months,
one hundred-sixty applicants and five interviews later, I had
landed the job. This was a huge turning point in my life.
I was a sponge for the first few years, learning all the
rules, the ins and outs of the market, the terminology, and
how to transact in the wholesale market. Within three years,
I was making more money than the senior traders who had
been around for years. By 1995 I had outgrown the Sydney
trading desk and was promoted to senior dealer status and
transferred to London.
This was a great move, although it didn’t seem like it
at first. The market is bigger and louder and the traders
are far more aggressive. Being the only foreigner on a fiftyman
trading team, I was quickly put in my place. I sat in the
shadows of the top dogs for a good six months, quietly going
about my business and observing their every move. I was
looking for an opportunity to show my wares and it came out
of the blue when one of the senior guys was off sick. I got the
chance to quote the USD/YEN book for the day, which turned
out to be a defining moment in my career.
I was thirty minutes into the day when the Japanese
Minister of Finance Eisuke Sakakibara (Mr. Yen) came out
with some outrageous comments about the level of the Yen.
I was caught long US dollars and the currency had dropped
over 100 points in seconds. I was down well over 300K. There
was a small group of senior traders laughing and I heard
one of them say, ‘This will put him in his place.’ It was all the
motivation I needed. It was now or never! After the dust had
settled some eight hours later, I walked out of the dealing
room to a standing ovation. I had turned my initial losses into
a half a million pound profit. I had officially arrived in the big
leagues.
Over the next thirteen years I worked in New York, Tokyo,
Singapore, Hong Kong and finally back in Sydney. I learnt to
become resourceful, and my trading became more dynamic
as I endeavoured to stay ahead of the pack and on top of the
game. The one key factor that stands out for me is that all the
traders I met and worked with incorporated the same basic
trading methodology. Successful traders don’t use any secret
strategies; they use the same simple strategies as everyone
else. They are just quicker to modify and adapt them as the
market conditions and driving forces change, keeping them
ahead of the market.
I realised there are three major components to successful
trading. First, you have to understand the market, the
participants in it and how it all works. In today’s market, 95%
FX Insider
of traders are speculators; hence it’s no surprise that 95% of
traders new to the market lose their money. It’s the wholesale
market, the remaining 5%, who control the entire market. If
you don’t know how they trade, then you’re more than likely
going to end up a part of these statistics. Second, it’s the
traders themselves. Self-sabotage is one of the major reasons
traders never realise their full potential. Patience, discipline
and control of your emotional state are imperative if you want
to be successful. Third, a trader needs a structured trading
methodology, incorporating stringent capital management
and a precise trade plan. Having a precise trade plan should
remove the emotions of fear and greed and set you up for
continued growth in the market.
My twenty years of experience has taught me that knowing
when to trade and when not to is integral to success. Staying
out of the markets in illiquid volatile conditions, during
inexplicable events and in particular when the currencies are
in uncharted territory can lead to significant improvements
in your overall performance. It’s a misnomer that traders in
investment banks are trading all day long. I spend the majority
of most days reading newspapers and otherwise occupying
myself to avoid placing ‘bored trades’. Successful traders do
fewer trades, not more.
This book has been written with the clear intention
of giving the retail trader a very real and practical guide
to trading the Forex markets based on my own personal
experiences, incorporating the skills and strategies used by
commercial interbank traders and hedge funds. Believe me,
running with the ‘big dogs’ is a lot more fun and a whole lot
more rewarding than running against them. Understanding
this is a key to your success.
This book focuses on what you need to know to build
your wealth and be a successful Forex trader. I have purposely
left out all the bits and pieces you don’t need to know. This
knowledge is not something I have read in other books or
heard about on various blogs, but is real first-hand experience
from my time trading in Sydney, London and New York for
some of the biggest banks in the world.
Once you have completed the book you should feel
comfortable knowing that you are now a part of the market
instead of a random speculator. You will see the market
through a new set of eyes and be able to take advantage of
the many opportunities the market throws up day after day,
week after week.
Good luck and happy trading.
Introduction
With the Global Financial Crisis (GFC) and the ensuing
meltdown of global stocks, there has never been a better time
to trade in the foreign exchange market. The Forex market
is the largest and most liquid in the world, with an average
daily turnover of four trillion USD. To put this into perspective,
the New York Stock Exchange turns over twenty-five billion
a day. That’s fifteen times less than the Forex market. Unlike
the stock market traders, you don’t have to wait for a bell to
ring.