Beat the Forex Dealer: An insider's look into trading today's foreign exchange market 0470722088, 9780470722084

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Beat the Forex Dealer

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BEAT THE FOREX DEALER An insider's look into trading today's foreign exchange market Agustin Silvani

A John Wiley & Sons, Ltd., Publication

Copyright © 2008

John Wiley & Sons Ltd, The Atrium, Southern Gate, Chichester. West Sussex POl9 RSQ. England Tclcphone (+44) 1243 779777

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Contents

Acknowledgments

IX

Inlroduclion

x,

PART I THROUGH THE EYES OF A TRADER

1

2

On Markets

3

The Currency Market

9

3 A Rare Breed

13

4

FX Dealers

19

5

Today's FX Markel

23

6 The Players

PART II

THE RETAIL SIDE OF THINGS

27

33

7 Card Slacking

35

8

Don 'l Trusl Your FCM

43

9

Third-Party Services

47

Fighling Back

51

10

PART III

JOINING THE 10 %

55

1I

Becoming a Greal Trader

57

12

Picking lhe Righi Approach

63

vi

ConlenlS

PART IV

FX TRADING TIPS

73

13

Adapting to the FX Market

75

14

Trading Thin Markets

83

15

Using the Crosses

87

16

All About Stops

93

17

Characteristics of FX Trends

97

18

Trading the FED

103

19

Fading News

109

20

FX AnalysLIIi: Who Cares?

113

PART V

DEALER TRADES

117

21

Trading Against Dealers

119

22

The Big Figure Trade

123

23

The Friday to Sunday Extension

131

24

Sticking it to Your Dealer

137

PART VI 25

THE FUTURE

The End of the Beginning

APPENDIX

TRADING "HOW TO'S"

143 145

149

How to Set Up Your Trading

151

How to Trade Price Action

157

How to Build a Position

163

How to Trade Out of a Losing Position

169

Contenls

NOTES

\Iii

177

Speaking Like a Dealer

179

FX Glossary

181

Trading Maxims

189

Bibliography

191

CFTC Minimum Finance Requirement

193

Index

209

Acknowledgements

Thi s book required the expert help and contributions of a wide range of friends and colleagues. Special thanks go out to all o f the great peopl e al MIGFX, whose hard work and dedication to trading gave ri se to thi s project. I wou ld al so like to give spec ial thanks to Richard Hoffman for hi s help and dedicated research , and to the man y industry contacts whose insights proved in va luabl e. Without you thi s book would not have been possible. I wou ld also like to thank the great people at ProRealTime.com for granting mc permission to use their fabulous chans. Every trader should vis it their website and check out their chImi ng packages. for they arc truly Lop-notch in the industry.

Introduction

Over the years, I have tri ed to get my hands on every currency trading book that I could find, bUl as you may we ll know the pick ings are sli m when it comes to

FX literature. Apart from a few notable exceptions. most of the avai labl e materia l seems 10 fa ll into onc of two categories: un abashedly theoreti cal or completely misguided. The dry. outdated, and sometimes esoteric academic works tend to leave the reader with the perception that curre ncy trading is as gentle ma nl y and ordered as the worl d of stamp co ll ecti ng, when in reality nothing could be furt he r from the truth in a market referred to as a "slaughterhouse" where traders routinely gel "chopped up". The FX market I know is one of egos and money, where millions

of do ll ars are wo n and lost every day, and phones are routi ne ly thrown across hectic trading desks. This palpable exc itement has led to the emergence of a second class of literatu re, often mi slead ing and downright fra udulent, where authors promise the reader riches by offering to ma ke forex trad ing "casy". Well, I'll let you in on a little secret: there is nothing easy about trading currencies. If you don ' t believe me. then stop by Warren Buffet's offi ce and ask hi m how he could lose $850 million belting o n the dollar or ask " Kin g" George Soros why hi s short bets lost him $600 milli on not once but twice in 1994. Don ' t these guys read FX trading books? If these in vestment legends can lose bi llions in the FX market, what makes anyone thin k there is anything easy about it? The average retail trader must feel a terrible disconnect between what is described by famous "experts" and their actual trading experiences. Theory very rarely translates into fact when it comes to trading. and real-life FX tradi ng is much more compli cated and tricky th an any guru would have you believe. In this jungle it is a kill-or-be-ki ll ed att itude that marks survival, and the minute you step on to the playing field a target has been placed next to your account number. Reali zing that most FX books in print are either written by scam art ists or academ ics with little real -world trading experience, I decided to put my ow n thoughts to paper. Whil e I ce nain ly do not proclaim to be any son of market wizard, the market ins ight s J h