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Once a Dealer, Always a Dealer

Posted 01-15-2009 at 09:42 AM by Cableboy
The title is the motto of the A.C.I. (Association Cambiste Internationale), the body that looks after the interests of Interbank forex dealers. The idea behind it the motto, is that once you have the skills of a forex dealer, you will always be a dealer.

I think that is true; dealing is a skill that can help you survive and in my opinion, everyone is going to need skills in the coming years.

You see, most people in Europe and North America under the age of 35 have never experienced a recession in their professional lives. There have always been jobs available. This is really true of financial markets.

Things have changed - so fast that people haven't really grasped what is happening. Due to 'globalisation' and the speed of Internet communication, businesses are putting on the brakes helped along by the fact that banks aren't prepared to lend any money. At the time of writing, companies are seeing the bottom fall out of their order books, so a lot of misery is in the pipeline.

35 years ago in Frankfurt-on-Main, Germany, I met a very interesting character. He was very wealthy, having been a broker since he was turned down as a pro soccer player by Borussia Mönchenladbach, a leading Bundesliga team. Unfortunately, he had a huge drinking problem, which eventually killed him. He was about 35 when he died.

I was at lunch with him where I noticed and admired his Patek Philippe watch. I asked him what was the point of having such an expensive watch, when my Casio told the same time. He replied that one day, he might have to trade the watch to live. I was surprised, but he told me that was a small boy in Germany after WW II, and he saw what it was to be poor. His father had supported the family on the 'black market', selling cigarettes and nylon stockings obtained from American soldiers.

His feeling was that we would face hard times again, where you would have to know the value of anything at any particular time and in any particular situation. Fortunately, from that time until now, there has been no need to put those skills to the test.

I think those times may be about to change - for some, if not many. It is a shame that many people have lost the skill of survival - economic survival.

It is absolutely no good to give up and do nothing. Even in the European welfare states, you are going to lose your self-respect if you put yourself under 'administration'. No, you will have to become a fighter and a dealer to survive.

OK, so where do I come in and how is this relevant?

The good news is, that you can gain the survival skills by dealing in the virtual market. Why? Because firstly, you are testing your skills of survival in a market and secondly, you will learn a lot about crowd mentality at first hand.

As my German friend said, the foreign exchange market teaches you how to get a box of oranges at a low price and sell them off at a higher price, if that is what you have to do to survive.

I am just hearing that the only survivors in Zimbabwe are the 'street vendors'. The lesson of total chaos in society is 'sell something or starve'.

I had a conversation about the relevance of the virtual market to 'real' trading with my friend Steve Moxham. Steve is the guy who runs , which is a very good resource for retail market forex traders.

My point was that a retail forex trader would gain a lot of knowledge about the market by being a 'market maker' in the virtual forex market. This is because a trader will start to understand the 'flows', which are the currents of buyers and sellers in the market. You and I would only see the results of these flows in the charts. Charts have been 'sold' as the vital tool to trade forex. But let me tell you: charts for intra-day traders were not available until the late 1980s. Yet, traders made money before that. How? Because they were 'in the market' and could judge the strength of the buying or selling by the 'price action'. Price action and its influence is very hard to define, but if you have been an Interbank trader, you know what I mean. Call it pattern recognition or whatever, but it becomes intuitive to a good trader.

Experienced traders can judge the liquidity and hence the magnitude of changes. I admit that this can sometimes misleading: I know a trader at a very large Swiss bank who was given a £1 billion order just before the release of some key economic data from the Uk. He decided just to put a bid in the market at a neutral level, and he got the £1 bn in 5 minutes in about 400 deals!

Sometimes, though, you can feel what is going on, especially so if you are the one who is the 'market'. This involves constantly having a dealing price out there, dictating the level to the market. It is like a drug being the 'market' - a tremendous sense of power.

You can rarely 'move' the market, but you can dictate the price short term. At least, until the next dealer wants to be the King of the Heap.

People, especially journalists and market analysts, think that they can explain the moves in the market. "The Pound went up because of comments by the Bank of England". Rubbish! The market went up becuase their were more buyers than sellers. You can't tell me that a chartist can foresee that a hedge fund has been forced out of a £2 billion bond position by margin calls and therefore suddenly is out there selling the pounds, which moves the market 150 points!

Intraday forex is largely a random walk, and that is what the virtual market will teach you!
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