http://www.forextradermentor.com/TMforum/blog.php This is a discussion forum for members of the virtual forex trading community who are interested in developing forex trading skills by participating in simulated forex trading sessions. en Sat, 04 Feb 2012 17:24:24 GMT vBulletin 60 http://www.forextradermentor.com/TMforum/images/misc/rss.jpg http://www.forextradermentor.com/TMforum/blog.php http://www.forextradermentor.com/TMforum/blog.php?b=13 Fri, 13 Feb 2009 11:08:14 GMT Five Traders and Five Risk Managers are traveling to go to a conference. Each Risk Manager goes to the machine to buy a ticket each,whilst the five... Five Traders and Five Risk Managers are traveling to go to a conference. Each Risk Manager goes to the machine to buy a ticket each,whilst the five Traders only buy 1 between the five of them.

Just before the ticket inspector arrives the five Traders lockthemselves in the bathroom...when the inspector sees the locked door heknocks and shouts "tickets please!"...at that point the Trader with the ticket slips it under the door. The inspector, satisfied that he has seen the ticket moves on...

The Risk Managers are really angry!On the way back the five Risk Managers buy only one ticket, whilst the Traders buy none.

As they board the train the Risk Managers immediately lock themselves in the bathroom.Seeing this happen the Trader runs up to the door, knocks and shouts "Tickets please!"...at which moment the Risk Managers slip the ticket under the door.

The Trader takes the ticket and goes off...

The Moral of the story: Risk Managers always try to apply the Trader's methods without ever understanding them... ]]> Cableboy http://www.forextradermentor.com/TMforum/blog.php?b=13 http://www.forextradermentor.com/TMforum/blog.php?b=12 Thu, 12 Feb 2009 20:16:55 GMT Working as a market maker in TraderMetrics teaches you many lessons. Whether you are a forex trader or not. It teaches you to be patient for one... Working as a market maker in TraderMetrics teaches you many lessons. Whether you are a forex trader or not. It teaches you to be patient for one thing and not to panic.

I am sitting through a session at the moment where at the moment I am up. I have been down and have even been over the limit one or two times. My strategy has been to trade my average rate down, when faced with a loss. It was clear, from the way I was accumulating pounds, that the market was selling off, but with the absence of other players to offload my position, I had to hold on to a rather large position. Instead of being frozen into inaction, I continued taking in trades from my customers, selling the surplus position when I could. This meant I was always near my maximum limit, but I figured that the market would stabilize at some stage, then the clients would help me to reduce my position.

Sure enough, my average rate was getting lower, and eventually I was long just a handful, when the market finally turned.

Now, perhaps you are saying that I should not have gotten myself into the situation in the first place, but in the absence of other market makers, you soon start to accumulate other people's position. Call it gut-feeling or whatever, but it is true to say that you start to get a feel for what is going on and with concentration, it is possible to make some order out of randomness.

It is much easier to make money when you have profit on the book. This is not because you are more cock-sure, but once you get into a rhythm, you will find that you get the measure of the market and earn accordingly. This assumes that you can see the danger signs building up, and this is normally when you can't find anyone to offload your position at a profit.

In a market with many players, it is important that you don't panic, because I think there is an animal instinct that we share with carnivores - we can smell blood! At the same time, you have an obligation to abide by your position and risk limits.

If you are not sure what your risk limits are, as opposed to your position limit which is found in the profit/loss tab of the position statistics, you can find your immediate RAROC position size in the real-time risk/performance analysis.

Incidentally, the great thing about Tradermetrics is the number of statistics that are generated. Did you know that at the end of every session, you can add your trading statistics to a database? This is called the dealer evaluation. You will find it in the TraderMetrics start menu. When you open it, you should save it as a new database.

When you have completed a trading session, from the Dealer evaluation window of the statistics viewer, you can click the 'Write Dealer Evaluation File' button. Then, in the Dealer Evaluation, click on "Read from File", and your data will be entered in the database. Click on your dealer name to view it. In subsequent sessions, you just have to remember to use the same dealer name each time. Then, over time, you will be able to track your performance! ]]> Cableboy http://www.forextradermentor.com/TMforum/blog.php?b=12 http://www.forextradermentor.com/TMforum/blog.php?b=11 Wed, 04 Feb 2009 10:11:30 GMT (This is a bit of fiction drawn from correspondance I have)

"Hi

I am writing this because I have been a FOOL! I got tied up in the forex market and within a short time, I have lost most of my savings.

I was really lucky (though I thought it was skill) in 2002. I managed to buy a condo with a cheap loan and when the price moved up, my mortgage broker asked me if I wanted to leverage my free value to buy another apartment to rent. In a short time I had 5 properties! Easy-peasy! I sold out in 2006. I thought I could walk on water. I was a real real estate investor.

Looking around for other things to invest in, someone told me about the forex. I had never heard about it before and the only forex transaction I had ever done was to by some pesos to go on vacation.

This sounded really good. I could see that this was fairly easy to understand: There were two currencies and one went up or down relative to the other, and the good 'ol US Dollar was often one of the currencies involved.

I looked at oil and bonds, but it was when "Forex Made Sleasy" came to town and offered a free seminar in a downtown hotel. I saw the infomercial and it sounded really good. A two day free seminar. It sounded very reasonable and the speaker was very convincing. He said that he had made a fortune by just following the signals. These signals were provided by a bit of software, which showed some green arrows when to buy and sell. He even offered to open a broker account for me.

Of course, I had to pay for the system, but $5,000 didn't seem too bad. I was going to make that in a couple of days.

So I opened my account with FX Crapital Markets, paid my $100,000. Wow! They were going let me trade a whole $10 million bucks! I was going to own this market.

I went home, bought the latest PC, got a DSL connection. I bought 3 screens, so I could see all those pretty charts. I set up my office as a trading room - even got clocks on the wall to show the times in Hong Kong, Dubai (wherever that is!), London and New York. I was a real wheeler-dealer.

I was told that most of the action takes place in London, so I set the alarm to get up at 3 a.m. There was the first signal! Buy! So I bought. I had decided to risk 10% of my capital and the software said I could trade 10 'lots', so 1,000,000 Euro (I was trading Euro/dollar) . I had heard about stops, so not wanting to risk too much, I set this to 10 'pips' below where my entry order was, and I set my limit to 10 points above. There were no commissions, so I knew where I was. The signal was right! I made $1,000! It was the quickest grand I had ever made.

My, the elation! I was hopping around for joy. I did a mental calculation that by the end of the week, I would be buying a Ferrari!

I waited for the next signal. Sell! I sold, $1,000,000 on the same conditions and bingo! A winner!

I thought that this was just like falling off a log, so I figured that the next trade, I would bet 25% of may capital! Only this time, I was 'stopped out' . I decided to do the dollar against the British Pound instead of the Euro. Wow! does that move or what?

I was now down $500 for the day.

The next day, I went back to the 10%/10 pips, but got stopped out. The sick thing is that the market went the 'right' way shortly afterwards. I could see what the problem was. It was my stop loss.

So now, after 6 trades, I was down $3,500. What had happened to my initial success. I was depressed.

The next trade, I bought. I set no stop or limit. The market went down initially 20 points. Ok, I thought, I will be cool. It is 'only' $2,000. It went down another 30 points and now I was scared! $5,000! What the hell should I do? I must have sat there for 5 hours watching the market drift between a loss of $1,000 and $5,000. I was looking at the news, the charts, looking for good reasons (as if I would know that!) why the market should go up.

At last I hit break even and even a small profit. I took the decision to take the profit. $500! Well, a profit is a profit, after all.

Anyway, I thought that was a reasonable way to approach it, but after 3 bad signals, which cost me $12,000, I decided the software was a piece of crap.

OK, I thought, I will enrol for the broker training course. That was fascinating - all those chart systems, Japanese candlesticks. I learned about hanging men, doji's, moving averages, whatever. I was going to watch 10 chart studies and when they all aligned, bang! I would trade.

I was really into this forex - better than working. Some days I had good days and sometimes bad, and at the end of the month I was actually ahead!

However, things went pear-shaped after that. I started noticing funny things happening with the broker, especially when I put in a stop loss. My customer support person had called me and warned me about not setting stops, saying it was a bad trading policy.

One day, I had a position, and has set a stop. Not a lot was going on, and I went out to get some coffee. When I came back, the market went up above my entry level. I looked at the position - but it was gone! I should have had $15,000 profit, but instead, there was a $5,000 loss!! I had been stopped out, but I couldn't see on the chart system I had invested in that the price had even been at my stop level!

I called the broker, and he said "Oh yes, you were stopped out". I protested, but he simply said that the market had traded down.

I was so annoyed! I went in and bought the market - but of course, it was the top of the market. By the end of the day, I was overall $45,000 down! I felt sick - and scared.


Forex was not so 'easy' after all. It's funny, because I am a reasonable golfer. When I started I took lessons - otherwise I would have been a rabbit golfer. I sure feel like a rabbit trader now!

To add insult to injury, there were some additional charges on my account, for 'roll overs'. I don't know what they are, but the broker wanted about $3,000.

My forex adventure is over. Luckily I got out with some money. Including software, broker charges and losses, I am down $60k out of my original $100k in 2 months.

Forex? - complete scam!:eek:" ]]> Cableboy http://www.forextradermentor.com/TMforum/blog.php?b=11 http://www.forextradermentor.com/TMforum/blog.php?b=10 Sat, 31 Jan 2009 13:37:59 GMT One of the frustrating things about logging on to a TraderMetrics Network session, is aligning the IP address of the server. This normally means... One of the frustrating things about logging on to a TraderMetrics Network session, is aligning the IP address of the server.

This normally means that you have to open the tm.ini file, find the network settings area and change the IP address:

Network Settings
;----------------

;The following section defines the data for the Network Settings

[Network]

;The server name, IP and port number. If set, TraderMetrics will attempt to use DNS
;to lookup the IP address of the server from the name. If this fails, the IP address
;will be used it is set.
ServerName=
ServerIP=192.168.2.7
ServerPort=2000

Where the ServerIP is the address you should change.


However, I have discovered an easier method to set up a session without having to change the IP address every time. You see, the reason we have to issue a new IP address is that our ISP has the policy of dynamically changing the IP addresses every day. This is a quite sensible security measure, common to most xDSL services.

I found a service call DynDNS which allows me to set a URL address in tm.ini. The service then detects the IP address that is temporarily applied to my connection, and reroutes traffic from the URL to the IP address. This in turn, comes to my router's firewall, where it passes through a "DMZ". This is so that an individual computer on my local network can be 'seen' outside of the network. Again, this is a security measure, because only one port is available.

Most routers allow you to do this. You simply



create a proxy for that PC that you are running TMNS on.

You then register at http://dyndns.dk/ and create a name for the service (not tradermetrics! - that is taken). It is free, and there are probably services similar to this in your own locality.

You simply ask your 'clients' to change their network settings by entering the server name and leaving the server ip blank, as below:

;Network Settings
;----------------

;The following section defines the data for the Network Settings

[Network]

;The server name, IP and port number. If set, TraderMetrics will attempt to use DNS
;to lookup the IP address of the server from the name. If this fails, the IP address
;will be used it is set.
ServerName=tradermetrics.dyndns.dk
ServerIP=
ServerPort=2000

;Establish connection time-out
TimeOut=60

As long as you have logged in to the service while the session is running, your 'clients' will be able to see your session :) ]]> Cableboy http://www.forextradermentor.com/TMforum/blog.php?b=10 http://www.forextradermentor.com/TMforum/blog.php?b=9 Wed, 28 Jan 2009 20:07:07 GMT No, this is not my confession. It is a compendium of various conversations with forex brokers. Not the Interbank variety, but those who work in... No, this is not my confession. It is a compendium of various conversations with forex brokers. Not the Interbank variety, but those who work in institutions that 'serve' the retail customers.

"I got into this business because I was told it was easy money. It is commission only, but there are so many rabbits out there, it is hard not to make money.

You see, my firm delivers what the punters want, namely a dream. A dream of quick profits by trading forex, foreign exchange. We even run adverts on the business TV channels, offering 500:1 leverage in 48 currency pairs. 500:1 leverage - ha! that is guaranteed to wipe the punters out in a very short space of time.

But there is no shortage of punters. They are lining up to give their money to us. We 'churn and burn', and there seems to be a never ending line of idiots.

Sure, we offer 'training' and charts, but you know the old saying 'Give a man enough rope and he will hang himself'. The chart thing is funny. One of the old guys says that in the 'old' days, they traded without charts and made money, but now everyone has to have a 'system' and there are hundreds of studies. No matter that they all give conflicting signals!

I think it is the pretty colors that does it. Like moths around a light bulb.

So, we teach them how to lose money under the guise of teaching them to make money. We tell them that they have to set stops and watch the charts. They get emotionally involved in the trade, mess around with the stops, run their losses and cut their profits.

It is plain that they are all dreamers. May as well buy a lottery ticket. Most of the customers get wiped within a week or so. They just panic and end up betting the shop. Those that are a little more savvy, we get them too. We just widen the spreads when there is news, or overnight, and stop them out. None of them has a clue how to set stops and limit orders Why? because we don't tell 'em and we are not likely to.

I don't know how we get away with this; it is a license to print money and the 'regulators' don't give a damn. Totally unregulated, that what it is.

Our owners are getting greedy, though and are introducing non-broker desks. Ha! just a more streamlined way of ripping off the clients. A lot of thanks I'll get when they close down the broker desk. I'll have to go on sales or customer support and listen to them whining about losses.

The latest 'wheeze' is automated trading. This is great because many of our customers sleep while the action in Europe is taking place. The trouble is, for some reason the 'scripts' don't always work and what is more, we can see exactly what is going to be triggered when and why.

Apart from that, we have introducing brokers driving the dummies into our business. These are people supposedly offering services, but actually they are just getting us custom for which we pay handsomely.

I can't see this business coming to an end. Sure, we have lots of punters who punt their life savings, but we also have people who have made it rich doing something else. These are the worst! I don't know how they originally made money, but they believe they are the greatest traders alive. They don't even stop when they could get out with some of their fortune intact! Well, easy come, easy go.


And those guys from the MidEast are the best. All that oil money. They think this is a casino! They place huge amounts on deposit with us. They think it is a segregated account - hahaha. Anyway, we earn big time on that too, plus the roll-overs.

Anyway, dropping a couple of million in a couple of hours is nothing to these guys. Well, caveat emptor is what I say!:p" ]]> Cableboy http://www.forextradermentor.com/TMforum/blog.php?b=9 http://www.forextradermentor.com/TMforum/blog.php?b=8 Wed, 21 Jan 2009 12:06:46 GMT A New universal currency

I love forex trading, but sometimes I think the whole concept of currencies is one of man's more stupid inventions. Why? because they are not really a store of wealth. Inflation basically destroys wealth, and exchange rate movement is just this wealth being competitively destroyed by the policies of different governments.

That is why gold is so strong at the moment: It doesn't pay interest to hold gold, but it is a super store of wealth. Why? Because gold is a very stable metal. You don't physically have to have to have much to be wealthy, because it is dense. You can't dilute or destroy gold - it is an element that doesn't bond that easily that it will corrode.

However, there is a better store of wealth - energy! You cannot destroy energy, only transfer it. Therefore it is a constant and therefore the ultimate store of wealth.

Peter Chapman, an English writer, wrote a brilliant book about this in 1975. In it, he said that everything could be priced in terms of energy. This is because anything and everything we do needs energy to be done. We need food, our cars need fuel, to make a pencil takes a distinct amount of energy. Therefore, a cost of energy can be calculated for everything. (He also said, and this argument is VERY valid when talking about CO2 emissions, that the energy cost of building a nuclear power station far outweighs the amount of energy produced over its lifetime)

Now, if we had a unit of currency called the kilowatt hour, we could quite easily deal with it. You would get paid in Kwh into your bank and when you wanted to buy food, you would go to the shop and buy your chicken, which would have a Kwh production price. The most energy efficient farmer would produce the cheapest chicken. It would be easy to buy gas or electricity because you would exchange your Kwh for - yes, you got it - a Kwh. Normal currencies could be replaced or exist as they do now. It would just be that instead of paying say, $50 for a barrel of oil, you would pay 50 dollars for 1,700 kwh. (Barrel of oil equivalent (boe) = approx. 6.1 GJ (5.8 million Btu), equivalent to 1,700 kWh). That means that 1 kwh would cost 2.9412 cents If the price of oil rose to $147 per barrel, then the price would be 8.6471.

OK, why don't we just use oil as the currency? Because it is not homogeneous. There are also many other different forms of fuel that would compete, so turning it around and using the ultimate constant - the unit of energy - is the logical choice.

I think that all currencies would eventually be replaced by kwh, because we use energy in everything we do. Otherwise, energy would be the ultimate gold standard, because there is so much around (even though we cannot 'capture' it).

So, if there are any politicians around - wake up and get real. Currencies are not necessary!

If anyone would like to take up the discussion, you are very welcome. ]]> Cableboy http://www.forextradermentor.com/TMforum/blog.php?b=8 http://www.forextradermentor.com/TMforum/blog.php?b=7 Mon, 19 Jan 2009 12:36:28 GMT There is an article in the Daily Telegraph today... There is an article in the Daily Telegraph today that warns of a possible exit by the Irish of the Euro. Now, wouldn't that be something?

An Irish economist has said that the Irish Government should threaten the EU, that they will pull out of the Euro unless they get more help to handle the economy. Ironic really, because Ireland has greatly benefited from being in the EU, and hence the Euro.

But I can see his point. The Euro is a great idea in times of economic prosperity, but a rubbish one when there is economic turmoil.

I think it was flawed from the start, and I have always said so. The idea that you can have monetary union without the possibility of fiscal transfers is ludicrous. The United States has one currency, but they have the possibility of moving funds (federal tax money) from one part of the country to the other in times of economic problems in one part of the country.

In Europe, there is no mechanism to do this. If the Irish bank system goes bust, Angela Merckel can hardly raise taxes in Germany to pay for its rescue. The Germans will not accept that - believe me, I have lived there.

I always think of the book, Gullivers Travels, when thinking about Germany's position in the Euro; like a giant being held down by the Lilliputans.

Germany has suffered from the relatively high interest rates caused by the smaller EU countries having no fiscal discipline because the consequences on their currency is non existent. In those smaller countries (i.e. everyone except Germany), the interest rates have been relatively too low, meaning massive credit has been created. Hence the problems now.

When you lock a country's currency, you lock the interest rates. That turns two economic variables to constants, which means that the other variables are more volatile. The end result of it all is lower competitiveness and unemployment, because Euroland has high relative interest rates.

You can see it in the bond spreads beteen Germany and Italy, for example. The system is under strain. If there is 15%+ unemployment in Spain or Italy, there will be social unrest unless a populistic politician steps in and resolves the problem by leaving the Euro. Now, who could that be, I wonder?......

So, if the Euro broke up, what would happen?

Well, the demand for forex dealers would go through the roof! Apart from that, we will probably trade Italian Eruos against German Euros, just like we have three Scandinavian crowns as currencies.

So, let's see what happens..... ]]> Cableboy http://www.forextradermentor.com/TMforum/blog.php?b=7 http://www.forextradermentor.com/TMforum/blog.php?b=6 Thu, 15 Jan 2009 10:42:44 GMT 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... 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 Go-forex.net , 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! ]]> Cableboy http://www.forextradermentor.com/TMforum/blog.php?b=6 http://www.forextradermentor.com/TMforum/blog.php?b=5 Tue, 06 Jan 2009 09:47:38 GMT I was brought up in the London Foreign Exchange Market. I am very proud of that. Here was a job where no two days were the same, people called a... I was brought up in the London Foreign Exchange Market. I am very proud of that. Here was a job where no two days were the same, people called a spade a spade. Tempers and egos flew, but we all met down the pub as friends after work.


Yep! That's me at a busy fx desk - ca. 1984



The bond was so strong that there is still a club of veteran dealers that meets in London
once a year, the 'Ancient Marketeers'.

So what was it that created that culture? I think it was because every participant in the market had to be capable of 'making a price'. That is, to be able to quote another dealer a 'two way' (bid and offer) price that was good for at least $1 million. If you could not do that, then you weren't one of the gang.

This made people very interdependent; when you quoted a price, you had to be sure that you could find someone else to quote to you. It was called reciprocity.

Now, all dealers were not equal. Some were out and out 'jobbers', who kept positions for a very short time and relied on banks around the world calling them to create liquidity. EBCo was one of the prime banks. They turned over huge amounts. Before electronic brokers and Straight Through Processing, I saw one of the dealers there write 600 tickets in about 3 hours, keeping the position in his head!

Other banks like this were Allied Irish. Here, they started off with a small team and took the model back to Dublin where AIB is still a major market maker.

Why am I telling you this? Because if you are involved in the TraderMetrics virtual forex market, you will be able to relive that culture. It is competitive and fun. It is also educationally gratifying and personally, I think all managers should spend some time as a spot forex market maker. It teaches so much about business and business psychology.

Anyway, the markets are still very volatile, so stay safe out there! ]]> Cableboy http://www.forextradermentor.com/TMforum/blog.php?b=5 http://www.forextradermentor.com/TMforum/blog.php?b=4 Mon, 22 Dec 2008 12:23:27 GMT As a recruiter for major financial institutions, I often hear managers complain, that although the academic quality of new recruits coming from... As a recruiter for major financial institutions, I often hear managers complain, that although the academic quality of new recruits coming from business schools and universities has never been higher, the willingness to take risks is non-existent.

'They just don't understand how the markets really work, and are reluctant to enter trading positions despite having done all the correct analysis", said one banker.

In the 'old days', the ability to trade and take risk was considered something you just had - or you didn't. The financial instruments were not very complex, so the banks often took the more ambitious trainees from elsewhere in the organization to train as dealers. This was in the days where you didn't need a degree to get a job with a bank. The ambition was there, because many of the trainees did not want to sit there as bank clerks for the rest of their careers.

Despite not having degrees, MBAs or PhDs, these ambitious trainee dealers became experts, relying on their 'gut feelings' to earn money. Trading means that you have to be very pragmatic - if you are wrong, you had better admit it quickly and get into a trade in the opposite direction.

The training was very much 'sink or swim', with trainees being given instructions by a mentor (normally the chief dealer) and an amount of capital to trade with. Some of the most successful fund managers around today started in this way.

The intellectualizing of trading floors, which started in the late 1980s, has meant that many university graduates have obtained their first taste of trading after they have been in the bank for some time. They have not been prepared for the 'rough and tumble' of the markets in advance.

Some of the current problems in the markets can be directly attributed to these traders' inability to accept a loss and to admit they were wrong and therefore have ended up like rabbits in a car headlamp - frozen into inaction!

So, what can the astute financial student do? He can develop the risk taking and trading skills while still at business school or university by using TraderMetrics and participating in the virtual forex market.

Spot foreign exchange may be a 'primitive' market compared to some, but it is the most traded in the world, with some $2 trillion traded every day. get your trading skills in this market and you can take them anywhere!

So, take my advice: Download TraderMetrics (the evaluation version is free) and sign up for the virtual market and server software. You will be able to create virtual markets with your fellow students, or join the growing community of virtual forex traders.

There is no simulation in the world that represents the market so well, so act now and make sure that you get ahead in a career that is going to get tough in the next few years. ]]> Cableboy http://www.forextradermentor.com/TMforum/blog.php?b=4 http://www.forextradermentor.com/TMforum/blog.php?b=3 Sun, 21 Dec 2008 16:36:30 GMT It seems to be the season for unearthing crooks. Not the normal crooks, but the economic crooks. Those that have by fraud, deception or corruption... It seems to be the season for unearthing crooks. Not the normal crooks, but the economic crooks. Those that have by fraud, deception or corruption have cheated themselves to wealth at the expense of those who trusted them.

In Denmark, we have an interesting case of a certain Stein Bagger. He was the CEO of a company called IT Factory, which everyone considered to be a real star performer. Mr. Bagger absconded a few weeks ago in Dubai, leaving his business partners in a mess with losses of over 1 billion Danish krone (about $200 million).

He has since re-surfaced in Los Angeles and is at the time of writing being interrogated by the Danish Fraud Police. Well I am not saying he has done anything wrong - that is up to the courts to find out; however, it seems that all his 'wealth' was built on a lie. Everybody who drives around in a Porsche Cayenne or similar, has a steroid-pumped body, an Armani suit with a shaven head is now called a 'Bagger'. And there are plenty of them around.

Even more amazing is the Bernard Madoff story. Wow! how did he get away with that one for so long? Investors who knew nothing about risk, I guess.

My point is that I could have spotted these people using TraderMetrics. The temptation to cheat in the forex market is great, because it is relatively easy to do so. And if you cheat once, you will cheat again. I have seen people trying to find their way around the rules and the etiquette of the market. Unfortunately for them, this can all be spotted in the log files. Yes, I could have spotted Nick Leeson, Stein Bagger, Bernard Madoff and the rest with TraderMetrics.

Is the professional forex market 'straight'? It was when I was a part of it. The forex market followed the motto of the London Stock Exchange, namely Meum Dictum Pactum or 'My Word is My Bond'. This meant that when you dealt, by agreeing to the deal by saying 'done', there was no way back; you had dealt. Regardless of where the price moved afterwards, you could not rescind the deal.

Before electronic dealing systems, taped phone lines and audit trails, deals where made over the phone: big deals, in the tens of millions of dollar class. When you consider today's environment, it seems fantastic that Midland Bank, London could call Chase Manhattan Bank, Hong Kong, ask for a price for 25 million dollars against deutschmarks and agree a deal, which was 'done'.

Nobody flouted the rules; otherwise you were 'blackballed'. This meant that if you did not live up to the 'code' , you (and your bank) would become persona non gratia and find it impossible to trade. No bank would want this to happen, as a ruined reputation was very hard to put right.

In these days of electronic 'straight -through processing' (STP), there are no issues of 'welching' on deals; it is all there in black and white.

The market has certainly changed, where banks now have to comply to rules instead of trust prevailing. Sad. Billions of dollars changing hands without a single lawyer or contract involved.

We have certainly come into a period where the regulators will be looking at the markets to try and ensure that crooks will not thrive. I actually don't think that will be possible. Perhaps the banks and other financial institutions are employing the wrong types?

For bright, intelligent people, there is a good living to be had as a trader, whether in forex or any other financial instrument. When people get greedy, they cut corners. This is to the detriment of everybody. We ought to get back to more honest self-regulating marketplaces, where honour and integrity count.

I sincerely hope that all the crooks operating in markets are brought to justice. The scary thing is that with the likes of Bagger and Madoff, we may be just scratching the surface. As long as there are tax havens, there will be crooks, so perhaps the WTO should make it clear to these places around the world that tax havens, secret accounts, etc., will not be tolerated and threaten them with expulsion from the WTO if the persist and introduce sanctions; for example, banning travel abroad for the citizens of that country of blocking bank accounts for companies and citizens of that country in the major financial centers.

There we have it: my take of crooks and crooked dealing.

The motto of the ACI (Association Cambiste International - The Financial Markets Association) is 'Once a Dealer, always a Dealer'. I would like to adopt that with modifications - "Once an Honest Dealer, always an Honest Dealer". ]]> Cableboy http://www.forextradermentor.com/TMforum/blog.php?b=3 http://www.forextradermentor.com/TMforum/blog.php?b=2 Fri, 19 Dec 2008 09:09:26 GMT Do you watch CNBC? I find it useful to get some background to the markets. Yesterday they had a markets strategist from Saxo Bank on to give some... Do you watch CNBC? I find it useful to get some background to the markets. Yesterday they had a markets strategist from Saxo Bank on to give some views about the market. Now, given that this year has been one with some pretty amazing events, which would have been called outrageous prophecies if they had been made in 2007, he has come out with claims for 2009, which also sound dramatically outrageous.

The first one is that China will have a growth rate of 0%. OK, in a western country we could live with that, but in China! Here is a country that has been having double-digit growth in recent years, a fact that has kept commodity prices high. The whole stability of the society is built on high growth and the social unrest that 0% growth will bring could cause problems. 25 million Chinese move to the big cities on the Easter seaboard every year and these have been absorbed into the factories that produce goods for the rest of the world. Now that demand for goods has dried up, and so there is a question of what to do about the migration plus the millions that have lost their jobs. I certainly hope the Chinese Government has a contingency plan!

In any case, commodity prices will fall. The demand has gone and commodity stockpiles are being reduced.

The most interesting outrageous claim for 2009 from a forex perspective, is the one that Italy will leave the ERM, that is, get out of the Euro. I have always considered the Euro to be a flawed project. Why? Because their is no pan-European treasury function. Whatdoes that mean? Well, look at the United Sates: There is one currency and if it goes badly, economically, in one part of the country, funds may be allocated from the wealthier areas to help ease the situation. This has happened several times before. However, if there is a downturn in one part of Europe, there is not the economic help available to ease the situation. It is left to the local government to spend money and thus raise their budget deficits. For this, they are penalized. In addition, a country with a problem suffers high unemployment. The cannot devalue their way out of their misery as does Sweden, and to a degree the United Kingdom.

In a country like Italy, with a very populist President, social unrest caused by high unemployment is not an option. Therefore Silvio Berlusconi may well opt to leave the Euro.

What effect will that have on the rest of Europe? I don't think the Euro will survive. The credibility will be gone. What can replace it? In Scandinavia, pre-1919, there was a common Krone. Because of the First World War, there was a demetallisation of the Swedish component, which meant that you could take Danish Krone to Sweden, melt the coins down, sell the silver and return with a lot more Swedish krone than you took to Sweden. Nice carousel!

The result was that the three countries, Denmark, Norway and Sweden, continued each with its own currency, the Krone, which continues to this day. Only the value is different.

I think this will happen with the Euro. There will be an Italian Euro, a German Euro, French Euro, etc. Great news for forex traders! Crap news for the EU, but probably good news for Germany and the smaller EU countries. The loser? Why, France, of course!

Another claim is that the Australian dollar will slump against the Yen. Australia has an economy that is very dependent on the demand for commodities, especially from Asia. So normally, there is a link between the Yen and the Aussie. However, if commodity prices slump and the Yen remains a 'flight to quality' currency. The Japanese have dropped their interest rates to 0.1%. Will that stoop people buying Yen? I don't think so. The Aussie/yen is at this time 61, and Saxo predict 40. That is quite a move. Surely worth buying some Aussie/Yen puts?

Today's virtual market session is again cable (GBP/USD). Why? It is exciting! When I was in the interbank market, I hated cable, because it moved without rhyme or reason. The market was dominated by Citibank and Barclays with the occasional hammering by West LB and others. Of course later, George Soros and his Qantum fund plus other hedge funds became dominant factors. Some central banks had their moments too, such as the Malaysian National Bank (Bank Negara), until they got it badly wrong! At one stage, his business kept the whole Singapore forex market alive. There was an interesting 'final battle' in 1992, when Bank Negara defended the British Pound against George Soros, causing BNM to lose some $4 billion.

It makes me wonder who are the big players right now. Someone is making/losing a fortune, that's for sure! ]]> Cableboy http://www.forextradermentor.com/TMforum/blog.php?b=2 http://www.forextradermentor.com/TMforum/blog.php?b=1 Thu, 18 Dec 2008 18:13:26 GMT OK, so I have been a casual reader of blogs for a time now, but after attending a webinar about blogs, at long last I have caught up with what is... OK, so I have been a casual reader of blogs for a time now, but after attending a webinar about blogs, at long last I have caught up with what is going on. Blogs are important and blogs are the future of the Internet.

This blog is about TraderMetrics, the Virtual Forex market and the forex market in general.

If you don't know, TraderMetrics is a piece of software that replicates the foreign exchange (forex) market. It was originally developed to help me teach young dealers in the emerging markets of Eastern Europe in the 1990's. In addition to teaching the theory of foreign exchange and money markets, I needed something to teach the practical aspects of trading.

That was a long time ago, but the model still holds, and TraderMetrics is a perfect replication of the Interbank forex market.

Now, dear reader, you are probably not an interbank trader; if you have traded forex at all, I guess you have done it as a private investor, or a spread better. In any case, you have traded 'on margin', and basically have been an 'end user'.

So, what would be the attraction of downloading and working with TraderMetrics?


Fun-if you are going to learn something, you may as well have some fun doing it! I also have the feeling that many 'traders' are actually only looking for thrills, which are normally satisfied, in a perverse kind of way, by giving their money away to forex brokers.

And what about today? I am running a 'shadow' virtual forex session, that is shadowing the cable (GBP/USD). The sort of movements that we are having these days reminds me very much of the 70s and 80s. The volatility is extreme. I had an errand to run this afternoon, and when I looked at the charts, I thought something had gone wrong with the Virtual Market.





But no! The British Pound had 'fallen out of bed'. After a flip-flop this morning, which led to a pre-lunch (London time) rally back to around 1.55, it dived down to around 1.49. 6 big figures, or 600 pips! Or nearly 4%!

Is this normal, you ask? What is normal today? The central banks, having tamed inflation in the 90s, put a damper on forex volatility. Ultimately, it is inflation, and thus the devaluation of a currency as a consequence, which ultimately moves exchange rates. Today, we have central banks fighting to reduce interest rates and suddenly inflation is not an issue! They have lost control of the forex market and it will take them many years to get it back.

In my opinion, this gives forex traders a tremendous opportunity. Especially those who wan to make a career of it. I foresee a demand for good foreign exchange dealers, because no one has been trained in recent years.

So, all you students of finance: Get your experience in the Virtual Forex Market ]]> Cableboy http://www.forextradermentor.com/TMforum/blog.php?b=1