Free Stock Market Course Part 15: Forex
Welcome to Module Three, Section Seven, where I will discuss a market called Forex or foreign exchange. One of the alternatives that people have these days is which market do they want to invest in? Do they want stocks, bonds, futures, forex, crypto currencies? There's a lot of choices available to us. And then inside of each market are even more choices.
Well, one of the things that you may run across from time to time is the foreign exchange market, or we also call it forex. And just to give you some information about that, I'll go through some history and then I'll provide my own insight and my conclusions that I've reached. Now, they may be a little bit different than conclusions that you've reached, but just hear me out. And this will either be used to justify your conclusions or it might make you think in a little different way. So on August 15, 1971, President Richard Nixon abandoned.
And this was the start of the abandonment of the gold standard. It really came about in 1971 and then also in 1973, when he decided to go off of the gold standard in U.S. and just let the dollar be backed by nothing. That's called a fiat currency.
And then the system of fixed exchange rates. It had been set. Different countries would get together and decide what their exchange rate would be. Well, President Nixon changed all of that. Commodity traders at the Chicago Mercantile Exchange, or CME, didn't have access to interbank exchange rates in the early 1970s.
They could not adjust their positions if changes took place in the currency markets. So this really put them at severe risk. To help solve this problem, the CME or Chicago Mercantile Exchange established the International Monetary Market or IMM and launched trading in seven currency futures in May of 1972. That's really when this whole thing got started. At least in the modern sense of what we have now. This created
what is called the foreign exchange market or forex market. The foreign exchange market is where world currencies are traded. And this happens pretty much 24 hours a day, six days a week. And there's just as much liquidity during the night as there is during the day. That's one of the enticing features of the forex market, is you can work your job during the day, come home, and then maybe do a few trades in the evening or on the weekends even.
Currencies need to be exchanged from one country to another. We have the dollar and the euro and the Japanese yen. These currencies need to be converted into other currencies for a variety of reasons, which can include importing and exporting goods to and from countries.
The U.S. exports and imports. A lot of these imports and exports are handled in foreign currencies. And for travel. If you're an American and you go to Europe, one of the things that you probably check before you go is what is the exchange rate like? How's the British pound doing? How is the euro doing against the U.S. dollar? And that can be a real deciding factor. Americans like to travel to Europe when the dollar is stronger and the European currencies are weaker. They may not be so inclined to travel, if there's a real lopsided exchange rate. Right now,
the euro is quite a bit stronger than the US dollar, and the British pound is also stronger than the dollar. So it may not be as enticing to travel to Europe. If the euro or the British pound were to come down in value and the dollar was to go up, that would make it a lot better for Americans.
A more favorable exchange rate. And the inverse of that is also true. People that travel to the U.S., they want to have their currency strong compared to the US dollar so that their currency buys more things.
And multinational company revenues, a lot of your big companies, especially in the S&P 500, they just don't do business within the U.S. They do business worldwide. They may be based out of the U.S., but they have offices and customers all over the world. And there's a lot of different currencies going on as these transactions take place.
So what are some of the different currencies? The foreign exchange market allows traders to take advantage of price movements between currency pairs. If you're not familiar with Forex, you're taking one currency against another currency. Examples of this include the euro and the U.S. dollar. So whatever is listed first, that's the base currency. So what is the euro doing against the U.S. dollar? Another popular one is the U.S.
dollar against the Japanese yen. Notice that in the second one, the U.S. dollar is listed first against the Japanese yen. Also, we have the British pound or GBP. They never did adopt the euro even when they were part of the European Union. They kept the British pound in England.
And then after Brexit, they just continued to use the currency that they always have had. Another one is the Australian dollar against the US dollar. That can be a little confusing because they're both called the dollar. And then we have the U.S.
dollar against the Swiss franc. If you know much about Switzerland, they have a real strong banking system and a lot of secrecy. And they've been known as having really good reputations as far as their banks are concerned. That has helped to keep their currency really strong. They're not a member of the EU. They're an independent country. They didn't join in on World War One or World War Two.
Doesn't necessarily mean they were neutral. If you do much research, they had some things going on in different sides, depending on what border they were up against. Over the years, their currency has become known as being one of confidence and one of strength.
And so it gets a lot of action in the foreign exchange markets. And we have the U.S. dollar against the Canadian dollar. Again, that can be a little confusing because they're both called dollars. If you travel to Canada very often, you're probably pretty familiar with the exchange rate, especially if you live in a more northern state. I'm from Washington State. Canada was just a few hours away, so we would go there quite a bit.
So it was really common for us to be aware of what is the exchange rate between Canadian dollars and American dollars. And then we have the euro against the Japanese yen. Those are also very strong, popular and important currencies in the world.
Then we have the euro against the British pound. So it's a little tug of war going on within Europe at times. What are the names of the different foreign exchange markets? Foreign exchange market is also known as forex, foreign exchange forex.
Now, this is different than the futures market. There are currency futures that trade in Chicago based on futures contracts. That's very similar, but still a different market. The foreign exchange market is worldwide.
It's also called the FX market or just the currency market. You might hear it referred to by any of these names. How do we look at quotes when we're trying to figure out what currencies are we looking at? And do we know is it going up or is it going down? When a currency is quoted, it is done in relation to another currency. The value of one currency is reflected through the value of another currency. And if that seems a little ambiguous, let me try to explain that.
For example, the U.S. dollar to the Japanese yen might be at 119.50. That's U.S. dollar is on the left against the Japanese yen on the right.
So one U.S. dollar would get you one hundred and nineteen and a half yen. Then we have a currency pair. The currency to the left is called the base currency.
The currency on the right is called the quote or counter currency. The base currency is always equal to one unit. So what's ever on the left is one. And the quoted currency is what that one base unit is equivalent to in another currency. This quote means that one U.S.
dollar is equal to 119.50 Japanese yen. Here's another way to look at this. If you look at the very top, you see the currency quote overview. You have the base currency, U.S. dollar against the Canadian dollar.
On the left is one point two, two, three, two, and then three, seven. That's a thing called pips. That's the bid and the ask. And there's a five point spread between the bid price and the ask price. If you don't understand that I have some videos about bid, ask prices and bid ask spreads as they apply to stocks.
But you can take those same concepts and apply them to the foreign exchange market. So on the left, you have the base currency. Then on the right is the quote or counter currency, in this case, the Canadian dollar.
The bid price is one point two, two, three, two. And with the bid price, this is what you will get if you sell. So price for which the market maker will buy from you. The base currency bid is always smaller than the ask again realize B.S. bid, sell. Then we have the ask price, which is one point two to three seven.
That's the price for which the market maker this is the person that you're actually doing your trades through will sell the base currency. And then a PIP is a one point move. In the U.S. dollar to Canadian dollar, for example, it is zero point zero zero zero one. And one point change would be from one point two to three one. To one point two, two, three, two.
That would be a pip. The PIP or point is the smallest movement a price can make. And then we have the spread. And this is where things can get kind of crazy sometimes with stocks and also with forex. The spread in this case is five pips or points. And that's the difference between the bid price and the ask price.
One point two to three seven minus one point two, two, three, two. So there's a five point spread there. So spreads and pips. We have the bid ask spread.
Here's an example. Just to go through this a little bit. We have the euro against the dollar. The euro is first. So it is the base currency. We have one point twenty five zero zero by oh three.
The spread would be point zero zero zero three or three pips. Even small movements can result in thousands of dollars being made or lost due to leverage. That's one of the enticing features of the forex market. You're dealing with a lot of leverage in this market, and just small moves can mean that you make an awful lot of money. But it is a two edged sword. Not only can you make a lot of money quickly, you can lose a lot of money quickly as well.
A PIP is the smallest amount a price can move in any currency quote. We might use decimals in stocks. We used to use 16ths and 32nds even with bonds. Everything was decimalized a little over 20 years ago. Here's an example. The U.S. dollar, euro, British pound or Swiss franc, one pip would be point zero zero zero one. Four decimal places.
That makes it a little easier to deal with because you're dealing with the same number of decimal places. Where it can get a little crazy is with the Japanese yen, one pip would be point zero one or two decimal places. Most currencies trade within a range of about 100 to 150 pips a day. Now, there are times when they don't trade that much and there are times when they trade a lot more than that. I'm just talking about an average range. I mentioned a few minutes ago the futures markets that are based in Chicago.
These are the foreign exchange futures contracts. The forex market is different than futures contracts that trade in Chicago on the CME. Forex is known as the spot market. That's the cash price right now. The exchange rate that you would get right now if you were to go to a bank or some kind of an exchange place to convert your currency, that's what you would actually get.
Currency futures, however, they set the exchange rate at a specified date in the future. That's why they're called futures contracts. What do these people think is going to be the price three months from now or six months from now or a year from now? They can lock that price in now instead of just going I don't know what it's going to be. Let's just hope for the best. Well, this gives you a little bit more control and it also gives you the opportunity to hedge or protect certain investments. Futures are regulated, whereas forex markets are not U.S. regulated.
That was one determining factor for me. That's also a determining factor for me when it comes to crypto currencies. Some people like a lot of rules and regulation. Some people don't. They think that capitalism should just operate without any rules or regulation.
But when you're dealing with financial contracts and obligations, there is a real opportunity for fraud, for being misled, for being downright lied to. And it would be nice if you get left holding the bag that you have some kind of recourse because somebody else has broken a law. And you can try to get justification or retribution for that. Quotes are always against the U.S. dollar when you're talking about the futures markets.
And they do not trade actual currencies. Instead, contracts represent a claim to a currency type, whether it's the U.S. dollar, whether it's the euro, the Swiss franc, the Japanese yen, at a specified price per unit. You can lock in a price now of what you think it might be in the future, either to gain from that or to hedge using that.
On a future date for settlement. So let's look at some of the different forex exchanges. Other futures exchanges that trade currency futures include the Euronext.liffe. That's really the main exchange in Europe that trades futures contracts. There's also the Tokyo Financial Exchange, which, of course, is in Japan. The Intercontinental Exchange, which is based in U.S., Canada and Europe.
Another thing that we really like about the foreign exchange market is liquidity. And if you listen to many of my videos and if you take my program and you hear me talk for very much time, liquidity is going to come up really quickly. I'm a big believer in that. And it's why I developed the program that I teach to other people. So before the growth of the Internet, most foreign exchange activities were done by large financial institutions, the really big banks, the central banks, the Bank of America's, the JP Morgan's, and corporations, because they're dealing in lots of lines of money, and then central banks.
The Fed is the central bank in the U.S. The Bank of Japan is the central bank in Japan. And we have the European Central Bank, which oversees the EU. And then hedge funds, they've been around a long time. And they do a lot of different trading based on currencies, and extremely wealthy individuals.
So this was a pretty exclusive club. Individual investors can now easily buy and sell currencies using online brokerage accounts. This used to not be available to the average individual. With the growth of the Internet, with the growth of technology, you can sit right in your home and be able to do trades that are conducted all over the world, and you don't even leave your house. Forex offers around the clock, trading five and a half days, I say six days, but five and a half days per week and has massive liquidity. So you can do a trade in the middle of the night your time, or early in the morning or in the afternoon, you're going to be able to get in and get out quickly.
The forex market is the largest and most liquid market in the world, even more than the stock market. Over five trillion dollars trades each day versus about one hundred and sixty nine billion. And this goes back to 2013.
It's probably closer to four to five hundred billion by now. This is the latest figure I could find. That's what trades on the NYSE each day. So you can see the big difference between the two markets. Prices are driven by supply and demand. That's one of the things that never changes. Whether you're
dealing with the stock market, the crypto market, futures market, foreign exchange market. If there's a lot of supply and not a lot of demand, prices go down. If there's a lot of demand and not a lot of supply, prices go up. That's the secret of the markets. They go up and they go down based on supply and demand.
Now, let's talk about a thing called leverage. I've referred to that a couple of times here. Volatility in the forex markets is not very high. For the U.S. dollar to move against the euro, it might just move one or two cents over the period of a week or two weeks. However, there is tremendous leverage. When you buy a house,
let's say your house costs five hundred thousand dollars. Well, you didn't have to come up with five hundred thousand dollars yourself. You may have had to come up with 10 percent or let's say 50 thousand dollars. You still owe four hundred and fifty thousand dollars, but you're able to move into that house and live there just as though it's yours.
That's a form of leverage. The same thing is true with foreign exchange contracts. You might put up five hundred or a thousand dollars, but you have control of something that might be worth 50000 dollars or a hundred thousand dollars. This means that even a nonvolatile asset such as currencies, when leveraged, can show gains or losses very quickly. We like it when there are gains.
We don't really like it so much and we kind of forget about it when we're talking about losses. This movement is enticing to some individuals as foreign currency does not have to move very much for a substantial gain or loss to be experienced. That's one of the big selling points right there. Hey, you can put up one hundred bucks and you might be able to make three hundred bucks from that in a couple of hours. Certainly that is possible. But look at it on the reverse as well.
You might put up a hundred bucks, but you might end up losing three hundred bucks. Now, there are safeguards in place to stop you from doing that. But let's say your safeguards don't come through. You could lose more than you invested. So leverage can be as high as 250 to one. Just think of that.
You're controlling an asset worth two hundred and fifty dollars and you only had to come up with one dollar. Hmm. It's more common to be 50 to one. That's still very, very high. But you come up with one dollar and you control an asset that's worth 50 dollars.
High leverage can be extremely risky. And this is one thing that I would caution anybody listening to this. Yes, we're supposed to have a positive mental attitude. Yes, we're supposed to look at opportunities and have a good outlook on things. But when you're looking at opportunities that are available to you, don't focus on how much you can win. Focus on how much you can lose.
The winning will take care of itself. If you manage your losses you'll do just fine with the winners. It's proper money management that will make you or break you in pretty much any market. Here's some other enticements that you may consider when looking at foreign exchange. It's a huge market, so there's a massive liquidity. Even more than the stock market. And I like the S&P 500 because of the liquidity.
Well, the foreign exchange market has even greater liquidity. Extremely large trades can be made without affecting any given exchange rate. You might have a big bank or institution come through and just do a massive trade all at one time, and it doesn't even affect the bid or. ask price. And volatility. This is a real enticement to individual traders, not because currencies are volatile, but because they're so highly leveraged and there are so many decimal places.
As I said before, a small move can be a big gain or a big loss pretty quickly. And it has a global structure. It's open 24 hours a day, five and a half days per week, usually stops trading about Friday afternoon, West Coast time or early evening East Coast time. And then we'll pick up about Sunday afternoon, West Coast time, which would be Sunday evening, East Coast time.
So you get Saturday off and part of Sunday before you have to come back and start watching things again. It pretty much flows with the financial markets. And low margin requirements. For example, a trader can control a position of one hundred thousand dollars by needing as little as a thousand dollars.
The rest is borrowed from a forex broker. So the differences between forex and stocks. Forex has very few trading vehicles, the pairs that I mentioned. There are some other ones that I didn't talk about.
But you're pretty limited in your opportunities, where you have thousands of stocks and you have thousands of mutual funds and you have thousands of ETFs. And on top of that, you have hundreds of thousands of options. So the opportunities are actually a lot greater in the stock market. Maybe you don't like that. Maybe that's overwhelming and you like that there's a finite number of opportunities in the foreign exchange market, so you might decide to focus on that.
There are basically seven different currency pairs. We call these the four majors, the euro against the US dollar, the U.S. dollar and the Japanese yen, the British pound against the US dollar and the US dollar against the Swiss franc. Then there are three commodity pairs.
The US dollar against the Canadian dollar, the Australian dollar against the US dollar and the New Zealand dollar. And then cross currencies. There can be different combinations of the same currencies.
Currency trading can be easier to follow, especially with the Internet. There's a lot of free tools out there. There's a lot of things available. There's a lot of really good websites where you can get information. You can have access to charting. And a lot of different tools. A lot of that's for free.
The stock market may become slow, which means boring, which results in lower volume and activity. There may be times when we don't do anything in the stock market. But you're all hot and bothered in the forex market.
There's really things happening there. And you may not always know the reasons why. But there are things that happen in the forex market.
But yet everybody might be going to sleep on Wall Street. And it can be easier to take advantage of rising and falling prices since it involves buying and selling simultaneously. When you buy the euro against the U.S.
dollar, basically you're buying the euro and selling the dollar at the same time. So you're going long and short simultaneously. So let's talk about some of the foreign exchanges. Similar to the Nasdaq, the forex market does not have a central location or exchange where trades actually take place. The Nasdaq is the second biggest stock exchange in the U.S.,
but there's no central location. It's just a series of computers that are used. Forex trades are made electronically using computer networks. So this is why we really thank technology for these opportunities. Currencies are traded worldwide in almost every time zone in major financial centers, which includes London, New York, of course, Tokyo, Zurich in Switzerland, Frankfurt in Germany, Hong Kong, Singapore and Paris. So if you're trading in the middle of the night or early in the morning, you might be dealing with the Singapore market or the Paris market, or if it's during the day, it might be the New York market.
That's pretty much irrelevant to you because it's so transparent and things get routed through the software that you use. It really doesn't matter. And then Sydney, Australia. So what are the advantages of using the foreign exchange market? There are low costs. Forex trading can have very low cost.
There are no commissions. Now, this is misleading and one of the big reasons why I do not trade foreign exchange. They tell you, well, you don't want to pay commissions. I think that that's very misleading. Most of forex brokers make profits from the spreads between forex currencies.
Remember the bid and the ask spread, the pips? That's where they make their money. They might add a pip or two to your transaction. And you think, oh, well, that's just the cost of doing business. When you look at the dollar value of those pips versus what you would have paid in a commission, I would rather pay commissions. They're a lot lower.
You're paying through the nose when you pay pips. Now, some of that might have changed a little bit. And you might have brokers that are more individual investor friendly. But this has been what I have found. The forex market allows for positions to be taken on all time frames. Anywhere from minutes.
So you can do some serious day trading, if you're into that. You might trade a position and then 10 minutes later, take it off. Or it might be days later or even months later, depending on your time horizon and the amount of time that you want to devote to this. There's very high liquidity, as I've talked about. Much, much
more than the stock market. There's no central exchange which helps avoid any sudden surprises. If something takes place in some part of the world, it's immediately reflected on the open exchange at that time. One of the things that people have a problem with when they're trading in the stock market is, when you close from one day, there's a time gap until the stock market opens the next day and there's after hours market, there's overnight market, there's premarket trading. And there might be a huge gap from the time you close one day until you open the next. And that might take you by surprise.
It's great if it works in your favor, but you're not very happy if it works against you. Well, in the forex market, since it's pretty much open all the time all the news can be discounted right away. And so you can see that right on your screen. There are no insiders in the forex market since it is dependent on global factors and perceived developments. That's a key thing. Perceived developments may not be real.
They may just be rumors. But it's what does the market think is going to happen? They may end up being wrong. They might end up being right. You don't really know that at the time. Deregulation also helps to keep costs low. That's what helped to bring airline prices down after deregulation.
That's what has kept brokerage accounts quite inexpensive, is a lack of regulation so that we can have discount brokers now. Shorting is done very easily. You do that automatically. If you're buying one currency, you're automatically selling the other.
And you can also assume short positions. If you think it's going to go up, you go long. If you think it's going to go down, you go short. Volatility allows for price movements. So there is some movement. It's not just going to lay there dead, but because it's so leveraged and there's so many decimal places, you'll get some movement.
There are 28 major currency pairs involving eight major currencies. And I read through some of those. That might be a lot, that might be plenty for you.
When I teach my stock market program, I'm only concerned with the S&P 500. Now, there are hundreds of things attached to the S&P 500, but my main focus is only on one thing. If you like the forex market, you're just focused on a set of currency pairs that you've chosen to follow. It may be all 28. It may end up being just a few. So low capital requirements are also another enticing feature. There are tight spreads, relatively speaking, which are pips.
This allows for trading with a small amount of initial capital. Margin trading with high leverage, up to 50 to one allows for profit potential with limited capital. So you can just open up an account with a few thousand dollars and go to town.
Now, you might lose that or you might take that a couple of thousand bucks and turn it into five or ten thousand. If you're really good at what you do. And there are also choices.
Technical analysis is heavily used in forex. That's one thing I like about it. I'm a big technical analysis person and I have classes where I teach on this.
Incidentally, if you are a forex trader and you want to learn about technical analysis, you may want to consider some of the classes that I have to offer. What you learn in my classes can be applied to the forex market. There are several fundamental analysis theories and tools for long term forex trading. So you can take the short term, intermediate term and long term with forex. So you have lots of choices. That's one of the nice things about Forex is you can tailor it to your life. What are some of the risks? This is the thing I want some of you to really think about here.
Leverage is a double edged sword. Yes, you can make money when you're right, but you can lose money quickly when you're wrong. Losses can wipe out an entire account within a matter of minutes. So if you're wrong, you probably would have had more fun going to the casino. A reaction to information that is released can lead to sharp moves in the price of the currency pair. You may not know that some economic report being released in China or in Australia is going to have a huge impact on the foreign exchange market.
It may catch you off guard. You may be able to anticipate that and take advantage of it. But a lot of times, because this is globally based, there's usually something that you don't know is going on and you really have to focus on things.
That's one of the things I like about the stock market, is it's a little more under control as far as what we have to watch. We watch everything but the things that really make prices move, we can generally hone in on those a lot quicker. What are some of the disadvantages? There's a real lack of transparency. This is one thing I don't like about the foreign exchange market. Deregulation means that traders may not have any control over how a trade is filled. You may put in a limit order, but that doesn't necessarily mean it's going to get filled at your limit because a limit order becomes a market order the second it becomes active. A trader may not get the best price
or may get limited views on trading quotes. Hmm, as provided by the broker. What you see and what is actually happening may not always be the same thing. This can be overcome by dealing with only regulated brokers under U.S. laws. The market may not be regulated, but U.S.
brokers are regulated. So if you have a foreign exchange broker and you like the idea of being under the umbrella of U.S. law, you probably want to go with the U.S. broker.
They only have so much control, but it's better than having no control at all. There's a very complex price determination process. Global politics. So something happening in New Zealand or something in China that you don't hear about or some kind of an economic event can be challenging to analyze for reaching reliable conclusions.
Good news may be considered good news, but on other days, good news may be taken as bad news. We have a hard enough time just figuring that out in the U.S., let alone in all the different countries. It's also high leverage, which can be an advantage.
It's also a disadvantage. And I've talked about that enough times. There's also self directed learning. In the stock market a trader can seek professional assistance much easier than in the forex market. Now, some of you are going to go, wait a minute, there's all these guys out there on the Internet telling me that they've got this whole forex thing figured out.
And all I have to do is take their courses. But a lot of these guys are charlatans and they're just like used car salespeople. They may not be teaching you what you really need to know. We have to deal with that in the stock market, too. There are a lot of people who are just trying to sell a program rather than give people good, solid education. So you have to be really careful about that.
Forex traders get little or no assistance. If you don't really know what's going on you may have a hard time finding some answers. This is why a lot of forex traders end up relying on other people to tell them what to do.
To me, that is not freedom. That is a form of bondage. When you're looking towards some guru or some person, you're waiting to see what they would suggest, and then you're going to jump on and do the same thing.
That's not learning a skill. That's being a sheep, that's just following somebody else. And if they're right, then you think that person's great. If they're wrong, now you have somebody to blame without taking any personal responsibility.
And I don't like that. Most traders quit quickly due to losses. There's a lot of turnover in the forex market. There's a lot of turnover in every market. It may not be complicated, but that doesn't mean it's easy. I say that all the time with the stock market.
The same thing is true with Forex. You may read a book, you know, Forex for Dummies or take some two day class or go through some program and think you've got this thing figured out. You may have even practiced for a period of time, but when you end up going live with this and things fall apart and the two thousand dollars that you scraped together to get this thing going, that's gone.
Now, what are you going to do? You're done. There's a real limited amount of forex knowledge out there. And I'm talking about good knowledge. There's people who give you their opinions, but that doesn't mean anything. I'm spending a lot of my time these days following a cryptocurrency public group. And man, the opinions are flying, but they're as different as night and day.
The people that have the strongest opinions are usually the stupidest opinions. They're not based on any education. What they're doing is they're gambling and they're just hoping that what they say might come to pass. They're not basing it on any logic. The same thing can happen in the foreign exchange market. There's a lot of people who are willing to sell you a program, but they don't really teach you what you really need to know. And we battled that enough with the stock market.
They teach people just enough to be dangerous, just enough to lose your money. And then you get disillusioned with the whole thing and you think everybody is just out to rip you off. Well, in some instances, that's true, because most people are out to rip you off. There is a very small percentage of genuine educators, and I like to include myself in that group, that genuinely want to educate people the best way I know how and to help you succeed at developing a skill. And you can take me to the bank on that one.
Just test me on that and see if I won't prove myself to you in that regard. Then there's high volatility. Prices can dance around really quickly.
You might set up a trade, go out and eat dinner and come back and poof, prices could have gone for you or against you just in a very short period of time. And then recourse. What are you going to do if you're wronged somehow? If something goes wrong with the market itself, stock traders and investors can go to the regulators.
Forex traders have nowhere to go. For example, what happens if a currency collapses? Now, these are major world currencies that have been around a long time. But we're seeing things happen in the world right now that we never thought could happen. There's a lot of people that are talking about the death of the dollar and the rise of cryptocurrencies and that all fiat currencies are eventually going to die. I don't know if that's actually going to happen or not. It probably will at some point. I just am not really sure when.
But what happens if the U.S. dollar goes down? When the euro first hit the market, they thought it was a joke. There was hardly any demand for it. It really didn't do well price wise, and they were really embarrassed. Well, now it's been around over 20 years and it's stood the test of time and it's considered to be one of the stronger currencies in the world. But what happens if somebody loses faith in a currency and that whole currency collapses? It's happened before. Think of Germany in the 1920s.
The U.S. dollar has been replaced a few times along the way. There are lots of different countries that have to roll in everything and chop off a few zeros at the end because of super high inflation. How do we know that's not going to happen to us? We don't. So what is my conclusion? Often perceived and promoted as an easy way to make money. A lot of the infomercials that are on at two or three o'clock in the morning, forex trading is actually quite difficult. I looked at this and I even tried it for a while and it's one of the most difficult markets I've ever tried to master.
And I'm pretty good at this stuff. And I've been doing it for a long time. And I just decided this isn't for me. There's just too much I don't know. Prices are moving around and I'm not sure why. I'm looking at my charts and they're things that should be making sense that don't make sense.
I have to settle in on just a few indicators where I like to use the whole array of indicators in my analysis. And it just went completely opposite to the way that I make decisions and the way that I've known consistent success myself and the way my students have. So it's actually very, very difficult to succeed at Forex, no matter what the infomercials say, no matter what that unsolicited email you get says to you.
Most beginners are not successful. For every hundred people that try, maybe 0.5 will continue a year later. Really, really high turnover. Success will require perseverance.
You have to stick it out. You can't start with just a few thousand dollars. You have to have a pretty good bank account behind you and figure that you're going to start by losing. That would be your best friend, actually. One of the worst things that can happen to anybody is you start off with instant success and then you get cocky and then you think, I've got this whole thing figured out. And about that time is when you really get wiped out and now you're completely freaked out and you can't make a decision.
Also, continuous learning, it never stops. Now, I like that, but it seems like no matter what you know about the forex market, there's still things that you don't know. That's one of the reasons I don't implement fundamental analysis in the stock market, because no matter how much you analyze a company, there are still things that you don't know. There are still things that you can't put on paper that are worth the price going up or down.
Also, efficient capital management techniques. If you're going to start with a few thousand bucks, you shouldn't be risking more than about 20, 30, 40, 50 dollars at any given time. You need to figure out, how much of this are you going to put on the line? Proper money management will ultimately be your best friend or your greatest enemy. And the ability to take risks.
This is a risky market because of the leverage, because you're playing against some really big players in this market. There are risks and you have to be able to like that. It's not as smooth and easy as a lot of people like to make it out to be. And you have to have a robust trading plan, a good trading plan and a plan that you develop yourself, not something that you get from somebody else. In my program,
every student has a trading plan that's a little bit different because it's based on their personality, their goals, where they're at in life, and what they want to actually get out of this whole process. You have to do the same thing with Forex. The Internet is full of gurus, programs, software and books promising an easy road to riches by trading the forex market. This is completely unrealistic.
If it sounds too good to be true, it is. And believe me, they might even try to throw facts and figures at you. Make them prove themselves to you and don't go out on a limb. Don't ever go into debt to get into the forex market or any market for that sake. Don't use borrowed money of any kind. Use money that you can afford to be without.
This concludes Module Three, Section Seven. And I will pick things up again in the crazy section, Section Eight.
2021-10-12 05:25
