Swap

Swap as the name sound , is the interest paid for a pair of currency for overnight,
the calculation is, example ,
Currency =A , interest=5%
Currency=B, interest=3%
if the pair is A/B

If u LONG A/B, currencyA pay u 5% interest , but at the same time u need to pay currency B 3% interest, so NET, u earned 2% interest for a day
If SHORT for A/B, u pay currencyA 5%, and currency B pay 3% interest, so NET u loss 2% interest

that's just an example,
let;s take USD/JPY (US DOLLAR VS JAPANESE YEN)
USD=5.25% , JPY = 0.25%
So if u long USD/JPY, u would earn 5% daily for trading days, except saturday,sunday, but compensated back on Wednesday, where the SWAP IS TRIPPLE ( YES, times 3)

so if u short USD/JPY, u would need to pay 5% of interest .

some people , used this to make consistent swap profit to earn interest,
don;t look down at this, (for USD/JPY, one standard lot , swap/day = USD12.40)
imagine if u put there for a year , how much would that be ?
if much much higher that bank FD interest ....

the swap rate depend on the government interest rate, so the swap will be more if the interest rate between 2 currency is bigger,
a few example is
GBP/JPY , NZD/JPY , etc (becos JPY= 0.25% , the lowest among all)

Price of breaking Trading rules+ disipline

as the US Thanks Giving Day is approaching ,
i didnt know anything , until my account being wiped out , MC

only did i realised that this week is US HOLIDAYS,
so , many people travelling around, buying ,shopping for this occasions.
So the Volume will be low, since majority of the traders are from US.


apart of this , the US government wanted the goods to be cheaper during this time,
that;s the USD dropped tremendously across most of the major pairs.

little did i knew this , i still LONG for USD few days before ,
and continue to do so till Wednesday , when i found out ,
but it's too late ........
at that time, my margin was around 100--200%,
but by Thursday,
the USD suddenly dropped another 100 pips ++ (i didn't really go and calculate, but u'll see a SPIKE in the Hourly chart across all USD majors)


when i saw this "good news" , i was happy for a while ,
cos yesterday, my account showing negative -1050USD, now i see -120USD...
I though im safe !
but when i see the balance, only i knew everything is too late .......from USD1280, i'm left with USD140.....

today is Saturday, 25Nov, by monday, everything should be back to normal,
but i can;t recover now , probably need to pump in some capital before i could start trading again.

from this i learned a lot , one of my bigest mistake is OVER TRADE, and disclipned.
I broke my trading rules too many times.
and i never keep to my 10% trading margin also..

May this lessons be a reminder to me and the rest . (it cost me USD1200)

Trading During Holidays (US, Thanks Giving Holidays)

1st of all, like Many experts in FX always said,
don't trade during Holidays time , because it is dangerous .

now , i knew why , i have personnally experienced it,

In one day alone , i got Margin Call,
and that took 90% off my account causing me to lose USD1200.
All my hard-earned 2 months profit + capital flush down back to the market .

Conclusion,
Avoid trading during those times

Hedging strategies that make $10,000 a month PART 3

All this strategies was taken from some experts ,


3-GMT Picky back trade

This one is fun and challenging. I suggest you do this trade with your interest free account to keep your interest free broker happy. If you only hedge your position with interest free and do not do any trade, the broker is not making any profit and they may close your interest free account. So do some trade with Interest free broker to make them happy and you can also make money using this picky back trade.

Since Interest free account carry all Short trades or Sell, it draw down your margin if the market going up, and gaining margin when market going down. So what you do is to watch gbp/jpy chart to find support and resistance. Once you see it, lay down Long grid only in that channel. Set it to buy every 10 or 15 pips and take profit if it moves up 10 to 15 pips.

Use only one or two mini lot per order; unless you have more than 50K in your account, then you can try full size lot. Never have more open long trade than 50% of your Short. For example, if you have 5 lot Short, you do not want to do more than 2.5 Long trade in that account.

If the market move against you, don’t sell it at a lost, just hold it, you will be ok because your Short positions are cover the margin, you never get a margin call if you don’t buy more than your Short positions.

Note: This system only protect you against margin call in that account, but NOT protect you against lost. If GBP/JPY drop and never return forever, you will need to hold that lost trade forever too. So only do low gear small trade

Hedging strategies that make $10,000 a month PART 2

All this strategies was taken from some experts ,

2-GMT Package Hedge

This strategy we don’t need two accounts, and we don’t need interest free account. In fact, we need to find a bank/broker that pays the highest interest (difference bank/broker pay difference rate). Make sure the gap between the interest we pay them and interest they pay us is as small as possible, so that we can keep more of our net interest.

GMT package hedging strategy, we buy the highest interesting paying currency pair (GBP/JPY), and we hedge it with a lowest interest paying pair (CHF/JPY) so that after they paid us and we paid them, we still have a good chunk of net interest to keep.

The best time to enter GMT hedge is during negative swing. We can use demo account to determine the swings or use Daily Bollinger Band 20,2 of GBP/CHF to determine the place for enter and exit GMT hedge. Enter only when GBP/CHF price at or near the bottom of daily Bollinger Band and exit GMT hedge when GBP/CHF price at the top of daily Bollinger Band.

Advantages: We don’t need two accounts to hedge. No need for interest free account. Need smaller investment capital to collect more interest than the 100% hedging method. No need to transfer fund to rebalance the account. Best of all, we can liquidate the hedging pair for profit when market swing positive to our side.

Disadvantages: A little higher risk than 100% hedge due to the uncertainty of currency correlation. But if we keep enough margins to hold the trade during negative swing, eventually, it will swing back to positive side.

GMT Package Hedging strategy detail:

Buy 100k GBP/JPY and sell 180K CHF/JPY at the same time. Make sure you keep enough margins for about 200 pips swing. I never have more than 200 pip swing against me, but I reserve enough margins in the account just in case.

You can do dollar averaging technique. Instead of buying all at the same time, you can buy 1 lot each time. The ratio is 1 GBP/JPY and 1.8 CHF/JPY. Enter the hedging pair at the same time. The best time to enter is during negative swing.

To view my GMT package hedging in action:

1-Download FXDD Meta ersonname w:st="on">Traderersonname> 4 Demo at : http://www.fxdd.com/meta_trader.html
2-Log in to account id: 409412
3-Password: Gmt12


Once you log in, you can view my trades.

Hedging strategies that make $10,000 a month PART 1

All this strategies was taken from some experts ,



1-100% Hedge

This strategy is to hold the highest interest paying currency on one account and hedge it with another account that do not charge interest on Short positions. Is it possible? Yes, I have been doing it for a long time and made many thousands already.

Advantages: Very low risk, making interest every day, this strategy is simple and easy to learn.

Disadvantages: Need two accounts, one paying interest and another one is interest free. Need large investment capital to make good income. Need to watch both accounts to monitor any sign of out of balance. Need to transfer money between accounts to rebalance.

***Let’s do the math to see much we can make a month and a year.

If we hold 1 GBP/JPY standard lot, we need a margin of $950, margin reserve 3K, daily interest $40.

If we have 40K account to run our hedge fund, we can make $12,000.00 per month.

$4,000 X 10 lots = $40,000.00
$40 per day X 10 lots = $400.00 of interest earn per day
$400 X 30 days (1 month) = $12,000.00 per month
$12,000 X 12 (12 month) = 144,000.00 per year

That is 360% return of the original investment.

This calculation is not even using compounding. We assumed that we withdraw that 12K of profit every month. If we reinvest, the compounding interest is very high.

To learn more, Click on this link: http://goldenmoneytree.com

Note: We also need another 40K at interest free account to hedge our interest paying account.

The truth of Forex trading from banker

This was taken from someone working in the bank,



I use to work at a Large Australian Investment Bank here is Sydney - I'll give you a hint, the bank recently tried to take over the London Stock exchange. I worked on the FX cash dealing desk in 2003 and 2004 - which most of the guys who know dealing desks well....it is the lowest ranked dealer you can be. But I was only 18 years old at the time, and I was on a cadetship program with the bank, through university.



I was working along side some of the best salesmen and traders in the country. These guys are literally on millions or in some instances tens of millions of dollars a year in bonuses and salaries. Anyways, my dream was always to be on the otherside of the phones as a private trader, hence me being one now - cause working at banks is quite stressfull and i enjoy a laid back lifestyle, but i also have a massive passion for finance.



Anyways, enough lifestories - Basically we were the interbank market. The bank I worked for is among the top 15 investment banks in the world. So we were the end of the line so to speak, we only dealt with other major banks. (Rule of thumb was to deal with Citigroup as little as possible...lol)



However, believe it or not - We also were a marketmaker with our clients. Infact most major Investment Banks are. Contrary, to people's beliefs that banks are straight through processing, which they are - but also dealt clients prices and matched them with other clients.



We would take positions against our clients, quite frequently - as our division was not only a broker to our clients, but a trading house too. You don't understand the amount of losing volume that came from clients everyday.....millions! Through our dealing desk we had a volume on average of over US60 billion dollars. (sometimes it racked over 100-150 billion) - This was in 2003, 2004 by the way, I would imagine today the volume would be much, much larger. So, the trader's who liase with the executing dealers on the desks everyday would try to scalp off your position - so that they can take a commission, plus a greater spread.



For example - If you were long 100,000 euro's at 1.20. Our bank would take a position for 30,000 short euro's at 1.20 against you. Would wait till the market hit 1.1990 and then scalp 10 pips, with a prescribed stop loss. They would not do this all the time, but they would do this when the traders felt the time was right. Sure enough, the amount of losing trades from clients outweigh the winners, and the bank would be in profit.



We would also play clients positions against each other. Not in a bad way....but it was to offer the clients a better level of service - I'll explain why.



Part of the reason why the bank was so heavily focused on being a marketmaker - was not only to make profits. But to ensure better service for their clients. The real truth is, that we wanted our clients to do well - but the reality was that most didn't, no matter how much advise or consultancy we gave them. Some of biggest losing clients were actually large corporate accounts.



How we would ensure better service for our clients, was by trying to fill most orders (we couldnt do all of them, cause the volume through from some clients was to the tune of tens of billions - including leverage that is.) - and we could only fill orders sometimes, by playing clients up against each other.
However we didnt guarentee fills.



The dealing desk also provided 24 hour support to clients, including advisory from a trader you dealt with especially. (Most of our trades were executed over the phone by the way, we did have a web based platform - but we wanted to encourage traders to ring us up - so we can give them a better level of service through supporting them with their trading - including giving advice, and market information - so a trader could ring us up anytime and ask us for marketdepth or major buyers of certain pairs. etc)



We would often favour clients who held their positions - we liked day trading accounts for their volume.



Although we were a large investment bank, we hated scalpers and often tried to deter them from using us. Most retail marketmakers, I would imagine also -would have a hate towards scalpers, cause they would not be able to feed prices through to the client fast enough (since they are level 2 brokers - and receive the prices from interbanks then must pass them on to the client - making them a middle, middle man so to speak). This is probably why brokers like FXCM. etc place scalpers on manual execution - cause scalpers would take arbitrage opportunites from the real marketplace and play them against the price the broker is giving them.



The best place for scalpers is with ECN's perhaps. People who guarentee straight through processing. The only problem is most ECN's dont have dealing desks.



The myths of brokers, feeding through clients the incorrect market prices in order to trigger stops - is quite proposterous. To be able to do that, would not only put the whole firm in disarae, because regulatory authorities not only from Australia (whom are extremely tough), but from all around the world in exchanges we dealt in, would be on your case for fraud, misleading disception, and also theft agains the client. ASIC in Australia, who is the main regualtory body, considers it a criminal act of theft, to decieve clients in terms of pricing. And rightly so.



This would damage the banks name - and i imagine it would be all over the media in a flash. One of the strictest rules in the firm, was to have integrity, especially towards clients.



The foreign exchange market is not regualted to an extent - but if pricing can not be confirmed as being executed at market prices for that time (market prices means that there must be a record of prices from anywhere in the world being at that quote at that time), it cannot be done, legally.



I dont know if brokers elsewhere can toy with that idea - set up phony exchange houses and deal incorrect prices with them for example. But I know we didnt do it. I doubt most large sensible, even the larger retail brokers would do it either.



To the idea of chasing stops - Yes, this did occur, quite often. During news times mostly. We would see where stops were with our clients, we also had a good idea where market depth was, and we would send through volumes of trades to take them out, in order to make money for the bank.



See the bank always came first...profitability for the bank the most important thing overall. Clients would leave eventually, successfull or not....but the bank was always there, so it was our main priority.



The idea at the end of the day is that its every man for themselves in the market. Brokers, traders, hedgefunds. etc are all in it for themselves to make a buck and they will do it whatever way they can.



If you are a good trader - and know the ins and outs of the market (not placing in house stop losses. etc), you will not need to worry, cause you can play the game - then your sweet!



My advice is - pick a respectable and PROFITABLE (profitability in a broker is so important, cause the more clients a broker has, the better level of service they can offer you - and the less chance the broker has of falling to the ground), who has impeccable client service. Aim for the bigger retail brokers (if your retail)....who have great relationships with interbanks.



When questioning a broker, ask them how many interbanks they deal with. If they have a figure less than 5....than stay well away, cause the flexibility of price they will offer you as a client will be completely crap!



Also, just dont go for brokers just cause they have tighter spreads. etc. Of course you want the best deal at the end of the day...but you also want your orders filled and a dealer you can talk to - this is why I'm not really a fan of broker houses without a dealing desk.



For everyone who deals with American brokers go to www.cftc.gov - and then go to 'financial reports for FCM's'. Here you can check out the Capital of all the brokerage houses, try to stick to the retail brokerage houses with the highest amount of capital - cause this ultimately means more clients, a better relationship with more banks in the interbank market, cause they can guarentee volumes, and also a better level of service.



Most importantly....make sure your broker is licensed and registered with regulatory authorities in major financial countries around the world. For example - dont be signing up with no brokers who offer you tight spreads and guarenteed fills from Nigeria.



Brokers arent bad, they arent there to be against you. But they may not, in terms of co operation in the market itself, work with you. Most brokers who are large and service respectible numbers of clients will tend to try to help their clients become profitbale as much as they can.



But once your order is placed, its every man for themselves...



I hope I've helped some people who are just starting out create an idea of how the major brokers and institutions work.



Cheers



Rusty

Hedging and some examples

Wikipedia for more info: http://en.wikipedia.org/wiki/Foreign_exchange_option

Extract:

"In finance, a foreign exchange option (commonly shortened to just FX option) is a derivative where the owner has the right but not the obligation to exchange money denominated in one currency into another currency at a pre-agreed exchange rate on a specified date.

For example a USD/GBP FX option might be specified by a contract allowing the purchaser to exchange £1,000,000 into $2,000,000 on December 31st. In this case the pre-agreed exchange rate, or strike price, is 2USD/GBP or 0.5GBP/USD and the notional is £1,000,000. This type of contract may be called either a dollar call or a sterling put depending on the market convention. If the dollar is stronger than 0.5GBP/USD come December 31st (say at 0.55GBP/USD) then the option will be exercised, making a profit of (2 - 1/0.55)*1,000,000 = $181,818 or £100,000."

"Example
Suppose a United Kingdom manufacturing firm is expecting to be paid $100,000 for a piece of engineering equipment to be delivered in 90 days. If the exchange rate goes down over the next 90 days the UK firm will lose money, but if the rate goes up then the UK firm will make a profit. The UK firm can purchase an option (the right to sell part or all of their expected income for pounds sterling at a given rate near today's rate) to mitigate their risk of exchange rate fluctuation over the 90 days. Conversely another party may wish to have the reverse option for a similar reason. A market maker will buy and sell these options with the aim of making a profit while not incurring too much risk."




Hedging is the way to eliminate further loss. Like your example, if you didnt hedge your position and market goes worst, you loss wont be 50 pips but more. (Traders usual dont use SL if the hedge a position)

If the trader start with 2 position in different side (call hedging) in same time, they probably looking for ranging market, usual market start in asia session will push up and down looking for comfort zone between support and resistence. so they have both position close with profit.

Another trade is sometime you got wrong position but you dont wanna close it so you can hedge it by place another reverse position (the first thing you must know that the market wont be back in your direction in short time). So, the new position (second) will profit and the first will continue loss but your loss only spread between your positions.

The smart trader know WHEN they should close the second one and let the first one reduce the loss.

Example :
BUY EUR/USD at 1.2700 but market go lower until you aware that you have wrong position, you hedge it by SELL EUR/USD at 1.2650. Current market price is 1.2630 so you have -70 pips and +20 pips (net -50 pips)

You know market wont go lower than 1.2600 so you close SELL position in 1.2610 (+40 Pips) while the first one -90 pips. And you are right, market now directly up to 1.2670 and you close you position IF YOU THINK MARKET WONT GO HIGHER. So your loss -30 Pips

NETTO, You earn 40 pips from SELL position and loss 30 pips in BUY position, Netto, you still earn 10 pips (better than you close at -50 pips)

REMEMBER :
1. Every trader have their own style.
2. The method work only for trader that know HOW TO USE IT.