Making Money in FOREX

Whether you’re a stock broker, mortgage broker or loan officer, FOREX trading is an essential part of one’s portfolio. FOREX trading is an extremely lucrative, yet volatile and risky market. The facts state that 95% of FOREX traders lose money in there first year of trading. Why then must FOREX be considered a part of one’s portfolio? Simply because trading FOREX has the potential to make anyone who is willing to learn the FOREX market thousands of dollars per month.

It wasn’t until recently that average everyday people were able to trade in the FOREX market. Now it’s easy to obtain a mini account, fund it with $300 and off you go. However, if trading the FOREX market were this easy, then everybody would become millionaires and this just isn’t the case.

FOREX trading requires consistent analysis of the market. There are two ways that FOREX traders assess the market. The first is what is known as fundamentals. Fundamentals rely on news events such as, CPI, retail sales and home sales. FOREX traders will make a projection for upcoming data and place their trade based on their speculations of upcoming news events.

Another type of FOREX trader is what we call a technical trader. FOREX technical traders rely on chats and mathematical formulas to place their traders. The idea is that history repeats itself. Based on historical patterns FOREX traders can use this data to predict price movement in the future.

There is no proven method to trading. Some people claim to have found the Holy Grail to FOREX trading. However, through my experience it’s best to develop your own method of trading. Decide the best time to trade, develop good money management, and set goals. A lot of experienced FOREX traders trade the London and New York overlap between the hours of 9:30 am GMT and 2:00pm GMT. The reason for this being is that during this time the market moves a lot and becomes extremely volatile. Many FOREX traders are extremely good when it comes to managing their money.

The key to success in FOREX trading is to block out your emotions and anxiety. A true FOREX trader will discipline themselves to stick to their trading style regardless of what happens in the markets. Many people feel as though just after a few short months of trading successfully in a demo account they are ready for the real thing. Take your time and really learn how the FOREX market works.

My FOREX Trading Strategy

I ventured into the FOREX market a little more than 1 year ago. I have tried and tested many different types of trading techniques and styles. Most were failures and some were successful. From my experience, traders making money in FOREX will not reveal their trading system, simply because somebody has to lose money in order for you to make money.

Currently I have two strategies working for me. I started with a demo account a little more than one year ago and used the obvious techniques such as technical analysis and fundamentals. Technical analysis seemed to be the easiest method for an inexperienced trader since it only required looking at charts as opposed to watching the news. I used indicators such as MACD, Fibonacci, and RSI to help assess the market and make a prediction on price movement. Needless to say I was successful in my demo account, however when I went live, fear set in and I could not trade using the same techniques I had developed over 4 months of trading with a demo account.

The stress was too much and like a lot of people, I started looking for a FOREX signals provider to minimize the time spent and stress. After some due diligence on quite a few FOREX signals providers, I did find a reliable FOREX charting software package that provided excellent signals. To my surprise, the signals worked. The only difficult part was to discipline myself to take each signal whether I agreed with it or not. After all, the company I chose had a winning track record for 3 consecutive years.

Now that I had a positive flow of income from a FOREX signals provider, I decided to open a second account using my own trading system. This is where I discovered what I feel is a full proof system when it comes to making a fast 30 to 50 pips in FOREX.

Trading now for a little more than 1 year, I noticed that the market moved on speculation. Speculation based on fear and news events, such as the CPI and retail sales. I noticed that between the times of 4:30 am eastern and 8:30 am there was a lot of critical news in majors such as the Euro and the British Pound. The market would move at the exact moment these major news events were released. If a news event was due out at 4:30 am on the British Pound, more than likely the market spiked at that exact moment 30 to sometimes 50 pips up or down. What I started to do was trade on these news events. I would wait until that exact moment the news was due out and execute a trade when the market moved more than 7 pips from its current price 15 seconds before the news is released. A stop-loss should be set at 10 pips above or below the current price.

The trick to this method is executing the trade at the right time and discipline yourself to keep your stop-loss very tight, setting it to no more than 10 pips after you got into the trade. The reason being, this works all of the time, but if you click too soon or too late you could fail to predict the direction of the market. However, when you are right, your winning trades will outweigh your losing traders significantly since you are looking to make a gain of 30-50 pips and if you a wrong a loss of only 10 pips. I have used this method for 5 months and it works.

Foreign Currency Mortgages – take advantage of some of the worlds lowest interest rates but the risks are sky high.

In the UK over 99% of borrowers raise the mortgage they need to buy their home in sterling and pay the prevailing UK interest rate. But there are alternatives.

Despite increases in 2005, the UK's domestic interest rates are low by its' own historical standards. However, they remain significantly higher than in Eurozone, America, Switzerland and indeed, Japan. Therefore, currently you can take out a mortgage in Euros, $ dollars, Swiss Francs or Yen, convert the money you've borrowed into sterling, secure the debt against your house in the UK and end up paying a much lower rate of interest.

You may think that UK interest rates are low, but if you look at the 3 month money market interest rates you'll see that they remain significantly higher than in other parts of the world:

£ sterling 4.64%

$ US 4.48%
Eurozone 2.46%
Swiss Franc 1.03%
Yen Japanese 0.12%

(Source: Financial Times, 3 month Money market Rates, 9/12/05)

But you won't be able to take your mortgage out at these 3 month Money market rates. You'll have to pay a premium for borrowing in a foreign currency and the set up costs will be higher. Nevertheless, if interest rates were to remain as they are now, you could save a lot of money on your interest payments.

So why do 99% of UK domestic mortgage holders still choose a domestic UK mortgage? Most borrowers are unaware of foreign currency mortgages but that's not the main issue. The primary answer is that there are extra risks.

International interest rates are constantly changing and gap between sterling interest rates and the foreign currency rate you've borrowed in, could narrow. This would reduce the interest rate saving and, if that trend continued, could make your interest rate more expensive than a standard £sterling mortgage.

But the biggest risk by far lies' in fluctuations in currency exchange rates. If you borrow in say, Euros, you eventually have to repay the loan in Euros. That would be great if the Euro/Sterling exchange rate was fixed – but they aren't.

If the £ sterling strengthened against the Euro, when it came to repaying the mortgage you would need to convert less £ sterling into Euros than the £ sterling value of the money you received when you first took out the mortgage. That would be great, a lower interest rate and repay less than you borrowed.

But what happens if the value of sterling falls against the Euro as has happened in recent times?

You still have to repay the same number of Euros but you'll have to convert more £ sterling to achieve that. In other words you end up paying back more capital than you borrowed.

So in many ways, a foreign currency mortgage becomes a bet that the £ sterling exchange rate will not fall against the currency you've borrowed in. In other words you've transformed your mortgage and what is probably your biggest liability, into a major currency speculation. And your home's secured against it! You may be lucky and save a lot of money - but it's not for the faint at heart!

Another point you should be aware of is the minimum deposit you'd need for a foreign currency mortgage. Most lenders ask for at least 20%. That's a reflection of the increased risk.

Incidentally, you now have second option to consider. You can take a mortgage in £ sterling and have your interest rate linked to a foreign currency interest rate. Whilst you avoid the biggest risk – the exchange rate risk, you are still taking gamble that the foreign currency interest rate plus the interest rate premium you pay, will remain lower than the equivalent UK interest rate. These foreign interest rate mortgages typically have a 5 year tie in clause. So, if you want to repay the mortgage early, you'll have a hefty redemption penalty to meet - although the mortgage can usually be moved to another property. For some borrowers this represents an acceptable risk, especially if the mortgage is linked to the Swiss Franc or Yen where interest rates have been astonishingly low and stable over past years. For example, the Swiss interest rate has not moved above 1% in the last 4 years and in the Eurozone, the interest rate has not changed for 5 years.

Nevertheless, part of the standard wording for a regulated investment warning is appropriate here past performance should not be construed as a guarantee of future performance