CHAPTER – 1 “Froma Travelling Salesman to a Forex Trader” From a travelling salesmanto a forex trader, that looks like a movie tag line or a New York Timesarticle. But before you jump to any conclusion, let me make this simple foryou, it’s about me “Jacky Cheng” who happens to be a real person with some realachievements.
I would like to talk about my background but for starters let’sjust focus on why and how part. As it turns out I’ma successful sales manager who is hardwired to close the deal no matter howmany times people turn their back, well that’s persistence right there. I wouldpose the same level of enthusiasm on the 100th door as I did on thefirst 99 doors that were slammed in my face. Well, looking at those qualitiesevery boss would be thinking to have a person like me on their sales team and Iwould be one getting all those promotions, pay hikes, bonuses, perquisites andwhat not.
It looks like afairy tale of a travelling salesman who rose above his fellow salesmen, but tobe fair and realistic, it’s boring and rigid. I mean if you’re really that sortof a person who is happy to carry along a monotonous job, making the same pitchagain and again like a robot then this book doesn’t worth your time, but ifyou’re an optimistic person who believe in connecting the dots of past and makesomething better then hang on it’s for you. You see I was goodat what I did-people told me all the time. Most of all it was kind ofcomfortable, as you can pay your bills on time, have great food, meet newpeople and make a decent living. Then why all this fuss about finding somethingmore dynamic, more challenging and of course lucrative. It all boils down tofinding your passion, if you’ve got a spring in your step on the way to workand you couldn’t wait to roll up your sleeves to get the job done then probablyyou’ve find your passion. It wasn’t for me and at the same time I couldn’t giveup all the attention and comfort I was getting as a sales manager.
So how did I getinto forex trading, was it an advice from someone or it just occurred to me outof thin air. Well nothing of this sort happened to me anyway, it was just athought of trying something crazy to make money online while not giving up my 9to 5 full-time job. At least 100 different ideas came up when I startedbrowsing all the legitimate ways to make ton of money online, the ideas were ascrazy as it gets but it was one idea that struck like a lightning bolt. As I said earlier Idon’t want to give up my full-time job and yet I want to make a lot of money,the basics of forex trading will let you know why it struck me like a lightningbolt. The FOREX (i.e.
, Foreign Exchange) market is an international marketwhere the money (currency) of every country is sold and bought freely. It was launchedin the 1970s the introduction of free exchange rates, and the price of onecurrency against another that occurs from supply and demand is determined onlyby market participants. There is no externalcontrol, and competition is free because all the participants can decide totransact or not.
In this respect, the FOREX is a perfect market because itcan’t be controlled or monopolized by any of its participants. The enormousnumber of transactions executed day after day in a continuous activity make itthe biggest liquid financial market. According to various assessments, moneymasses in the market constitute up to US $4.5 trillion a day. Trading is conductedall over the world through telecommunications and electronic networks 24 hoursa day, 5 days a week starting from 00:00. There are dealers quoting currenciesin every time zone through the main central markets: Frankfurt, London, NewYork, Tokyo, Hong Kong, Australia, New Zealand, etc. To get a betterunderstanding of FOREX quotes, you just have to know that one unit of the basecurrency is equivalent to the exchange rate in the quote currency. For example,if EUR/USD is trading at 1.
2762, the price of 1 euro (base currency) in dollars(quote currency) will be 1.2762 dollars. FOREX trading isconducted through individual contracts. The standard contract size (also calleda lot) is usually 100,000 units.
This means that for every standard contractyou acquire, you are controlling 100,000 units of the base currency. For thiscontract size, each pip (the smallest price increment) is worth $10. Manycompanies offer mini accounts in which you can trade units of 10,000, where thepip value is $1 or even smaller. In comparison withother markets, trading the FOREX market allows very low margin requirementsbecause of leverage. In FOREX, you don’t need to obligatorily buy a currencyfirst in order to sell it later.
It is possible to open positions for buyingand selling any currency without actually having it at hand: For a standardaccount size, usually Internet brokers establish a minimum deposit such as$2000 for trading in the FOREX market and grant a leverage of 1:100. That is,opening the position at $100,000, a trader invests $1000 and receives $99,000as a credit.For those wishing toget started at a smaller investment size, many brokers offer a mini account.The FOREX mini account offers smaller contract sizes controlling $10,000 units.The usual account minimum to start a mini account is about $250. With a mini account,you only need $50 as a margin deposit requirement per every $10,000 lot traded.The leverage is usually 200:1 (10,000 divided by 50 = 200), and in some casesit can rise to 400 or 500:1 (you then would need even less margin to operate).
Thus, with $250, you could trade a maximum of 5 mini-lots; with $500, a maximumof 10; with $1000, a maximum of 20; etc. Now you see thereare “n” number of advantages of trading forex, one can argue that you can tradestocks that are more glamorous and profitable. Well CNBC does bullshit onstocks all day long, they hardly talk about forex trading, although forex ratesare constantly updated on a side bar but still they don’t do much of a show forforex. Following key differences will highlight the fact that trading in forexis far better than trading stocks given some special circumstances which areindividualistic in nature.
The FOREX market is alwaysopen: Like some supermarketsthat are open 24 hours, the FOREX is a “supermarket” of currencies, open 24hours a day, 5 days a week. The FOREX opens in most of the brokerage houses onSunday at 3 to 5 p.m. Eastern Time (ET) and stays open until Friday at 4 p.m.EST (it must be borne in mind that the opening and closing—Sunday andFriday—may vary from broker to broker).
In this way, traders have the abilityto operate either in the American, Asian, or European markets, which gives themthe advantage of being able to react to certain events or news that is bound toemerge and also gives them the opportunity to decide their schedules. No commission is charged: Most brokers do not charge additional fees or commissions to buy orsell currencies, whether online or by telephone. This is so because of the useof a fixed spread that is consistent and transparent. The cost of a buy/sell inthe FOREX market is much lower than in any other market (e.g., stock, futures,etc.). A side note to this is that because of the competition for narrowerspreads and faster executions, some brokers are providing very tight spreads andextremely fast execution with little latency.
In order for them to do this,however, they are now starting to charge commissions. The commissions vary, andwith a little due diligence, you will be able to find just the right broker. Orders are executedinstantly: In normal market conditions, the executionof orders at a given price is done instantly.
The trader places the order atthe quoted price, which is being updated in real time. There is no differencebetween the price shown by the broker and the price at which the purchase orderis executed. There are special conditions, though, in which market volatilityis such that orders can be delayed or requoted, but under normal conditions,there are no such delays. There are no restrictionson short selling: Unlike the stock market, theFOREX has no restrictions to open sell positions (short). In the FOREX, thereis a chance to buy or sell regardless of whether the market is bullish orbearish. Owing to the fact that in the FOREX there is always someone buying acurrency and selling another at the same time, there is no structural bias inthe market.
A trader can operate both upward and downward in the market. There are nointermediaries: Stock markets that tend to becentralized have advantages for the operator. But a problem with this is theneed for an intermediary between the stock market and the trader. However,FOREX intermediaries do not exist, and thus the trader may buy or sell in theFOREX market without physical intermediaries that can buy or sell a particularpair at the time that they wish or think is appropriate. In the absence of anintermediary, the trader gets higher profits at lower costs. The market is notcontrolled for buys or sells: The stock marketis more susceptible to speculation based primarily on rumors of buying orselling by other companies.
I can see this when a big company buys anotherrelatively smaller company, and the value of the company’s shares increase. Butthe stock market is also likely to go down when you think that a company hasbeen making profits and that investors tend to take profits by selling theshares. The analysts and firms areless influenced: The stock market is moreinfluenced by rumors of one company being bought by another.
This is whysometimes the firms or analysts can recommend a purchase of a particular sharewhen in fact such share will fall based on rumors of a takeover of one companyby another. In the FOREX market,analysts just base their studies on the market and are not influenced by rumorsof purchase: This is a market that generates billionsof dollars a day for banks and certainly is necessary for the success of globalmarkets. Four currencies againstthousands of shares: In the FOREX market, thereare six major pairs, whereas in the stock market, there are thousands ofcompanies. So analyzing four key pairs is much easier than analyzing thousandsof companies. In the FOREX, obviously there are more than a hundred pairs, butthose that are the most subject to transactions include only six major pairs. That was FOREX 101in short, I learned it by reading articles, textbooks, watching video tutorialsand taking mock positions on FXCM platform which is free of cost for beginners.So now comes the day of reckoning, the day when I entered into my first tradingposition. But I dig into details it would be wise to know some basics of takingpositions in FOREX.
The position can beset up from the start of the trade, with its individual stop-loss andtarget-profit levels, or it can be managed as it develops. Setting and trailingthe stops, balancing partial profits, and shifting entry prices in pending stopor limit orders are other ways of managing your trades. A position will beclosed automatically when it reaches either the target profit or stop-loss setprice resulting in a loss. Positions also can be closed manually throughspecific controls on the platform or by calling the broker directly. When youclose a position manually, you are subject to the same conditions as whenopening at market price, such as requotes if the prices have changed. The pip or point(percentage in point) is the minimum unit of movement of a currency. Itsymbolizes a 0.
0001 variation in four-decimal-based currency pairs, and a 0.01increase or a decrease in two-decimal-based pairs. In this way, assuming thatthe previous price is, for example, 1.2750 on the EUR/ USD and it rises to1.2799, you will have a difference of 49 pips. To determine theamount of loss or gain on a particular trade, you first should set up the valueof a pip and then multiply it by the number of pips the currency has changedfor or against your position since the trade began. If the base currency isincreasing in relation to the quote currency, each pip above the price at whichyou purchased it will be counted as profit.
And vice versa, every pip that islower than the price at which you purchased it would increase your loss. So initially Ientered into a long position on USD/GBR, after reading a lot of stuff andengaging in mock trading for almost 3 months I was confident that I can makesome real money by spending 2-3 hours a day. All it requires is some unbiaseddiscipline and perseverance of following a thoughtful strategy and thensticking to the same for a long period of time. I began trading on adaily basis and it occurred to me that this is something I wanna do for therest of my life on a full-time, just six months into real forex trading and Iwas quite certain that I no longer wanted to carry along my comfortable 9 to 5day job. So I quit my job and went on to become an expert forex trader.
You see I don’t havea background in a forex market in terms of I have never worked in HongkongStock Exchange or the Shanghai Stock Exchange or anything like that. I don’thave a fancy business degree as such, so I think it the most important takeaway is that anyone can become a successful Forex Trader, provided you have theright application, familiarity with numbers and constant determination. I wouldlike to make a meaningful point here, no matter what is your background or youwent to business school, or anything like that because it’s not the case atall.