Investor's Passport to Hedge Fund Profits: Unique Investment Strategies for Today's Global Capital Markets

CHAPTER 6

Making the Buck in Currency Trading

FOREX BACKGROUND

We will never forget our first experience with currency trading. We had been managing investment portfolios for roughly 15 years, and had traded more than a billion dollars of investable assets. Our portfolios bore good results as we managed to successfully match our wits against the unpredictability and intricacies of the global capital markets. We were not initially planning to take our client account dollars and trade currencies, but we thought we would take some of our personal dollars and do some trading. The experience was eye-opening. Understand, many of the fundamental factors that affect global stock markets are the same fundamental factors that affect the global currency markets. As well, many of the same technical patterns and indicators we use to trade stocks are also applicable to the currency world. However, the speed at which you can make or lose money in the currency markets makes this a completely different animal. Much of this volatility can be explained by the use of leverage we find in trading these currencies. Nonetheless, you want to be sure to put on your seatbelt before trading currencies. Harkening back to our initial experience, in our first five days of trading, we were up 40 percent. We thought we could do no wrong. In the next 48 hours, however, we lost 60 percent of our money. Trading in the foreign currency market is not for the faint of heart, and the undisciplined traders will quickly ...