Brief History of Forex

December 29, 2013 at 8:28 pm
Back in the days when kings thought they had the divine right to rule, they often wanted more money than their parliaments would grant them. But most parliamentary bodies did not consist of fools; they certainly knew better than to leave the powerful tool of taxation solely in the king’s hands.

Not being able to tax as they please, kings sometimes resorted to another financial weapon, which was to devalue their country’s currency. They would recall all gold and silver coinage, melt it down, then reissue it in lighter weight or with mixed in base metals, thus pumping up the royal treasury. Since the currency was backed more by the citizens’ confidence in the stability of their country than by anything else, most people never even noticed these changes, and kings got their way.

But sometimes people did notice changes in coins, and sometimes they were not all that confident in the stability of their country, say, if there was a threat of invasion from a powerful enemy. When that happened, often merchants refused to accept the devalued coinage in trade, demanding real gold or silver instead and rendering the king’s currency valueless. Such undermining of the currency could lead to a rapid collapse of the king’s government.

In the eighteenth and nineteenth centuries, the increasingly republican governments of the Western world began basing their currencies, not on confidence but on gold. This prevented their rulers from devaluing the currency but created other problems.

The gold standard had an inherent problem of boom and bust cycles. The imports of goods lead to outflow of capital from the country and shrinkage of money supply. The shrinkage of money supply lead to higher interest rates and lower prices because there was not enough money to buy goods. The lower prices would entice merchants from other countries to export goods from the country thus increasing the supply of money, pushing down interest rates and raising the standards of living again.

This boom-bust pattern continued in many western countries until World War I interfered with trade and stopped the flow of money across borders. The pattern resumed after the war and throughout the Roaring Twenties, until the 1929 stock market crash devalued the U.S. dollar and caused a worldwide depression. The Great Depression was relieved by the World War II, when the demand of war supplies and the drafting of men into military forces cured problems of unemployment and high prices.

Although the Second World War eased economic problems in the U.S., it caused them in other countries, which had to purchase different goods and materials that they were not able to manufacture themselves. This led to an agreement known as the Bretton Woods Accord, signed in New Hampshire in 1944 and designed to create a stable post-war economy where the Nations of the world could recover financially.

The Bretton Woods Accord pegged the value of all world major currencies to the U.S. dollar, making it the benchmark to measure all other currencies. It also pegged the U.S. dollar to the price of gold at $35 per ounce, and it created the International Monetary Fund (IMF), a confederation of 185 nations around the world, dedicated to fostering economic stability and high employment.

For decades, the Bretton Woods Accord worked well. But in the early 1970s, international trade grew to such an extent that currency rates could no longer be contained. Finally, in 1973, President Richard Nixon allowed the U.S. dollar to be taken off the gold standard, and the complex arrangement of currency values was abandoned.

The major currencies of the world have come full circle: just like in the old days of kings, the currencies are controlled by the market forces of supply and demand, without being pegged to any other currency or to any precious metal. (Some of the smaller nations of the world prefer to peg their currency to that of their major trading partner, like some Caribbean nations with the United States.) This created the Forex market, where one currency can be traded against another currency with the expectation of earning profit from changes in their relative values.

At first, only major commercial and central banks traded the Forex. But with time hedge funds, mutual funds, large international corporations, and some super-wealthy individuals discovered it. By the 1980s, about U.S. $70 billion per day was changing hands in Forex transactions.

The explosion of the Internet and sophistication of computer security systems enabled exchanging currencies online independently of any bank across the globe and different time zones.

In 2000, the U.S. Congress passed the Commodity Futures Modernization Act, which opened the Forex to the average investor. Retail brokerages sprang up across the Internet. Today about US $1.5 trillion is traded per day. Just 5% of this amount is currency conversions by travelers, banks, and international corporations. The rest of transactions represent trading for profit.

Happy Holidays!

December 24, 2013 at 3:01 pm

I wish you all to have happy holidays and best of luck in the next year.

Mo., Dec. 24 end of day results +20 pips

December 24, 2013 at 1:11 pm
AUDCAD reached P1 and bounced back. The result is +20 pips profit.

Mo., Dec. 23

December 23, 2013 at 12:15 pm

AUDCAD Sell 0.9478 SL 0.9505 P1= 0.9458 P2= 0.9448

Dec. 21, end of week results +137 pips (total profit: 1,130 pips)

December 21, 2013 at 7:37 pm
I didn’t have time for trading on Friday. Still, this was another profitable week with the following results:

Mo. +20 pips
Tu. +85 pips
Wd. -28 pips
Th. +40 pips
Total: +137 pips
Today is exactly one month since I started this blog on Nov. 21, 2013 and the total result is the profit of  +1130 pips. 
If we divide 1130 by the number of business days, we get an average profit of 1130 : 22 = 51 pips per day. This makes us way ahead of our goal of making just 10 pips per day.
Why do we want to make 10 pips per day, you can see it here: How much money can you make trading Forex part-time?

Dec. 19, end of day results +40 pips profit

December 20, 2013 at 11:27 am

EURUSD: profit target P1 reached, the other 2 units closed at break even

Dec. 19, end of day results +40 pips profit

December 20, 2013 at 10:38 am

EURUSD: profit target P1 reached, the other 2 units closed at break even

Dec. 19, profit +20 pips so far

December 19, 2013 at 8:20 pm
GBPUSD: profit target P1 has been reached for a 20 pips profit, the other 2 units were closed at break even. Thus the total for this trade is +20 pips profit.

EURGBP sold at 0.8335, still open

EURUSD sell stop order is still open

AUDUSD order is cancelled

Is it better to make 1,000 pips or 10 pips?

December 19, 2013 at 8:06 pm
So, what is better to make 1,000 pips once in a while or to make 10 pips every day? 
Yes, this is a tricky question. But the way you answer this question defines your trading strategy.

You can base your trading strategy on going for a big win or you can base it on winning small but often. In a baseball analogy that would be going for a home run as opposed to scoring single runs over and over again. Both of these strategies are valid and can make you money if used properly. Which one you choose depends on your personality and circumstances.
The downside for the “big win” strategy is that most of the time you have to endure strings of small losses before you hit that home run. These small losses might wear you down both financially and emotionally much sooner than you get to the big win.
The downside for the “small win” strategy is that most people want to get rich today and just can’t wait till tomorrow, let alone the day after.
After many years of trying different strategies and losing thousands of dollars, I became a big fan of making small profits consistently. The keyword here is consistency. The consistency will allow you to calculate your risk/reward precisely, which in turn will allow you to make more money per trade.
Do not forget that making 10 pips per day means making $10, $100, $1,000 or any other amount per day depending on your account size (click here for the pip explanation)
Making just 10 pips per day and using the great power of compound interest will make you rich in almost no time.

How to get rich trading Forex?…It’s simple.

December 19, 2013 at 4:35 pm

How to get rich trading forex? It’s simple.

The biggest secret of all is that getting rich trading Forex IS simple:

1. Win more than you lose.
2. Never lose more than your account can afford.
3. Compound.

Now, do not confuse simple with easy or quick! It takes discipline and patience. If you got discipline and patience, you got 90% of what it takes to make money trading forex.

I will talk about each statement above in detail in separate posts.