Irish Debt Concerns Grow Despite Well Subscribed Portuguese Debt Auction

The Greenback's resilience against all the other major currencies last week came about in part due to the uncertainty in the European Union over Irish debt as Credit Default Swaps for Irish sovereign debt topped and remained above 600 bps last week. CDSs for the debt of some other European countries also widened considerably.
Concerns in the financial markets over the possible Irish debt situation prompted a wave of risk aversion which gave the Greenback considerable strength even against the commodity currencies in spite of gold making a new all time high yet again last Tuesday.
The Euro fell considerably against the Greenback from the beginning of the week as EURUSD came off of its weekly high of 1.4085 after the market was abuzz with talk of a Greek style default on Irish debt.

Euro Finds Support After Portuguese Bond Auction

The rate then consolidated somewhat on Wednesday after the results of a Portuguese bond auction raised 1.24B Euros in six and ten year bonds, which was at the top end of the expected range of 0.75B - 1.25B Euros.
Alberto Soares, the President of Portugal's debt agency stated after the auction that,
"Demand was there, yields were below the secondary market, so that's why we decided to go to the top of the range."
 Also, when addressing speculation that Portugal might tap the EU for another bailout, Soares added that,
"From the point of view of the Portuguese debt management agency, were committed to maintaining our funding through the market."

LCH Clearnet Requires Additional Margin for Irish Sovereign Debt Positions

Also on Wednesday, London clearinghouse LCH.Clearnet announced that it had decided to require an additional 15% margin on positions of Irish sovereign debt.
This worrisome news prompted a bank run in Ireland on the same day and saw the Euro extend its decline versus the Greenback even further.

Ireland Announces Austerity Package but Bailout Rumors Persist

On Thursday, Ireland announced that it would increase its spending cuts package and tax increases by more than double in order to bring down its huge budget deficit.
This news sent the yield on the Irish 10 year bond up to 9 percent on Friday, which further widened the spread against the comparable German Bunds that are currently yielding only 2.5 percent.
Directly affected by the Irish debacle were the borrowing costs in Spain, Greece and Portugal, which all increased considerably as investors grew wary of the possibility that these financially troubled countries may also default on their debt.
Nevertheless, the prospects of Ireland bringing down its budget deficit to the target level of 3 percent of GDP by 2014 seems somewhat unlikely since the Irish deficit currently runs at 32 percent of GDP.
Friday then saw the Euro make its weekly low of 1.3573 after the yield on Irish 10 year bonds soared to over nine percent, and rumors persisted in the market that Ireland was to receive an 80B Euro bailout package from the IMF and the EU.

Commodity Currencies Correct Sharply Lower as Risk Aversion Returns

The Australian and New Zealand Dollars were among the biggest losers against the U.S. Dollar last week, after having gained considerably over the previous two weeks.
Down over -2.9% last week was the Australian Dollar, which had boldly traded over the psychological parity level for most of the previous week. The New Zealand Dollar, which gained +4.9% over the previous week, lost most of its gains by dropping -2.9% last week as the Greenback rose against all the major currencies.
The Canadian Dollar was the best overall performer among the commodity dollars, losing only -0.9% against the Greenback last week. The Loonie gained support from rising crude oil prices which topped $88 per barrel on Thursday, only to sell off sharply on Friday to end the week lower.

Australian Unemployment Jumps to 5.4 Percent

Besides risk aversion, the Aussie's decline was also attributed in part to some mixed Australian economic numbers released last week.
Perhaps the most significant of the economic numbers which affected the Aussie was an increase in the Australian Unemployment Rate that came out at 5.4% versus an expected 5.0%. The rate rose despite the Australian Employment Change showing a favorable increase of +29.7K versus the +20.2K that the market was expecting.
The employment number was significant in the wake of the RBA's November rate decision, which saw the RBA surprise the market and raise its benchmark Cash Rate to 4.75 percent earlier in the month.
Other economic numbers which adversely affected the Australian Dollar last week were the Westpac Consumer Sentiment Survey which came out at a dismal -5.3% versus a previous reading of an increase of +3.3%, and the NAB Business Confidence Survey coming out at 8 - the lowest the number has been in a year - versus a previous reading of 10.

Kiwi Gives Back Most of its Gains from Last Week

The Kiwi down move seen last week was partly corrective, although the large decline was due in part to risk aversion in the currency market resulting from the European debt situation that neutralized the otherwise favorable fundamentals for New Zealand that were released last week.
Furthermore, last Tuesday saw the RBNZ release its Financial Stability Report outlining the central banks implementing of the Basel III agreement and the creation of the Financial Markets Authority.
In his closing statement, RBNZ Governor Bollard wrote that,
"Non-performing loans and profitability have stabilized over recent months, as reflected by an unchanged rating for 'capital and profitability'. There have been ongoing improvements in the funding position of the New Zealand banking system, as indicated by material improvements in the core funding ratio. Nevertheless, funding markets remain somewhat fragile, as indicated by the 'funding and liquidity' dimension still sitting slightly above normal."

Gold Jumps to $1420 as Traders Give up on the Financial System, and the USD China and USD Continue their Squabbles

Today the USD was higher against most other currencies, while Asian stocks were mixed, and the U.S. market was lower as this is being written. Today is not heavy on data, but markets have found enough to focus on in Europe's ongoing sovereign debt problems, and continuing comments by the Chinese about the recklessness of U.S. policy.
Meanwhile gold was as high $1422 per ounce, extending the uptrend in place since late August in accordance with the seasonal patterns that we have become used to over the years. Silver has also been charging higher, and reaching the highest level of the past 30 years or so in recent days' trading.

China needs a stable USD, officials say

The Chinese news agency Xinhua is publishing an excited article today about the issuance of reserve currencies, calling the U.S. monetary policy irresponsible (!), and demanding that the issuer of the reserve currency report to G-20 before undertaking major directional changes in policy. This comes in harmony with the recent comments by China's Deputy Foreign Minister, today's statements by the FM himself, and a long list of comments by various lower ranking officials to the effect that the U.S. has got some explanation to do even as it keeps blaming China on the yuan issue. In any case, since it is generally agreed that Asian currencies need to appreciate in order to clear the imbalances of the past decades, and to help manage the shift of lifestyles and wealth from the U.S. to the Far East, it is hard to comprehend what exactly the Chinese foresee as the alternative growth path for the world economy. Indeed, their proposed solution seems to be "business as usual", drunk as they are with their bubbles, but to proceed with no change really seems like a non-starter at this stage.
We do not in any way suggest that the U.S. administration is any more competent than the Chinese. We argue instead that both are equally clueless, but since markets and commentators generally enjoy criticizing the Federal Reserve and the Chairman more, we prefer to focus on the Chinese here, because, after all, this whole mess is the collective masterpiece of these two parties, and neither has any right to blame the other for its problems. Of course, that doesn't mean that certain ideas cannot have greater credibility than others. Yuan appreciation issue is one of those rare situations where the U.S. is right. The problem is that the Chinese are cornered politically and economically, and don't possess the freedom to do what they have to do sooner or later. This makes it appear as the intransigent side, but the truth is more complicated.
In other statements today, the state manager of China's FX reserves, SAFE, has announced new measures to restrict hot money inflows to the country. To limit the cash-geyser that is flooding the country, SAFE will "strictly enforce" quotas already in place that restrict short-term external borrowing of Chinese insitutions, and will tighten oversight of offshore investors' activities, in addition to managing the repatriation activities of Chinese companies carefully. A former member of the Standing Committee of the National People's Congress, and the chairman of the Chinese national pension fund also mentioned the Fed's QE2 today, focusing on the inevitability of hot money flows leading to inflation and appreciation pressures in the developing world. And as if to confirm the seriousness of the problem, today's sale of CNY3 billion fixed-rate 3-yr bonds was nearly 17 times oversubscribed by investors hungry for Chinese assets, bringing in demand of some CNY50 billion according to reports.
Yet not much should be said about these statements. The authorities are just as helpless as the majority of traders are in managing bubbles profitably. And nobody is too excited about SAFE "strictly managing" inflows of capital into the country, since, as the PBOC Governor admits, expectations of appreciation, and the interest gap between China and the developed world make the country too attractive to capital flows. With the existing positioning of international relations, and the external balance of the PRC, it is not possible to reverse the appreciation trend, and as such, finishing the task quickly may in the end help the government rein in speculative demand for the currency over the longer term, in spite of the difficulties that the economy will have to face as an immediate consequence.
Today the yuan was fixed at 6.6580 vs. yesterday's 6.6692. There are some rumors that the PBOC may once again raise reserve requirements for banks soon.

Greece auctions sees demand at higher interest, Irish Cds and bond spreads widen further

Inflation in Germany was released today at 1.3 y-on-y, confirming the belief that in spite of the excellent performance of the country over the past quarters, consumer demand remains lacklustre, and the risk of deflation is still here. This interpretation was confirmed by another release that showed comsumer insolvencies rising by 10.7% compared to the same period of last year. It is hard to see the ECB removing financial accommodation against this background anytime soon. In fact, as readers would know, they are busy pumping cash into the bond markets of the periphery, so any talk about normalization runs the risk of being regarded as hypocrisy by markets.
Ireland's CDS were once again higher today. Sentiment later in the day was improved somewhat by Greece's auction of 26-week, Eur300m bills which effected a bid-to-cover ratio of 5.15, confirming that high yield can still boost the attractiveness of the nation's debt. Nonetheless, rates were higher at 4.82% vs. the previous 4.54%. In short, there is cash for Greece, but at a suitable price.
By contrast to all these, 3-month Euribor eased a little to 1.049% from yesterday's 1.050. However, we still expect the rate to go alot higher from the current levels unless the ECB intervenes in the periphery aggressively in the coming weeks.
Today is a continuation of the past few weeks in almost every aspect. The one significant development is gold's rise above $1400. We learn that the 5-week average is located on the 1420 level, so the next few days will be critical for short-term price action in the precious metal.

Stocks Around the World Sell off While Worries About FX Tensions and European Sovereign Debt

Yesterday's decision by LCH.Clearnet to require an additional 15% of margin on positions of Irish sovereign debt has been a catalyst to the downtrend in place for a while in risky assets, and we saw bourses in the red around the world, with Asia being a rare point of strength. North and South America, Europe, and most emerging markets saw significant declines in share prices. In contrast, Japanese, Australian, Chinese, and HK bourses were higher, with the strongest gains seen in Chinese markets, while Thailand, and Korea (-2.7%) were lower with the rest of the world with energy firms and banks reported as the main source of strength. On data front, China data released today in Japan has shown machinery orders falling by about 10 percent in September following two months of strong increases, yet Nikkei was higher after the USD rose around the world on negative risk sentiment.
As expressed here before, we believe that the Fed decision of last week is in fact going to be the starting point of a sharp correction in markets, on the basis of the familiar concept of "buy the rumor, sell the fact". However at this point it is almost impossible to adopt a bullish posture on the U.S. with both the Treasury and the Fed clearly committed to depreciating the USD. Geithner's recent comments that the U.S. never aims to manipulate the currency are but exercises on definitions and theory, with QE2 a dominant concern in the minds of traders and authorities. At the same time, we doubt that the FX market presents the most suitable environment for dollar-bearish positions, since most nations have very little to gain from a rapid depreciation, and will not hesitate to take drastic action at times to reverse or slow the trend, resulting in costly mistakes and misunderstandings among traders. Commodities are not regulated or controlled by anyone, so speculators have far greater freedom in drawing them in any direction they desire. In particular, gold, among all commodities, has the added benefit of being regarded as an alternative currency, and presents an exceptionally good choice for the exploitation of the USD trend.

Eurozone debt market in crisis mode, turmoil spreads

As readers are probably aware, the spreads of Irish, Portuguese, Italian, Spanish, Greek and Belgian bonds against German bunds were all wider today. To reduce tensions, the ECB is known to have bought some Eur711 billion of Eurozone debt, which is still small in comparison to peak numbers of May, and there is ample room for further bond purchases before the market is cowed, if at all, to stop shorting the periphery.

In other developments, correlation among various Irish banks has been rising, with today's reports showing that Allied Irish, and Bank of Ireland reaching similar CDS levels to those suffered by the embattled Anglo-Irish.
3-month Euribor was back up at 1.050% today after falling for the past few days.

PBOC watching inflation closely

Vice Governor of the Chinese central bank, Hu XiaoLian, has said today that the bank is carefully watching inflation trends, and that they will use monetary policy tools "flexibly" in order to control them. Today's numbers which showed inflation jumping to a two-year high of 4.4% last month from the previous 3.6% lie behind the decision of the PBOC to raise the reserve requirement ratio yesterday, and news sources also report that about CNY30 billion has been removed from the market in monetary operations during this week. Nonetheless, unless they are implemented in the framework of a tightening policy that will accompany the rise of the currency, they are unlikely to lead to a meaningful improvement in the excess liquidity situation of domestic markets. After all, with the USDCNY pointed lower, any small amount withdrawn through traditional means will be more than made up by aggressive inflows created by appreciation expectations. We doubt that inflation is a serious problem for China for now, but the real estate market, and the continuing rapid growth of credit (with M2 rising at 19.3% in October) pose issues that must be tackled decisively if China hopes to avert a costly and unpredictable downturn.
Meanwhile, Asian markets got a significant boost from Moody's decision to upgrade China's long term sovereign credit rating to AA3, and maintaining a positive outlook. In yet another highly aggressive fixing, the yuan was set at 6.6242 from 6.6450 yesterday, while In Korea, large state-owned corporations are reported to be active in the FX market as the government attempts to prevent the rapid appreciation of the won.

Central Bank Monitor: Last Week’s BOJ, RBNZ, BOE and ECB Reports

Central bank activity last week had the world's central banks taking a break from any major rate decisions with the only activity being four major central banks releasing reports of varying impact.
The central bank reports out last week included:

• The Bank of Japan's Monthly Report on Monday,
• The RBNZ's Financial Stability Report on Tuesday,
• The Bank of England's monthly Inflation Report on Wednesday and
• The ECB's Monthly Bulletin on Thursday.

BOJ's Monthly Report

The Japanese central bank's Monthly Report indicated that the BOJ will continue leaving rates at the record low levels of 0.0% to 0.10%. While the report states that exports will continue flat for the time being, they are expected to increase "moderately again".
The report addresses credit demand specifically and noted that Japanese companies,
"need to fund working capital and fixed investment has declined, and some firms have reduced the on-hand liquidity that they had accumulated. Against this backdrop, bank lending has declined on a year-on-year basis. The amount outstanding of corporate bonds has exceeded the previous year's level, while that of CP has declined. In these circumstances, the financial positions of firms have continued to show signs of improvement as a whole".
The report also noted the increase in the value of the Yen versus the U.S. Dollar, which continues to adversely affect Japanese exports. Nevertheless, the report was fairly optimistic, stating that,
"Japan's economy is likely to grow at a slower pace for some time, but is expected to return to a moderate recovery path thereafter."
Perhaps in response, the Japanese Yen staged a possible reversal last week, losing -1.3% against the U.S. Dollar. An increase in risk aversion also contributed to this Dollar strength.

The RBNZ's Financial Stability Report

The RBNZ issued its Financial Stability Report on Tuesday where, among other items, the observance of the Basel III agreement on bank capital reforms will be implemented by the RBNZ. This will include new standards and a strengthening of definitions for regulatory capital, as well as the introduction of new buffers to help banks withstand economic and financial stress.
In addition to the Basel III measures, the RBNZ will also create the Financial Markets Authority or FMA, which was introduced in a bill to the New Zealand House of Parliament on September 14^th, 2010.
The bill creating the FMA sets out the objectives and functions of the new regulating agency which will replace the Securities Commission and adopt some of the functions of the Ministry of Economic Development which will include the functions of the Government Actuary.
The FMA will be chiefly responsible for the regulation of securities including those issued by companies regulated by the RBNZ. The central bank will maintain close contact with the FMA and will exchange information about emerging risks in the financial markets.
In the report's closing comment, RBNZ Governor Allan Bollard stated that,
"Non-performing loans and profitability have stabilized over recent months, as reflected by an unchanged rating for 'capital and profitability'. There have been ongoing improvements in the funding position of the New Zealand banking system, as indicated by material improvements in the core funding ratio. Nevertheless, funding markets remain somewhat fragile, as indicated by the 'funding and liquidity' dimension still sitting slightly above normal."

BOE's Inflation Report Calls U.K. Economic Growth "Highly Uncertain"

The Bank of England's Inflation Report for November gave a fairly optimistic assessment for the economy of the United Kingdom. Nevertheless, the conclusions of the central bank's report were highly qualified and warned that,
"growth may slow in the short term" and that the "outlook for growth is highly uncertain".
The report also notes that U.K. GDP growth was down considerably in the third quarter of 2010, although the central bank expects the recovery to be ongoing in the fourth quarter. Nevertheless, the BOE warned that,
"the strength of the recovery is likely to be tempered by the fiscal consolidation and the reduced availability of credit."
As far as inflation is concerned, the outlook for inflation in the U.K. poses "substantial risks" due to prolonged unemployment or "spare capacity", as it is referred to in the report.
The British central bank also anticipates that the level of inflation could increase considerably after the implementation of the January, 2011 VAT tax increase and the rising prices of commodities and other "traded goods and services".
Furthermore, citing the XpertHR research relating to private sector wage prospects, the BOE stated in their report that,
"The recent elevated rate of inflation could put upward pressure on pay if employees seek compensation for the higher cost of living. According to the 2010 XpertHR Pay Prospects Survey, around 60% of businesses take account of some measure of inflation during pay negotiations. But the survey also suggests that affordability matters, making it less likely that companies will award pay increases that are not linked to improvements in productivity and profitability. Private sector respondents to the survey expect the median pay settlement in 2010/11 to be 2%, the same as their expectation in 2009/10."
The BOE concluded in their report that the recovery in U.K. productivity might be hampered by the slack in the labor market which will tend to keep pay growth "relatively subdued".

ECB's Monthly Report: "Appropriate" Monetary Policy

In the wake of serious debt problems suspected for Ireland and other cash strapped European economies, the ECB issued its Monthly Report for November. In its report, the ECB stated that it considers its monetary policy "appropriate" and that it includes the flexibility to handle future situations as they may arise.
The European central bank also expects inflation in the EU to continue growing at a moderate pace, with the inflation rate reaching 1.5% in 2010 and 2011 while rising slightly in 2012 to 1.6%. The 2010 and 2011 numbers were revised upwards by +0.1%, while the 2012 inflation number was revised down by -0.1%.
Growth for the Eurozone was expected to be +1.6% in 2010, upwardly revised by +0.5% from the previous estimate, although next year's anticipated growth rate declined to +1.5% and 2012's growth rate rose to +1.7%.
Furthermore, the ECB forecasts that unemployment will continue to be above 10.1% through 2010, with the level dropping to 10% in 2011 and dropping considerably by the end of 2012 to 9.6%.

Next Week's Central Bank Activity

Next week's central bank activity is very light, with no major rate decisions being made by the major central banks that usually affect the forex market. Nevertheless, some meeting minutes will be released that could spark some interest.
The week begins with the RBA's Monetary Policy Meeting Minutes on Monday, followed by the BOE Inflation Letter tentatively scheduled for release on Tuesday.
On Wednesday, the BOE's Monetary Policy Committee Meeting Minutes will be released and the Bank of Canada's Review is due out on Thursday.

Getting started — choose a forex broker and the right kind of account

In the past, currencies were traded on the phone, and banks prefer audio contact between counter parties as a means of building trust even today, but the individual trader will have all of his needs satisfied simply by opening an account with an online forex broker. Once one decides to trade currencies, the first requirement will be the opening of an account.
There are many brokers to choose from, and consequently there's a lot of competition for customers among the various firms. What this means is that there's a wide array of different offers suitable to everyone's expectations, and it's a good idea to carefully screen the brokers' terms and conditions before coming to a final decision and committing capital. Calls to the customer service, questions about the financial status of the firm, its registration status are all valid and the prospective trader will find that in most cases the reliable brokers have no problem about supplying this kind of information.
The forex market for individual clients, termed the retail forex market, is a relatively recent development. In the early days of retail forex some brokers would misquote prices, and engage in unethical practices by exploiting their knowledge of clients' trades (such as the infamous stop hunting). There were even scandals, and bankruptcies due to fraud, the largest and most memorable of which is the collapse of commodities and futures broker Refco in 2005.
Fortunately, the retail forex market has come a long way since those days, and there are many regulated brokers with open and clean business practices. There are a number of firms today with records going back to about ten years or more, and the prospective trader will not have much difficulty in finding one that matches his needs among them.

Account types

But before a brokerage firm is chosen , the first decision to be made will be about the type of account and the amount of leverage that we like..The previous chapters have discussed leverage and undercapitalization, and the new trader should make sure that he understands these subjects before deciding on the type of his new account. Some firms offer maximum leverage of up to 400 times the deposited margin, and there are differing minimum deposit requirements at different forex brokers. In general mini-sized accounts (those typically offered to beginners) offer leverage at a maximum of 100, and the minimum deposit size is around 100 USD. There are also firms that don't have a minimum deposit requirement, and the trader is free to decide how much (or how little) he wishes to risk on his early encounters with the forex market.
If you're new to forex, it's a good idea to embark on your trading journey by opening a mini account. As we discussed before, success of the trader is measured in pips, not the actual dollar amount gained or lost, and it's absolutely possible to have a very good idea on how successful you may be with a standard account by first trading small sums in the mini.
The forex market is diverse, and both the cautious trader, and the rodeo rider are likely to find account packages that suit their tastes. Remember that the market isn't going anywhere, you can take your time and examine as many brokers and account offers as you like before you decide to participate in this rewarding, educating and engaging market.

Final Word

Trading the forex market is no riskier than trading stocks or commodity futures. Apart from the usual risks that are present in every market (the broker going bankrupt, natural disasters disrupting electronic trading, and so on) the risks related to leverage, and capitalization that give the forex market a bad name are controlled entirely by the trader, and there's no reason to be wary of trading forex once you're making sure that you don't risk more than what is sensible, and are employing proper money management methods.
In choosing a forex broker, as with a stock broker, or commodities broker, the trader is strongly advised to stick to those regulated by the authorities: In the US, CFTC (Commodity Futures Trading Commission) and NFA (National Futures Association) enforce the rules and regulations that forex brokers must abide by, and the trader should always make sure that his broker is regulated and controlled by these institutions. Of course, even the most stringent regulations will not work very well in a nation of which the financial infrastructure is not well-developed; a broker based in a place like Cyprus, or Ukraine is obviously not the best choice if we want to ensure that its conduct is carefully scrutinized.
The broker trading against clients is always a worry in minds of the beginning and experienced traders alike. To minimize the risk of this happening, it's possible to only choose those brokers that offer the no-dealing desk, and straight through processing options. The NDD (no dealing desk) ensures that trades are fully automated, minimizing the risk that the broker will misquote prices and widen spreads unfairly through deals mediated by phone operators. STA (straight through processing) ensures that there are no manual interventions in the electronic process as customer trades are routed from the client's software to the banks and liquidity providers.

How to become successful in trading forex?

You've read through all (or most of) the articles, have gone through all the warnings and precautions about unrealistic expectations, reckless and risky practices, and compulsive trading, and what not, and you are still interested in forex? You're not intimidated by sensible, realistic, and honest discourse about what can and cannot be achieved by a currency trader. Nor are you a dweller of cloud-cuckoo-land: you don't seem to expect great returns for no effort.
Congratulations, that shows that you've got the right attitude, and are well-placed to step into the higher grades of your education. To scale a mountain is effortful, but the most spectacular view can only be enjoyed at the top. And so if you were willing to put up with all the bothersome talk on what is dangerous about forex, now you deserve to hear what is good, and just not good, but magnificent and awesome about participating in this wonderful market.
Forex is serious business, and is no place for fools. True, those who just want to gamble away with their money would serve themselves better at casinos than forex brokers. And no, currency trading is not a game, a pastime, or a sport for those with a lot of leisure time to spare. But forex is by far the most lucrative and profitable financial business for the patient, reasonable, and diligent individual who is willing to invest the time and energy necessary for success. And yes, it is possible to achieve spectacular returns in this market, if you're ready to pay for it: you're going to devote a significant amount of time to learn the rules and better your skills; you'll have to tame your pride when you achieve unbelievable returns on your investments, and suppress your fears when relatively harmless but inevitable losses threaten your determination for success. But in the end, the markets are driven by facts, and if you follow them for profit, the logical consequence of your actions will be profits, nothing more, and nothing less.
Are you ready for a career in which you make the choices, you take the risks, and you bear the risks and rewards for your decisions? Is your passion for success strong and persistent enough to survive the foolishness of the herd, and the stridency of the mass media? Is your drive for achievement powerful enough to lead you through the clouds of uncertainty by persevering on what you know to be right, what you know to have been proven right through the ages?
Can you study and think for your own future? Do you value an independent mind, and critical thinking as qualities necessary for success in any serious endeavor? Are you aware of the role of persistence and patience in achieving your goals?
If your answer to the above is a yes, then you have the right frame of mind for a perfect trader. Realism is the trader's philosophy: he's as incredulous of those who believe Warren Buffet or Jim Rogers to be superhuman, infallible prophets as he's of those who sell the super-duper insuperable methodology of the century, or the top-secret indicator of the millennium for hundreds of dollars. Great success in trading, and certainly in currency trading is definitely possible; large profits, and dividends are surely achievable if we're willing to adjust our own characters, and improve our mentality to suit the task at hand.
One who thinks that he's a great genius who's always right about the markets would serve himself better by selling crystal balls: his arrogance is unlikely to last more than a few hours in the forex market. The seeker of the thrill of trading and the excitement of risky behavior would surely be happier bungee jumping than trading currencies; in any case, the chances of him making any profit in either activity is equally slim.
But if you don't mind appearing boring and conservative among your trading peers, if you don't enter this business for an ego-boost, or fame or social approval, but all you want is building a long-term fortune through hard work and study, then don't waste any time in making the decision. Forex is as valid as a business as any other activity; its only difference lies in the profit potential, and the great number of opportunities: it's almost impossible to miss the train of profit in this business. And no, don't think that you have to give up your full-time job, or to listen to Bloomberg all the time, subscribe to forex webcasts, and read 1000 boring volumes on technical analysis to achieve success. Quite the opposite, as we've been insisting throughout our study in these pages, the facts that drive economic events are in fact very simple and straightforward. But it takes understanding, logical thinking and strength of character to do what is right, and to profit from them, and that's all.
What can you expect from a career as an independent trader? Apart from profits and material gains, you'll be able to achieve financial and personal independence. The satisfaction in being self-employed and successful will only add to the pleasure you'll derive from being able to devote sufficient time to your friends and family. You will be taking part in creating the "big picture" along with thousands of big banks and brokerage houses, private and institutional investors and speculators, central banks and governments, and large international export and import firms and many others. And if you don't seek it on purpose, success will inevitably bring you recognition and respect among your peers too.
But the most important point is that the knowledge that you'll gain by trading forex, and having a good understanding of fundamental analysis and economical events, will grant you the literacy that will be useful to you throughout your life. Even if you are perfectly content with a non-trading career, and are happy with your full-time job with little understanding of where the economy is going, you'll eventually find out that to protect your nest egg, you do need to know more about economics and trading, and that by ignoring the risks related to currencies, you're not isolating yourself from them. Yes, many currency traders do stupid things, and speculators do often waste fortunes through overleveraging, and gambling, but that does not make the hard-working idiot who doesn't know how to protect his hard earned cash any smarter, does it?
Think of the hyper-inflation era in Germany. Or the collapse of the ruble in Russia in 1998. Or the Argentine default that wiped out the savings of millions of hard working people. Or of the recent collapse of the British pound which halved or erased fortunes in the course of about a year. Or of the dollar devaluation and high inflation in the US during the 70's. Think of how the Japanese exporters were bankrupted because they couldn't properly anticipate the rise of the yen in 2008. Or the currency crisis of the advanced Scandinavian nations in the 1990's. The list could really go on and on and on.
In all these nations, well-meaning, reasonable people had cocooned themselves into believing that ignorance about currency trading is wisdom, and diversifying your basic assets is speculation. But one morning they woke up to find their dreams crashed by economic realities. Their savings were halved or reduced by a third overnight, but who did they have other than themselves to blame if they hadn't taken the time to learn about risks that arise from ignorance about currencies and economics?
As with most things, the truth about forex is somewhere between the extremes: Forex is not a get-rich-quick scheme. But forex is not, as a lot of people seem to believe, a chance game, or just another name for online gambling either. Forex is a business, in some ways akin to investment, where your returns are proportional to the exertions that you make. If many of us find the workings of the currency markets unfathomable, let us remember that it is very hard to understand something without learning about it. The likes of George Soros, Jim Rogers, David Tice are not successful in this business due to exceptional superhuman skills. But they do know how to say no to herd psychology, how to refuse to be drawn into the vortex of bubbles and mania, and they know the value of a good medium-term investment based on facts, fundamentals, realities, rather than the teachings of gurus, political spin, well-wishing or doomsaying.
So let us summarize the points we've made in this text which we hope will be helpful in clarifying some of the worries and fears in the mind of the beginning trader. There's nothing exceptionally dangerous or difficult about the forex market in comparison to any other market; currencies usually don't go to zero, and the unleveraged account is in fact in no danger at all of being wiped out under normal circumstances. Stupidity, and reckless behavior or wrong in any business, any market, and any career, the forex market is no exception to this. Ignoring currency trading, dismissing forex as speculative gambling is as reckless as ignoring inflation and interest rates when making basic financial choices: Currencies are the building blocks of all kinds of economic activity, and there's little difference between taking a mortgage, or getting a credit card and hedging and managing your currency exposure through currency trading, as long as you do not overleverage, and don't do what you don't understand.
Great profits are possible in the forex market, great returns are achievable if you work hard and place logic and reason above emotion and sensation. If you think that you're capable of this, don't hesitate to begin your career today. If you already trade other markets, your experience in forex will widen your horizon, and enhance your skills and vision. If you're new to trading, this is the field where you'll get priceless education and invaluable experience by learning what moves the markets, and what drives economic developments. And on top of that, there lies the greatest reward of them all, the goal of all trading activity: material gain beyond anything you'd expect to be possible, if you're sane and sensible and will not gamble your assets away.
So if you feel that you're ready, go ahead. In the next chapter you'll find some details on how to open an account and begin your trading career.