What is Stop Loss Hunting?
As you know forex brokers make money when you take a position. They charge you some pips when you buy a currency pair. This number of pips that brokers charge when you buy currency pairs is called spread. Different brokers have different spreads for different currency pairs. Spread is almost the only way that the forex brokers make money.

Good and reliable brokers are happy with the money they make through the spreads BUT there are some scam brokers who are not satisfied with this and want to make more money. Stop loss hunting is one of the ways they use to do that. They have some special robots or hire and train some employees who monitor the clients trades.

When a client takes a position and sets a stop loss and the market goes against the position and becomes so close to the stop loss, the robot or the stop loss hunter employee increases the spread manually to help the market hit the stop loss sooner. For example you take a short position with EUR-USD at 1.3180 and you set your stop loss at 1.3280. You have a short position and to close this position you have to buy. So your stop loss is in fact a buy order. You pay the spread only when you buy. So you don’t pay the spread when you go short. You pay it when you want to close your short position and so you buy.

Ok! Back to our example. You have a short position at 1.3180 and your stop loss is at 1.3280. The market goes against you and goes up to 1.3275 which is only 5 pips away to trigger your stop loss. As your stop loss is a buy order so the amount of the spread has to be added to the market price and if the result is equal to your stop loss value, it will be triggered. So the market is against you and is only 5 pips away from your stop loss value but it doesn’t mean that it has to go up 5 more pips to hit your stop. If your broker charges you 2 pips for EUR-USD, this 2 pips has to be added to the market price which is 1.3275.

So in fact your buy price will be 1.3277 which means it is only 3 pips away from your stop loss. If the market changes the direction and goes down at this stage, your stop loss will not be triggered but this is the opportunity that the scam brokers wait for it. As soon as the market becomes so close to your stop loss, the broker increases the spread. So while the spread is 2 pips and so the market is only 3 pips away from your stop, the broker adds at least 3 more pips to the spread to hit your stop loss. You think that you have lost your money in the market and because of the bad position you had taken, but in fact you have not lost it in a real trade. The broker has increased the spread to pretend that your stop loss is triggered but in fact it is not. The money you have lost is in the broker’s pocket.


I have experienced this myself. One day I have been watching the market through a very famous broker platform. I was checking both the live and demo account and I had one position with the demo account and one with the live account, both at the same time and price and with the same currency pair. Suddenly I saw that my position with the demo account triggered the target but the live account position was still open. When I checked, I found out that when the price became so close to the target, the spread was increased to prevent my position from hitting the target. The spread jumped from 4 to 14 in one second. It attracted my attention and I kept on monitoring the broker and I found out that they do the same thing when the price becomes so close to the stop loss. While the demo position is still open and has not triggered the stop loss, the live position becomes closed by the stop loss. So a trade that could make only $400 for the broker through charging 4 pips as the spread, made $10,000 for hitting a 100 pips stop loss. Easy money!

Why don’t they let the target to be triggered by increasing the spread?

If they let your target to be triggered, your trade will be closed and you will make a profit but if they keep your trade open, it is possible that the market goes against you and then they can hunt your stop loss.
As soon as I became 100% realized that they hunt my stops and don’t let the targets to be triggered, I enlightened all traders I knew. If you Google for it you can still find some of my posts on different forums. It also caused me to get some infractions from some forums because they work for those brokers. I think two of them even banned me and many of them deleted my post completely.

Can they succeed to hunt your stop loss or prevent your target all the time?
Not all the time. They try their chance. When the market goes to your direction strongly they can not do anything and your target will be triggered. Also when your position goes to your direction right away and doesn’t get close to your stop or when you have a wide stop loss, they can not do anything.
What should you do?

• Choose a reliable and well-know broker. Always check the reviews before you sign up. Do not be deceived by those brokers who are proud of having no dealing desk. Some of them may have no dealing desk but they do have stop loss hunter employees!
• Do not set tight stop losses and always consider the maximum spread.
• Try to take the best positions at the right time.

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Foreign exchange is simply the largest market today. Like any market, foreign exchange trading materialized to allow buyers and sellers of goods - particularly in foreign exchange, goods refer to currencies. Transactions and exchanging of assets can be done in foreign exchange currency trading. The foreign exchange market could be anywhere in the world accessible through phone or Internet. Physical markets come as financial exchange centers (e.g. Chicago Board of Trade).

Foreign exchange trading can be a very profitable game to be involved with. The bigger the amount in play, the greater the opportunity to gain more profit. But foreign exchange can be an expensive game just like other sports - there is equipment and training to think about. A potential foreign exchange trader needs capital and trading implementation.

Who are the main players in foreign exchange? There are at least six of them: commercial and investment banks, central banks, hedge funds, corporations, high net-worth individuals, and just simple individuals.
Commercial and investment banks are the natural players in foreign exchange for all other foreign exchange trading participants must deal with them. Foreign exchange currency trading began as an added service to deposits and loans offered by commercial banks. The profitability of foreign exchange trading is a perfect characteristic for banks to be involved.

Another player, the central bank is separated from commercial and investment banks because it is not after the profitability of foreign exchange currency trading. The main purpose of central banks is to provide adequate trading conditions. Central banks intervene in economic or financial imbalance in the foreign exchange market.

For corporations, another player in foreign exchange market, they were not interested in foreign exchange trading but the trend of companies going international and the tight competition among other companies made them think twice about not going into foreign exchange trading.

High net-worth individuals engage in foreign exchange through accessing commercial and investment banks. Individual players in foreign exchange are mostly tourists using their local currency to purchase foreign-made products and services (such hotel accommodation).

A relative new player in foreign exchange currency market is the hedge fund. Hedge fund is a partnership of high net-worth individuals that invest at least a million in foreign exchange trading.
Even with six major players, the potential of foreign exchange has not yet been consumed entirely. And so investment and commercial banks together with some trading companies have paved a way for individual investors to participate in foreign exchange currency trading. Also foreign exchange information is made available to most individuals through personal computers and Internet so as to attract more individual investors into foreign exchange.

I
f you wanna learn FX trading, this is a great book to start with which can set you up in the right direction. The author has 20+ years experience in the industry working for top tier investment banks as chief FX dealer. Knowing how the big players move will forever change the way you view the market. The money you invest in this book will save you from making stupid trades in the FX market.

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There are plenty of books out there proclaiming to "tell all" or to "reveal the secrets" to foreign exchange (or forex) trading. There are plenty of "gurus" offering advice and suggestions on how to trade the market successfully. But how many of these people have any real industry experience in trading foreign exchange? Not many, I can tell you that right now. I'm Bradley Gilbert, and I worked on the front line for eighteen years at some of the biggest investment banks in the world-and I made over $70 million in that time.

Do I have your attention yet? So, if you really want to make money trading FX, follow me! This book has been written to give you, the retail trader, a real and practical guide to trading the forex markets. Based on my own personal experiences, incorporating the same skills and strategies used by commercial interbank traders and hedge funds, I can help you up your game in the markets.

Believe me, running with the "big dogs" is a lot more fun and a lot more rewarding than running against them-and understanding this is a key part to your future success. Once you have completed the book, you'll feel more like you're a part of the market instead of a random speculator. Seeing the market through a new set of eyes will help you to take advantage of the many opportunities the market presents day after day, week after week. Good luck and happy trading!

"You made how much?" I screamed down the phone to the calm voice on the other side of the Atlantic. Tapping away at my calculator, I continued in disbelief, "but that means you earned for Salomon Brothers an average of $250,000 each and every single trading day for eight years!" I resisted the urge to faint, or swear.
I had spoken to many successful traders, but the conversation with Bill Lipschutz, with whom I had had the above conversation, former global head of foreign exchange and managing director at Salomon Brothers, stuck in my mind for the size of his trading successes.

This was my point of arrival, after having spoken and interviewed, even cross-examined and interrogated, the world's leading traders. The original quest was to find what, if anything, they had in common despite their differences. I did not want the trite and over-used "cut your losses short, set stop-losses, etc., etc." type of insight. Traders know to cut their losses short, they want to know they are cutting it short and not cutting a potential profit short. Too often the trite rule has missed the real difficult issue.

Nor did I want advice which only the professional trader could use or understand. I wanted to discover something for professional and private traders alike. I wanted to rip out and hold in my hand for close inspection the very heart of trading success.

Any conclusions would be irresistibly and irrefutably strong (as well as hopefully being insightful and original ) because it would relate to trading itself, not just one product, or technique or tool or country. I was not disappointed.

The common element that linked them all, and separated them from their less successful colleagues was their frame of mind; their attitudes to trading, to losses, to open positions, to profits, to success and failure. Indeed, they redefined success and failure itself. Their perspective was unlike that exhibited by any less successful traders. They had a way of viewing trading such that if you were to force them to trade according to a particular system, they would still be more profitable than their colleagues using the same system. They added a value to any potentially profitable trading technique and tool to turn it into a superior profit maker.
A list of the main traits these leading traders exemplified follows:
Opportunity Knocks the Door Down
Since kindergarten each of us is taught to grab opportunities for they do not knock twice. It is precisely that type of advice, which is so useful in other walks of life, but detrimental in trading.
Many traders, armed with their trading plan or strategy, will often hastily and prematurely enter a trade. Their decision is often driven by fear; the fear of the missed opportunity. Their mind will be screaming, "quick get on the trade, you're going to miss it, so what if all your criteria for entering a trade have not been met? Most of them have, so get on the trade. The big traders wouldn't hang around."
The inevitable result is that the trade will not be profitable or as profitable as it would have been had the trader waited for the precise moment to strike.

In trading, the fear of the missed opportunity leads to many avoidable losses. And the game of trading is as much about avoiding losses as about capturing profits. The leading traders have a different perspective on opportunity. Counter-intuitively they know opportunity knocks once, twice and then kicks the door down. They know that if this trade does not feel absolutely perfect, there will be another one along in a short while. That knowledge alleviates and over-rides any fear. That knowledge is the key to unlocking greater profits by waiting for all the trade entry criteria to be met and not cutting corners.
Bill Lipschutz summed it up when he said, "Out of 250 trades in a year, it comes down to five, three of those will be wrong and you will lose a fortune and two will be right and you will make a fortune; for the other 245 trades-you should have been sitting on your hands."

Great Traders Tend to be Risk Averse
There is a general perception, once again more propagated by life and not trading experiences, that one needs to risk a lot to profit a lot. Every one of the traders I interviewed stated unequivocally that they were risk-averse. As Bernard Oppetit, global head of equity derivatives at Banque Paribas put it, "you do not need to risk a lot to profit a lot." Jon Najarian, CBOE director and the chairman of Mercury Trading put it similarly, "making money today is not more important than being able to come back tomorrow."
Pat Arbor, chairman of the Chicago Board of Trade, warned against going for the "home-run." His trading philosophy is based on "una fagiola;" one bean, at a time into the bag. As one of the most experienced and successful traders on CBOT, he insists trying to put lots of "beans into the bag" at once will result in most not going in. He counsels that the steady approach will result in far more profits in the longer run.
The message is to wait, and wait for a high probability trade in the knowledge that they do exist and can lead to as great a profit as more risky trades. Moreover the danger of riskier trades is not only a loss, but also such a loss that you have no funds left.

Luck: Stacking the Odds
Following on from the nature of traders as being risk-averse, they have a knack for stacking the odds. As Lipchutz puts it, "I happen to believe that by far the biggest component of trading success is luck, it's not the rolling the dice type of luck, but stacking the odds." These top traders practice their risk aversion by ensuring the odds of a successful outcome are heavily stacked in their favor.
This is not only done by ample research and planning, but also recognizing that when they are in a good trade to "push their luck." As David Kyte, chairman of the Kyte Group and the largest local on LIFFE put it, "you do not step in the way of a train that's going at full steam." Najarian and Kyte both said, "You make your own luck in this game" meaning that you stack the odds of making a profitable trade by planning and waiting until all your trade entry criteria are satisfied, if then the trade does prove to be as lucrative as it promised you "push your luck" by perhaps adding to the position and riding it for all it is worth.

The Emotional Problem
Trader's attitude to their potential and existing positions is often a great determinant of success. As every trader knows, the moment a trade is executed, everything is different. That is the point at which it becomes real, no longer digits on a screen and numbers in an account. Now expectation is joined by anticipation. The brain is joined by the heart. Reason is joined by emotion. You exchange detachment for attachment.
When you have an open position and you are looking to close it, you will either have a profit or a loss. The emotions relating to each are quite different. For instance, when sitting on a loss many traders experience hope that the position will turn around because they fear and deny that it may not. It is for you to recognize these emotions and to discard them. Your judgment has to be based on detached reason relating to your analysis of the company.

How you behave once you have an open position is all important. Without clear thinking you could exit too soon or too late. Your key concern with an open position is timing your exit. Of course there are times when you are deciding whether to add to a position, but generally you are concerned with exit. With an open position, you are concerned with closing the position. In order to do that, an open position requires an open mind.
"The key is to be intellectually honest. You have to think of every day as a clean slate. You've got to forget about your loss or how much you paid-you have to treat each day as a completely new day. You have to start everyday with a blank page. Mark to market should be the rule so you start each day afresh. There is no expected profit or loss on the book so you have to start from scratch each morning," says Oppetit.

Poor Planning Produces Pathetic Performance
Although an SAS motto, the above is equally applicable to trading. The top traders did not trade "by the seat of their pants." Planning and its benefits was a key aspect to the way they viewed the markets. The top traders plan "what if" scenarios and think about their response to each probable outcome. The main benefits were that with plan in hand or in mind the trader's confidence is enhanced, fear of loss reduced and that in turn assists clear thinking and removal of hope so ensuring the trader stays focused on his original reason for entering the trade.

Oppetit summed this up well when he said, "whether I get out at a profit or loss does not matter." Martin Burton, founder and managing director of Monument Derivatives and former director of NatWest Markets was talking about the same thing when he said, "it is not a 90 minute game." They both know that sticking to their plan is far more important than temporary blips in their profit and loss accounts.
Losses-A Curious View
The top traders were totally at ease with losing. This is not something one expects from those at the top of their profession. Although true in other walks of life, that perfection is to be sought, in trading, perfection is not an option. Paul RT Johnson, vice president at ING Securities and a director at CBOT said bluntly, "You are going to be wrong. You are not perfect."

The top traders would cut their loss and move on. The issue was not whether the market may turnaround if they hung in there. They cut their loss if it is what they had said they would do in their plan. They would get out at the predetermined level. The discipline of sticking to the plan was primary and the real issue. To say "cut your losses short" missed the whole point and was of no help to anyone. By cutting their loss, they would free up capital to place in more profitable positions elsewhere, and free up mental energy to focus on new opportunities. Arbor summed it up by saying, "your first loss is your best loss."

Conclusion
It is not possible to do justice to the wisdom and accumulated experiences of the world's leading traders in a short article. However, I have tried to convey how their minds work in a way that apparently runs against common intuition. These differing perspectives ensure that with the same tools and products everyone has to trade with, they make far more in profits because their minds are different.



By :Alpesh Patel , is an attorney turned trader and the author of The Mind of a Trader: Lessons in Trading Strategy from the World's Leading Traders published by Financial Times Pitman Publishing (order number 800-462-6420). He operates his own derivatives fund concentrating on traded equity options. He has extensive experience in both the U.K. and U.S. derivatives markets and holds equities in the U.K., India, France and the U.S. As a former chairman of the University of London Finance Society, he has lectured extensively on trading techniques. As a lawyer he advised banks, building societies, and pension funds on financial services. He can be reached at alpesh-patel@msn.com

With the markets trading at mind boggling ranges, it really makes sense to discuss a part of trading that won’t be found on most charts – and that’s called Trading Psychology. It’s one thing to have a trading plan and system, but actually following it, especially when things aren’t exactly going your way, is something else entirely. Following the key trading success rules can help you improve your plans when it comes to real life trading.
Let’s face it, losses are part of any business – especially trading. Losses have to be accepted before a business even begins its operation. Here are a few things to remember about losses and how you can make them part of your trading business.

Losses

1. Remain mentally and emotionally focused while trading.
2. Losses are part of all systems; knowing when to take losses is important.
3. Always try to be extremely disciplined, and exit your losing trades when your system requires you to do so.
4. Not taking losses when indicated is dangerous.
5. Riding losing trades for too long usually results in larger losses and risk of ruin increases.
6. It’s not a good idea to keep changing stops to avoid a loss.
7. System traders use stops consistently.
8. Separate yourself as a trader from yourself as a person.
9. No system can trade the markets without taking losses at times.
10. Clumping can happen on the losing side as well as the winning side.
11. Your ability to take losses quickly is a great asset to your trading.

Discipline

Now this is vital to trading success. Imagine a person trying to become a pro athlete, but he or she sleeps in every day, eats excessively, stays up late and parties every night. Is this person going to become an elite athlete or not? The answer is no, and the reason why has everything to do with the amount of discipline. Discipline, in my mind, is like homework, only it’s homework that pays off in dollars in the trading industry. Here are a few rules that I use when it comes to discipline in my life as a trader:

1. Good trading discipline is vital to my success.
2. My three successes to the market are: doing my market homework, following through, and using my stop losses.
3. I train my mind every day to be disciplined and focused.
4. I see myself every day doing my market homework and following the signals, setting stops.
5. I track my system exactly as it dictates.
6. If my system gives me daily signals, I follow them every day.
7. If my system gives me intraday signals, I follow them during the day.
8. I do not allow outside influences to affect my discipline.
9. Placing my orders correctly as my system dictates increases my odds for success.
10. Discipline to follow through with my system is my friend.
11. A system without stop losses puts me in a position of unlimited or unknown loss.
12. I understand that a major aspect of being disciplined is using stops.

Negativity

Negativity is in all aspects of life. I got enough of them in my family. I remember when I told my family that I wanted to be a trader. Now they didn’t call me stupid or an idiot-the rolling eyes said enough. The ability to think positively and block out negativity is key to having consistent profits. The biggest thing negativity can do in your trading business is to keep you from taking that next trade, which, ironically, could be a grand slam in profits. Here are my rules to fighting negativity.

1. My best tool against negative influences is my system.
2. Being consistent in my trading means following my rules.
3. As a consistent trader, I place my orders each day at the same time.
4. Through consistency, negative influences go away.
5. I follow through on scheduled assignments, such as order entry, exit, and adjustment.
6. I plan my trades and trade my plans to facilitate consistency.
7. I use a trading partner to achieve consistency in my trading.
8. Fear and Greed are the enemies of consistent trading.
9. My commitment of consistency blocks greed from my goals and objectives.
10. Keep goals and objectives realistic to combat fear and greed.

Focus

The ability to focus in any business is important. The ability to focus as the president of your own business is vital to its success. This is true in Trading because your report card reveals your focus in daily account statements. Here are a few things that I believe will help your focus as a key to success:

1. Focus is the opposite of distraction.
2. Choose to stay on the winning path by focusing on the markets during your market time.
3. Environment can cause distractions, so remove all distractions such as noise, visual distractions, and clutter from the workplace.
4. Self discipline, follow through, and consistency are the keys to trading success.
5. An organized workplace can keep away distractions.
6. Focus on one trading aspect at a time in small bites.

Success

Success in your trading business is contagious. Having a plan for success, as well as following through and readjusting your goals over time, is highly important. Here are my rules for success:

1. Success in trading is achieved by working on goals that are specific.
2. Success is comfortable and positive, not exciting and emotional.
3. The past is over and done with. I move forward!
4. I complete trades according to the rules of my trading system. Doing this achieves success in my trading.
5. Success means seeing my profit goals as well as my security in stops, and I know where my trade will be closed out at any time.
6. I visualize myself as a master of market skills and as a profitable trader.

Avoiding Bad Habits

You might think this falls into the negativity category, and it will be if you don’t block out bad habits and follow the rules below:

1. Have the capability of reversing any bad trading habits that you may develop.
2. Accept the fact that as a human, you may fall victim to bad trading habits.
3. Remember that you can change losing and destructive trading habits.
4. Know exactly what your bad trading habits are, make a list of them, and refer to them often.
5. Keep a checklist off all your trading rules and follow all procedures each and every time.
6. If you are unclear about a trade, simply do not make the trade.
7. Keep a diary of all your trades and what rules you follow, and follow up on both the winners and losers.
8. If you have an emotional day, no matter if it’s high or low, don’t trade that day.
9. Many errors are subtle, so keep a close eye on your errors and fix them as soon as possible.

Getting Cocky and Overconfident

Overconfidence can soften your focus and throw you into a state of mind where nothing can go wrong. It is at this stage in trading that everything can go wrong. Really learning the following rules will help you avoid falling into the trap of being overconfident:

1. Understand that overconfidence can occur if you have too many winning trades.
2. Catch yourself when you have thoughts that your trading system can do no wrong.
3. Catch yourself when you say you need to leverage up because you are “never wrong.”
4. Catch yourself when you think you can guess the direction of the markets.
5. Do not allow overconfidence to cause you to overtrade and bring about losses.
6. Overconfidence can lead you to a fantasyland of 100% profits, and that leads you to lose your discipline.
7. If this happens, stop trading and redirect your mind to your trading system.
8. Live in the reality of your trading system. If you have many winning trades in a row, remember to check the long term results of the trading system, including losses.

Winning Attitude

Following the rules above is great, but it’s not enough. Developing a Winning Attitude will stop negative thoughts from creeping in, and outside influences from changing your plan. Here are my thoughts about developing a winning attitude:

1. A positive attitude enhances your market performance.
2. Don’t dwell on losses if they are part of the system’s performance.
3. Attaining a goal starts by having a goal. Avoid setting goals that cannot be achieved. Achieving your goals means sticking to your system each day.
4. Achieving your goals means doing the homework before the market opens.
5. Achieving your goals means placing all of orders ahead of time.
6. Understand how your system is constructed and its maturity before you take the first trade.
7. Achieving your goals means following through from start to finish.
8. Focus on the next winning trade, and leave the last trade behind.
9. Be organized, consistent, set goals and follow through.

Trading Psychology, in my mind, accounts for half of my trading profits. It doesn’t matter how good your system is or how great your trading strategy might be. If you cannot follow both the winners and the losers, then you will not be able to duplicate the system’s success.
Learning and following the rules above will help you follow the rules of your system, and that will help you stick to them.

source :  Written by Tom Gentile

Kathy Lien

 by Kathy Lien the Managing Director and Founding Partner of BKForex. Having graduated New York University’s Stern School of Business at the age of 18, Ms. Kathy Lien has more than 13 years of experience in the financial markets with a specific focus on currencies. As an expert on G20 currencies, Kathy is often quoted in the Wall Street Journal, Reuters, Bloomberg, Marketwatch, Associated Press, AAP, UK Telegraph, Sydney Morning Herald and other leading news publications. She also appears regularly on CNBC – US, Asia and Europe and on Sky Business.
 
According to an April 2007 report by the Bank for International Settlements, the foreign exchange market has an average daily volume of close to $3 trillion, making it the largest market in the world. Unlike most other exchanges such as the New York Stock Exchange or the Chicago Board of Trade, the FX market is not a centralized market. In a centralized market, each transaction is recorded by price dealt and volume traded. There is usually one central place back to which all trades can be traced and there is often one specialist or market maker. The currency market, however, is a decentralized market. There isn't one "exchange" where every trade is recorded. Instead, each market maker records his or her own transactions and keeps it as proprietary information. The primary market makers who make bid and ask spreads in the currency market are the largest banks in the world. They deal with each other constantly either on behalf of themselves or their customers. This is why the market on which banks conduct transactions is called the interbank market.

The competition between banks ensures tight spreads and fair pricing. For individual investors, this is the source of price quotes and is where forex brokers offset their positions. Most individuals are unable to access the pricing available on the interbank market because the customers at the interbank desks tend to include the largest mutual and hedge funds in the world as well as large multinational corporations who have millions (if not billions) of dollars. Despite this, it is important for individual investors to understand how the interbank market works because it is one the best ways to understand how retail spreads are priced, and to decide whether you are getting fair pricing from your broker. Read on to find out how this market works and how its inner workings can affect your investments.

Who makes the prices?Trading in a decentralized market has its advantages and disadvantages. In a centralized market, you have the benefit of seeing volume in the market as a whole but at the same time, prices can easily be skewed to accommodate the interests of the specialist and not the trader. The international nature of the interbank market can make it difficult to regulate, however, with such important players in the market, self-regulation is sometimes even more effective than government regulations. For the individual investor, a forex broker must be registered with the Commodity Futures Trading Commission as a futures commission merchant and be a member of the National Futures Association (NFA). The CFTC regulates the broker and ensures that he or she meets strict financial standards. (For more insight on determining whether you're getting a fair price from your broker, read Is Your Forex Broker A Scam? and Price Shading In The Forex Markets.)

Most of the total forex volume is transacted through about 10 banks. These banks are the brand names that we all know well, including Deutsche Bank (NYSE:DB), UBS (NYSE:UBS), Citigroup (NYSE:C) and HSBC (NYSE:HBC). Each bank is structured differently but most banks will have a separate group known as the Foreign Exchange Sales and Trading Department. This group is responsible for making prices for the bank's clients and for offsetting that risk with other banks. Within the foreign exchange group, there is a sales and a trading desk. The sales desk is generally responsible for taking the orders from the client, getting a quote from the spot trader and relaying the quote to the client to see if they want to deal on it. This three-step process is quite common because even though online foreign exchange trading is available, many of the large clients who deal anywhere from $10 million to $100 million at a time (cash on cash), believe that they can get better pricing dealing over the phone than over the trading platform. This is because most platforms offered by banks will have a trading size limit because the dealer wants to make sure that it is able to offset the risk.

On a foreign exchange spot trading desk, there are generally one or two market makers responsible for each currency pair. That is, for the EUR/USD, there is only one primary dealer that will give quotes on the currency. He or she may have a secondary dealer that gives quotes on a smaller transaction size. This setup is mostly true for the four majors where the dealers see a lot of activity. For the commodity currencies, there may be one dealer responsible for all three commodity currencies or, depending upon how much volume the bank sees, there may be two dealers.

This is important because the bank wants to make sure that each dealer knows its currency well and understands the behavior of the other players in the market. Usually, the Australian dollar dealer is also responsible for the New Zealand dollar and there is often a separate dealer making quotes for the Canadian dollar. There usually isn't a "crosses" dealer - the primary dealer responsible for the more liquid currency will make the quote. For example, the Japanese yen trader will make quotes on all yen crosses. Finally, there is one additional dealer that is responsible for the exotic currencies such as the Mexican peso and the South African rand. This setup is usually mimicked across three trading centers - London, New York and Tokyo. Each center passes the client orders and positions to another trading center at the end of the day to ensure that client orders are watched 24 hours a day. (To continue reading about currency crosses, see Make The Currency Cross Your Boss and Identifying Trending & Range-Bound Currencies.)

How do banks determine the price?Bank dealers will determine their prices based upon a variety of factors including, the current market rate, how much volume is available at the current price level, their views on where the currency pair is headed and their inventory positions. If they think that the euro is headed higher, they may be willing to offer a more competitive rate for clients who want to sell euros because they believe that once they are given the euros, they can hold onto them for a few pips and offset at a better price. On the flip side, if they think that the euro is headed lower and the client is giving them euros, they may offer a lower price because they are not sure if they can sell the euro back to the market at the same level at which it was given to them. This is something that is unique to market makers that do not offer a fixed spread.

How does a bank offset risk?Similar to the way we see prices on an electronic forex broker's platform, there are two primary platforms that interbank traders use: one is offered by Reuters Dealing and the other is offered by the Electronic Brokerage Service (EBS). The interbank market is a credit-approved system in which banks trade based solely on the credit relationships they have established with one another. All of the banks can see the best market rates currently available; however, each bank must have a specific credit relationship with another bank in order to trade at the rates being offered. The bigger the banks, the more credit relationships they can have and the better pricing they will be able access. The same is true for clients such as retail forex brokers. The larger the retail forex broker in terms of capital available, the more favorable pricing it can get from the interbank market. If a client or even a bank is small, it is restricted to dealing with only a select number of larger banks and tends to get less favorable pricing.


Both the EBS and Reuters Dealing systems offer trading in the major currency pairs, but certain currency pairs are more liquid and are traded more frequently over either EBS or Reuters Dealing. These two companies are continually trying to capture each other's market shares, but as a guide, the following is the breakdown where each currency pair is primarily traded:

EBS	Reuters
EUR/USD	GBP/USD
USD/JPY	EUR/GBP
EUR/JPY	USD/CAD
EUR/CHF	AUD/USD
USD/CHF	NZD/USD

Cross currency pairs are generally not quoted on either platform, but are calculated based on the rates of the major currency pairs and then offset through the legs. For example, if an interbank trader had a client who wanted to go long EUR/CAD, the trader would most likely buy EUR/USD over the EBS system and buy USD/CAD over the Reuters platform. The trader then would multiply these rates and provide the client with the respective EUR/CAD rate. The two-currency-pair transaction is the reason why the spread for currency crosses, such as the EUR/CAD, tends to be wider than the spread for the EUR/USD.

The minimum transaction size of each unit that can be dealt on either platform tends to one million of the base currency. The average one-ticket transaction size tends to five million of the base currency. This is why individual investors can't access the interbank market - what would be an extremely large trading amount (remember this is unleveraged) is the bare minimum quote that banks are willing to give - and this is only for clients that trade between $10 million and $100 million and just need to clear up some loose change on their books. (To learn more, see Wading Into The Currency Market.)
ConclusionIndividual clients then rely on online market makers for pricing. The forex brokers use their own capital to gain credit with the banks that trade on the interbank market. The more well capitalized the market makers, the more credit relationships they can establish and the more competitive pricing they can access for themselves as well as their clients. This also means that when markets are volatile, the banks are more obligated to give their good clients continuously competitive pricing. Therefore, if a forex retail broker is not well capitalized, how they can access more competitive pricing than a well capitalized market maker remains questionable. The structure of the market makes it extremely difficult for this to be the case. As a result, it is extremely important for individual investors to do extensive due diligence on the forex broker with which they choose to trade.

Don Miguel Ruiz, a Mexican author in the tradition of Carlos Castaneda, wrote a best-selling book called “The Four Agreements” in 1997.
The Four Agreements sold millions of copies and has acted as a life-clarifying guide for many. In brief the four agreements are:

1. Be impeccable with your word.
2. Don’t take anything personally.
3. Don’t make assumptions.
4. Always do your best.

How might these “four agreements” specifically apply to trading? Some ideas:

1) Be impeccable with your word. 

As down and dirty as Wall Street can be, there is a code of honor among traders. Floor traders and i-bank trading desks are known for confirming deals worth millions, or even tens of millions in profit or loss, on the strength of a verbal telephone commitment, a handshake, or even eye contact and a nod of the head. The whole system works because all true traders, while fierce competitors down to the last tick, are also honor-bound to their word. Those who break the code are rightly banished.
More broadly, traders of physical product must always “make good’ on their delivery promises. If a trader says he can get five cargoes of crude oil, he is honor bound to make it happen, lest the reputation of the firm is tarnished or even crippled. Being impeccable means making damn sure you can deliver, and moving heaven and earth to come through. Developing a reputation like this has benefits internal as well as external, as you become the type of person who “gets it done” in the eyes of your subconscious as well as the eyes of others.

The individual trader, if he is a money manager, can adopt this code of integrity in terms of honesty and transparency with clients. Be open about your strengths, weaknesses, and volatility. Explain drawdown periods rather than sweeping them under the rug. Use adversity to illuminate the quality of your process — how you are handling it, how you are intelligently working through it — and strengthen the confidence of your investors in doing so. And be honest too when the market hands you a huge windfall, as with a major score or exceptionally favorable conditions. Wise investors always appreciate honesty and integrity. The foolish ones will leave you at the first hiccup anyway.

Alternatively, being impeccable can be translated as “doing what you say you will do” on a personal execution level, day in and day out. This translates to consistency of process, an all-too-rare thing among traders. This means, for example, always doing your market “homework” — even if you are sick, even if you are tired, even if you don’t feel like it. As the hockey great Wayne Gretzky said, “the greatest compliment you can pay me is to say that I work hard every day, that I never dog it.” That is a compliment every trader, large and small, can aspire to live up to. Impeccable execution — of the process as a whole, not just buys and sells — is the sine qua non of trading excellence. And as Aristotle pointed out, excellence is not an act, but a habit.

2) Don’t take anything personally. 

When going through a rough patch — or rough season, or even a rough year — the classic temptation is to think the market is out to “get you,” that the market is always opposing you. The truth is more freeing, and more humbling, than that. The market is far more like a force of nature than a personal entity. Does Mount Everest care who you are? Does the ocean care who you are? No.
If a freak storm comes up while you are climbing or sailing, it has nothing to do with “you” — except to the extent you voluntarily exposed yourself to such risks. Many traders are smart enough to consciously reject the “market out to get you” point of view, yet subconsciously indulge in “woe is me” personalization on a subtle level. To put it more bluntly, taking things personally is all too often a form of whining. As a general rule of thumb, whiners are losers. The winners are too busy getting it done — and this means addressing undesirable results in a detached, objective, wholly non-personal way.
What’s more, if you feel the market is hurting you too frequently or too consistently — in other words, if your trading results are consistently lousy enough to give you a persecution complex — then perhaps the problem is your methodology, or your lack of consistent process, or something YOU are otherwise consistently doing wrong… not the falsely imputed malicious nature of the market itself.
Of course, it takes a degree of impersonal objectivity to even ponder that possibility and investigate it. As such, “don’t take anything personally” is empowering for traders because, when you assign yourself responsibility for change, rather than blaming externalities for your misfortunes, you are far more motivated to turn every setback, every challenging experience, into a “teachable moment” from which maximum tuition is extracted. Not taking anything personally is a means of taking responsibility for performance no matter what — something winning traders do.

3) Don’t make assumptions. 

This one is huge. As the saying goes, “When you assume, you make an ass out of you and me” — though often as a trader it is just you. Foolish assumptions have swallowed up entire oceans of profit. The habit of assumption is born of laziness — lack of due diligence, lack of proper investigation and verification. It also stems from a lack of creativity, e.g. the inability to see an alternative range of scenarios — and sometimes emotional bias, meaning irrational predisposition to an expected or demanded outcome.
The number of questionable assumptions traders can make — and DO make, on a routine basis — is veritably endless. From unexamined notions of how a market works, to blinding ideological zeal, to unjustified confidence in a methodology with substantial gaps in process, theory and execution, to casually misguided assignment of blame for a bad result (see agreement #2), there are a thousand ways for foolish assumptions to contribute to a money-losing outcome — which is why, in fact, more traders lose than win.

4) Always do your best. 

“Always do your best” sounds cheesy at first, but how many traders actually take the notion of “always do your best” seriously? Quite frankly, a lot of people half-ass their way through life — and when they get into the trading arena, it only becomes natural and habitual and instinctive to do the same thing. Committing to risk management but not really… committing to a well-developed methodological process but not really… giving lip service to various aspects of trading excellence but not following through… this is a way of life for all too many individuals, and all too many traders. Bad habits in life inevitably show up as bad habits in trading. “Phoning it in” is a big one.

As a point of motivation, stop and ask yourself what might be possible if you really and truly “always did your best,” every single day.

What if you stopped futzing around completely and totally, committing to a higher level of focus and dedication than ever before? What if you really and truly found the absolute best within yourself, and cultivated an iron-clad commitment to maximum trading excellence? What would that look like? What would it feel like? How much pain would it require… and would the pain be worth it?
Furthermore, what if you could figure out how to sustain this level of excellence, day in and day out, not just as a touchy-feely resolution, but true transcendence to a higher path, as the framework for an enlightened and evolved way of life?

How would that impact your P&L, your future vistas, your success as a trader and your sense of life fulfillment on the whole? How awesome would it be?

JS (jack@mercenarytrader.com)

http://www.mercenarytrader.com/2014/01/the-four-agreements-for-traders/

Here are some famous quotes adapted to trading.

A man should look for what is, and not for what he thinks should be.
Albert Einstein

A trader should look at a chart for what it is, and not for what he want it
to be.

A person who never made a mistake never tried anything new.
Albert Einstein

A trader who has never lost, is not a trader yet.

All men by nature desire knowledge.
Aristotle

All traders by nature desire ways to find profitable trades.

Bring your desires down to your present means. Increase them only when your increased means permit.
Aristotle

Trade within your ability and risk tolerance. Increase size and frequency when ability and tolerance permits it.

Being ignorant is not so much a shame, as being unwilling to learn.
Benjamin Franklin

Losing because of a new situation is fine, losing again is the beginning of the end.

By failing to prepare, you are preparing to fail.
Benjamin Franklin

The easiest thing to do is prepare. If you don’t, on behalf of the other market participants, we thank you.

Creditors have better memories than debtors.
Benjamin Franklin

You will always remember the trades that could have been and forget about the risks that were involved.

Applause is a receipt, not a bill.
Dale Carnegie

Your trading statement is the receipt, not your spreadsheet.

First ask yourself: What is the worst that can happen? Then prepare to accept it. Then proceed to improve on the worst.
Dale Carnegie

The more you mentally prepare and accept loss the less psychological capital it takes.

A pair of powerful spectacles has sometimes sufficed to cure a person in love.
Friedrich Nietzsche

Separate your desire from actions.

After coming into contact with a religious man I always feel I must wash my hands.
Friedrich Nietzsche

After talking to a guru or anyone with the holy grail, I always take a hot shower, burn the clothes I was wearing, and drink them out of my mind.

Ah, women. They make the highs higher and the lows more frequent.
Friedrich Nietzsche

Focusing on the result (making money), makes winning more fun but less frequent.

Always do whatever’s next.
George Carlin

Move on, understand what happened in the past but do not have an emotional attachment to it.

Fighting for peace is like screwing for virginity.
George Carlin

Fighting yourself is like robbing your own bank.

A good plan violently executed now is better than a perfect plan executed next week.
George S. Patton

A trading plan is just words until you act on it.

I don’t measure a man’s success by how high he climbs but how high he bounces when he hits bottom.
George S. Patton

The easiest thing to handle is winning, but trading doesn’t start until you lose.

If everyone is thinking alike, then somebody isn’t thinking.
George S. Patton

If every trader is the long there is no money in being long unless you were first.

Be courteous to all, but intimate with few, and let those few be well tried before you give them your confidence.
George Washington

Don’t marry a trade but if you must make sure you have a prenup.

Experience teaches us that it is much easier to prevent an enemy from posting themselves than it is to dislodge them after they have got possession.
George Washington

Your habits are easily formed but be aware they are hard to pay for.

A man is rich in proportion to the number of things he can afford to let alone.
Henry David Thoreau

Just because the market is open does not mean you have to trade. Cash is a position too.

All men are children, and of one family. The same tale sends them all to bed, and wakes them in the morning.
Henry David Thoreau

Your worth as a trader is today’s trading statement, it is re-calculated daily.

All this worldly wisdom was once the unamiable heresy of some wise man.
Henry David Thoreau

The trading genius was previously an idiot or is closer to being one tomorrow. Keep learning.

A bore is a person who opens his mouth and puts his feats in it.
Henry Ford

All trading results are insignificant unless it is your last.

Coming together is a beginning; keeping together is progress; working together is success.
Henry Ford

Having trading discipline is the beginning; keeping discipline is the progress; staying discipline is the success.

Be candid with everyone.
Jack Welch

Be honest with yourself, if or when you fail the change of direction will not kill you.

Change before you have to.
Jack Welch

The market will force you to change if you don’t and it is painful and disheartening.

Control your own destiny or someone else will.
Jack Welch

Put yourself in the best position or you will not have a position come tomorrow.

Face reality as it is, not as it was or as you wish it to be.
Jack Welch

Bend your view to the charts, not the charts to your view.

Even Castles made of sand, fall into the sea, eventually.
Jimi Hendrix

If the base of your trading was built on weak grounds, it is not a matter of if you fail but when you fail.

I try to use my music to move these people to act.
Jimi Hendrix

I place my entries and exits where I am assured people will have to act.

I used to live in a room full of mirrors; all I could see was me.
Jimi Hendrix

You are not the market, but some days you are a bigger part of it.

Abuse of words has been the great instrument of sophistry and chicanery, of party, faction, and division of society.
John Adams

Trading can be simple if you let it. The stakeholders want to convince you otherwise, making their accomplishment and pocketbooks larger.

In politics the middle way is none at all.
John Adams

Indecision will lead to failure even if it does not result in losing money.

Efforts and courage are not enough without purpose and direction.
John F. Kennedy

Any trader can take risk, a great trader can do it with purpose and use it to their advantage.

Forgive your enemies, but never forget their names.
John F. Kennedy

Move past your losing trades don’t erase them, just forget how you felt.

I don’t think the intelligence reports are all that hot. Some days I get more out of the New York Times.
John F. Kennedy

Understand from whom and why you are getting “hot” tips.

Adversity is the state in which man mostly easily becomes acquainted with himself, being especially free of admirers then.
John Wooden

Losing is lonely, but it can be the easiest way to get to know yourself.  It builds a base in which we never have to go below again.

Don’t measure yourself by what you have accomplished, but by what you should have accomplished with your ability.
John Wooden

If you make money by making a mistake, it is loan with a very high defualt rate.

Failure is not fatal, but failure to change might be.
John Wooden

Losing only matters if you lost because of a lesson you were already taught.

If you don’t have time to do it right, when will you have time to do it over?
John Wooden

Develop a plan before you trade or do it later with less cash and more frustration.

History repeats itself, first as tragedy, second as farce.
Karl Marx

A result is rarely an aberration, never treat it as one.

Be content to seem what you really are.
Marcus Aurelius

Find yourself and trade that way.

Because a thing seems difficult for you, do not think it impossible for anyone to accomplish.
Marcus Aurelius

Because trading seems difficult today, it was not for someone else. Stick with it, the roles may reverse tomorrow.

Confine yourself to the present.
Marcus Aurelius

A trade is not connected to another, unless you let.

A man is never more truthful than when he acknowledges himself a liar.
Mark Twain

Not accepting a failure is to not learn from it.

A man’s character may be learned from the adjectives which he habitually uses in conversation.
Mark Twain

If you lose you are not necessarily a loser, if you call yourself a loser no one will be able to change your mind.

Against the assault of laughter nothing can stand.
Mark Twain

Don’t risk more than you cannot look at positively later.

A lie cannot live.
Martin Luther King, Jr.

Eventually you will run out of money if you run from your losses.

Everything that we see is a shadow cast by that which we do not see.
Martin Luther King, Jr.

You may not understand it fully right now but the market is always right.

He who hesitates is poor.
Mel Brooks

If you are thinking about getting out, your competition is already flat.

Always turn a negative situation into a positive situation.
Michael Jordan

A loss is only a loss if you lose the lesson.

I’ve failed over and over and over again in my life and that is why I succeed.
Michael Jordan

The view of trading changes after a loss it is your job to get it back to where it was.

The game is my wife. It demands loyalty and responsibility, and it gives me back fulfillment and peace.
Michael Jordan

If you do not respect the market it will not respect you.

I have found the paradox, that if you love until it hurts, there can be no more hurt, only more love.
Mother Teresa

If you understand and accept risk, you will never risk too much again.

If you can’t feed a hundred people, then feed just one.
Mother Teresa

It does not matter how successful you were today, it just matters that you were successful.
I realize that some of my anecdotes may appear conflicting but they are not to me. It is not up to me to convince you of their truths. It is your job to figure out how they apply to you.

Trading foreign exchange on the currency market, also called trading forex, can be a thrilling hobby and a great source of investment income. To put it into perspective, the securities market trades about $22.4 billion per day; the forex market trades about $5 trillion per day. You can make a lot of money without putting too much into your original investment, and predicting the direction of the market can be a real rush. You can trade forex online in multiple ways.

Part 1 of 3: Learning Forex Trading Basics

There are four main styles of trading, namely scalping, day trading, swing trading, and position trading. Technically, scalping is a type of trading within day trading, but scalping is so different from all other forms of day trading, that I consider it to be a separate style. The difference between the styles is based upon the length of time that trades are held for. Scalping trades are only held for a few seconds, or at most a few minutes. Day trading trades are held for anywhere from a few seconds to a couple of hours. Swing trading trades are usually held for a few days. Position trading trades are held for anywhere from a few days to several years.
Choosing the trading style that best suits their personality can be a difficult task for new traders, but is absolutely necessary to their long term success as a professional trader. If you are a new trader (or even an experienced trader) that does not yet feel as though you have found your trading style, the following are some of the personality traits that are compatible with the different styles of trading. By choosing the trading style that best suits your personality, you will have a better chance of being a profitable trader, so be honest, even if you don't like some of the personality traits that are listed.

Scalping

Scalping is a very rapid trading style. Scalpers often make trades within just a few seconds of each other, and often in opposite directions (i.e. they are long one minute, but short the next). Scalping is best suited to active traders that can make immediate decisions and act on those decisions without hesitation. Impatient people often make the best scalpers because they expect their trades to become profitable immediately, and will exit the trade promptly if it goes against them. Being a successful scalper requires focus and concentration, so it is not a suitable trading style for people who are easily distracted or who often find themselves day dreaming (i.e. if you've been thinking about something else while reading this, then scalping is not for you).

Day Trading

Day trading as a style is more suitable for traders that prefer starting and completing a task in the same day. For example, if you were painting your kitchen, and you would not go to bed until the kitchen was finished, even if that meant staying up until 3:00 AM. Many day traders would not consider making swing or position trades because they would not be able to sleep at night knowing that they had an active trade that could be affected by price movements during the night (such as those that cause opening gaps).

Swing Trading

Swing trading is compatible with people that have patience to wait for a trade, but once they have entered a trade they want it to become profitable quite quickly. Swing traders almost always hold their trades overnight, so it is not suitable for people that would be nervous holding a trade while they were away from their computer (i.e. overnight, in the shower, at the movies, etc.). Swing trading generally requires a larger stop loss than day trading, so the ability to keep calm when a trade is against you is a necessity.

Position Trading

Position trading is the longest term trading of all, and often has trades that last for several years. Therefore, position trading is only suitable for the most patient and least excitable traders. Position trading targets are often several thousand ticks, so if your heart starts beating fast when a trade is 25 ticks in profit, position trading is probably not suitable for you. Position trading also requires the ability to ignore popular opinion because a single position trade will often hold through both bull and bear markets. For example, a long position trade may need to be held through an entire year when the general public is convinced that the economy is in a recession. If you are easily swayed by other people, then position trading is going to be difficult for you.

Being Faithful to your Trading Style

Choosing a trading style requires the flexibility to know when a trading style is not working for you, but also requires the consistency to stick with the right trading style even when it is not performing optimally. One of the biggest mistakes that new traders often make is to change trading styles (and trading systems) at the first sign of trouble. Constantly changing your trading style or trading system is a sure way to catch every losing streak. Once you are comfortable with a particular trading style, remain faithful to it, and it will reward you for your loyalty in the long run.

These questions are probably familiar to you:

    How long do you think it will take to grow an account from $1,000 to $50,000?
    How long before we can quit our job?
    How long until we can make $20,000?

You probably notice a theme to all these questions:; money. Let’s face it the vast majority of people are attracted to Forex for the money. Forex can make you money. It can make you a lot of money, but it will not happen fast.
Reality Check

I am sure you already know that Forex is not a get rich quick scheme. Many people out there spout that line. However, what many people won’t tell you Forex trading is a career. And as with any career it can take a long time to master Forex. So, if you are considering Forex you need to ask yourself two simple questions:

    Do I have the passion needed to take on a new career and become successful?
    Do I have the patience needed to get through the bumps in the road to succeed?

If your answer is no to either of these questions perhaps Forex isn’t for you.

Getting Rich Slow

 I have yet to meet anybody who has gotten rich fast in Forex. I am not saying that it is impossible. What I am saying is that the vast majority of successful traders get rich slowly. Becoming a successful Forex trader breaks down into five steps:

    Learning the basics
    Planing & Preparing (write a proper trading plan and money management plan)
    Developing a trading method
    Testing your trading method
    Tweaking your trading method
    Nailing down your trading psychology.
    Getting rich!

Most new traders want to jump from step one to step five in the space of a few months. Realistically, you will have to go through each step to succeed and it will take you some time. So I am sorry to be the one to tell you this but Forex is very much a get rich slowly game. Some good news though is that Forex4Noobs provides a free video course that will guide you through step two “Plan & Prepare”. Forex4Noobs also has a fun and interactive forex education section that will help you with step one “learn the basics”.


Well the fact is that most people do not get rich quick in any career or business. So giving up on Forex because it will take you time to achieve success is silly. I personally feel that the best thing about Forex is the freedom it provides. Unlike most careers, once you become consistently profitable in Forex you can scale back your chart time.

Over the past two months, I set up a stop watch and timed the total amount of time I spend trading per week. I found that on average I spend six hours per week trading. Compare that against the 8-12 hour work day most people are forced to do these days. Forex is the obvious winner.

Forex certainly does have a lot of benefits and it can turn your life around. However, please do not fall into the trap of thinking that you will be rich within six months.