Before Making a Final Decision, Remember to Check the Terms of Opening the Trading Account and Corresponding Transactions
The terms to consider, about opening a trading account and carrying out transactions, include: adding interest to the deposit, the opportunity to open a segregated account, the opportunity to trade under a bank guaran- tee, the time schedule for money transfers from one account to another, rules governing conflicts and settlements, and such. The right choice of a dealer greatly influences the results of your trading operations.
RECENT INDUSTRY DEVELOPMENTS
Some significant changes, both positive and negative, took place in the
FOREX trading world over the past few years.
First let me mention three positive changes:
1.By the year 2006 the industry of FOREX trading had become more government regulated in the United States. Nowadays, the NFA regu- lates most of the dealers and introducing brokers conducting busi- ness in the United States, including foreign dealing companies providing services to U.S. customers. So, now the probability for a trader or an investor to become a fraud victim has greatly decreased.
2.Stronger competition among numerous dealing companies has made them offer their customers better services that include more sophisti- cated trading software, lower spreads, and faster and more accurate trade execution.
3.Reputable dealers now offer their customers the opportunity to trade contracts as small as $10,000. This is good for beginners, who today can make real trades without risking too much money while learning the business.
However, along with positive changes there also were two negative ones: First, the same competition among dealers that improved quality of
their services overall led to the situation that now almost every dealer
could be considered a bucket shop. Today the dealers routinely trade against their customers, especially those individuals with smaller trading capital. In order to increase their revenues, some of the larger dealers on a daily basis carry an uncovered exposure totaling well over $100 million of the positions taken by their customers. At first glance it seems that there shouldn’t be a problem. The rule of the game is that the house must al- ways win and there are reasons to believe that most of the clients’ trading capital sooner or later ends up in the dealer’s pocket anyway, pretty much like in the gambling industry. (Dealers’ back office statistics show that ap- proximately 60 percent of their clients’ total trading capital is being lost in trading annually.) However, unlike in the casino business where the house is always able to control each and every aspect of the game, there could be some very dramatic and fast changes in the market that wouldn’t allow the dealer to cover its exposure before it becomes too late. Unexpected, almost instantaneous, and sizeable shifts in currency exchange quotes could be damaging to the point where a dealer would not be able to fulfill its financial obligations toward its customers.
The other change that I consider to be rather negative is the trend of most dealers lowering their margin requirements. Today it is quite possi- ble to find a dealer offering to its customers a margin as low as 0.5 per- cent. Dealers present low-margin trading as an opportunity for customers to achieve greater profitability with smaller investment capital. It is true, but trading on full leverage also could easily cause the loss of the entire trading capital in a single trade in a matter of minutes. It looks like trading in the financial market is turning into a casino-style business, which is not good in my view.
PAR T II
he most difficult process is adjusting the human psychological factor, because in real life it is impossible to completely get rid of the psy- chological factor influencing human activity.
I think it is very important for the reader of this book to follow me in creating the method, beginning with the definition and identification of the problems that need to be solved. Then, after initial ideas are formed, we will continue to the development of effective trade principles and the cre- ation of an integrated conception of systematic trading methods. I would like each trader to understand the essence and logic of my method, which allows a transition from vague emotions and desires to specific targets, in order to develop an effective trading technique. I think this approach to training is the best. It allows the trader to not only follow my line of thought but also, using the information acquired in this book, to extend each trader’s individual (not only professional) experience, with the aim of critically evaluating the acquired information.
For this reason, I decided to violate the traditionally taught se- quence of many books, manuals, and training aids, and state my book in the sequence of the development of my method. The first chapter (Chap- ter 4) in Part II is dedicated to trader psychology. The psychological problems shared by many traders will be addressed, and the conclusion will be proven that it is necessary to switch to a systematic trading method without forming a rigid mechanical trading system. This desire, and the necessity to get rid of the excessive and permanent psychologi- cal stress that negatively influences the results of my everyday trading,
inspired me to develop the new systematic trading method I will pre- sent in this book.
In Chapter 5, the initial requirements for the optimal trade methods and the consequent trade systems are formulated. Next, some basic ele- ments for the trade method development are described - using trading tools corresponding to the basic principles of effective trading. Along with my own ideas and elaboration, they will be used as the basic components of effective trading described in Chapter 7.
Each trader goes through mistakes, failures, and losses in his or her own way and in accordance with his or her personality and temper.