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The Flipside To Rigged FX Markets: "The Most Consistent Thing Is Losing"
As today's latest example of pervasive, apparently endless criminality at the world's largest banks, where once again the shocked public is exposed to a culture of sociopathic, unchecked greed and perpetual raping of clients, showed, one is either part of the all too literal "cartel", or one loses money.
However, for those who are unfamiliar with the nuances of FX trading, one doesn't even have to be on the other side of the world's most criminal, above the law, cartel of bankers to have no P and only L: the fundamental premise of currency trading, whereby one can and will be stopped out thanks to leverage as high as 50x - by others but mostly by one's own brokers as we learned today courtesy of JPM, Citi, RBS, HSBC and UBS - is the very same reason why as retail FX trader Dan Gratton, a 71-year-old retiree who lives on Social Security in Kingman, Arizona has found out: "Probably the most consistent thing is losing."
He is referring to FX trading, adding that he’s been a student of the the Market Traders Institute Inc., the oldest and largest currency trading "school" for two years and had hoped that taking its home-study classes and watching webinars would help him succeed with forex trading. Not only has that not happened, but Dan has lost tons of money in his pursuit to get rich quick, thanks to the same leverage that allows him to dream of big paydays just around the corner.
But at least Dan spending for "class" upon "class" in hopes of honing his FX trading skills, has made the owner of the Market Traders Institute, shown below, insanely wealthy and with lots of credibility-building computer screens.
Jared Martinez, CEO of Market Traders Institute, combs his hair as he prepares
to teach an all-day forex-trading seminar at MTI's school in Lake Mary, Florida
As Bloomberg reports, most retail currency investors lose money most of the time, according to the industry’s own data. Reports to clients by the two biggest publicly traded over-the-counter forex companies -- FXCM Inc. (FXCM) and Gain Capital Holdings Inc. -- show that, on average, 68 percent of investors had a net loss from trading in each of the past four quarters. These kinds of losses make for investor churn.
“Given the highly volatile nature of the forex and futures markets, the substantial risk of loss and the possibility that a total loss may occur in a very short period of time, the Board has concluded that Members should be prohibited from permitting customers to use credit cards,” the NFA wrote.
In the same letter, the NFA noted that 72 percent of U.S. retail forex traders suffered a net loss in the fourth quarter of 2013.
Martinez, the Market Traders Institute CEO, tells students the odds of losing in forex trades are even worse. But therein, he says, lies an opportunity.
“Ninety percent of all novice traders fail,” he says during MTI’s March webinar. “This is a zero-sum game, like playing poker, where the losers pay the winners,” he adds, speaking softly, patiently. “If you can land within this 10 percent, don’t you think you can make a lot of money trading forex?”
You can, but anyone who knows a bit of statistics knows that you won't. Of course, this never stopped the get rich quick addicts from burning their disposable income on money-losing tickets to wealth in the form of lottery tickets.
Alas, when it comes to retail FX traders, that's when the pain only begins. More from Bloomberg on this final "get rich quick" frontier:
The average OTC forex investor drops out of the market after just four months, according to the National Futures Association, an industry self-regulatory group.
Retail forex investors, many of whom are well educated in fields other than finance, enter into a market that is lightly regulated, opaque and rife with conflicts of interest. They are enticed by pitches from coaches like Martinez, saying people can finance their retirements trading forex.
The reason why most retail investors are quickly chewed out and spat out is very simple: unlike the TBTF banks who have virtually unlimited balance sheets, retail investors have quite limited amounts of cash. Add 50x leverage or 2% equity, and the smallest move against one's positions means an immediate margin call.
[They] are allowed to supercharge their bets with the kind of leverage -- as much as 50:1 -- that investors in other asset classes can only dream of. That kind of juice can lead to wins, but more often than not, it leads to big losses. Investors can have their entire investment wiped out in a matter of days.
* * *
The great lure of forex trading has less to do with the movement of the currencies themselves and more to do with leverage. Using leverage of 50:1, an investor can amp up a $100 wager so it can pack the punch of a $5,000 bet. That means traders can double their investment on a 2 percent currency move in their favor.
“Would everyone want to take a $20 bill out of your wallet and magically turn it into $1,000?” Tormos asks in the March webinar. “Imagine if you took $2,000 from your bank account and traded it in the forex market. It would be worth $100,000 of buying power.” The elixir of leverage makes it possible to score big gains even in a market that often rises and falls in tiny increments, calibrated in fractions of cents.
“Currencies don’t move that much,” says Drew Niv, chief executive officer of FXCM, the largest OTC forex firm in the U.S. “So if you have no leverage, nobody would trade.”
While leverage can boost gains, it can also magnify losses.
“Leverage is a double-edged sword, of course, as it can significantly increase your losses as well as your gains,” FXCM’s website says. With 50:1 leverage on a currency trade, a 2 percent move against the investor would mean a 100 percent loss.
That’s what could have happened to a trader using 50:1 leverage to bet on a rise in the Japanese yen on Oct. 31, when the currency fell 2.8 percent against the U.S. dollar in one day. In September, the euro lost 2.07 percent compared with the dollar in three days.
Is it starting to become clear why one needs to be part of a criminal cartel to assure profits? Not yet? It will:
Forex trading is like gambling at a casino because the odds are always stacked against you, says Michael Greenberger, who was director of the Division of Trading and Markets at the Commodity Futures Trading Commission from 1997 to 1999.
“People are lured into forex trading the same way they’re attracted to a roulette table,” Greenberger says. “It’s a no-win proposition.”
Most people who trade currencies don’t do it on an exchange; they trade over the counter, usually online, using a broker. But currency brokers aren’t neutral parties; they’re also buyers and sellers, sometimes taking the opposite sides of their customers’ trades.
That’s how brokers can be in conflict with their own clients -- a disclosure brokers are required to make to clients in writing by the CFTC, which regulates forex trading. Brokers may offer any currency prices they wish and can give different rates to various customers at any time, the CFTC-required disclosure says.
So back to leverage:
“Leverage is wonderful if you win, but it kills you if you lose,” says Greenberger, the former CFTC regulator, who’s now a professor at the University of Maryland’s Francis King Carey School of Law. “It’s a selling tool to convince the customer how great retail forex is.”
* * *
Because OTC trading isn’t done on an exchange, the forex broker becomes the client’s counterparty, taking the other side of the transaction. If an investor wagers the yen will rise, the broker bets it will fall.
Sometimes the broker keeps the trade on its own books, sometimes it matches the trade with that of another customer who’s speculating in the opposite direction, and sometimes the broker lays off risk by hedging with a bank.
The CFTC, which refers to brokers as dealers, requires them to tell clients in disclosures, all in capital letters: “YOUR DEALER IS YOUR TRADING PARTNER, WHICH IS A DIRECT CONFLICT OF INTEREST. WHEN YOU SELL, THE DEALER IS THE BUYER. WHEN YOU BUY, THE DEALER IS THE SELLER.”
With OTC trading is still no man's land, meaning FX is exempt from regulation since the 1970s, the original criminal syndicate are the good old bucket shops made popular in such movies as Boiler Room and the Wolf of Wall Street:
That was intended to smooth currency transactions between banks, which had their own regulators. But it created the opening for OTC forex trading. With no agencies minding the store, bucket shops and con artists pitched forex trading to naive investors, FXCM’s Niv says.
“In the late ’90s, the FX business was 100 percent made up of boiler rooms,” he says.
Funny, because it is the same now. Only the criminals are now called "reputable banks."
So with a rigged casino and 50x leverage what is one to do? Clearly the logical one is to stay away from such a broken, manipulated market:
Leverage has blown out a lot of OTC forex traders. So have broker conflicts, enticing pitches, practice accounts, credit card debts -- and taking risks in a market dominated by professionals that may not be suitable for amateurs.
Former CFTC official Greenberger says the only way to fix the market is to shut it down. “There’s no good reason to allow it,” he says. “The way to get at it is to ban it.”
The closest the CFTC has come to doing that is requiring forex brokers to give clients dire risk warnings. Even with those, no matter how large the disclosures about leverage and conflicts are written, millions of people take the OTC forex plunge every year.
“A myth is that people think that they’re going to be insanely wealthy, guaranteed,” Niv says. “They understand that they’re unlikely to, but they think they could.”
Ironic then, because with 6 years of Fed, and ECB, and BOE, and SNB, and BOJ interventions, that is what equity market participants think too. And much to the chagrin of said participants, just like "investors" in Madoff's ponzi scheme, there will be no calls to ban that particular fraud until everything crashes one final time.
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50x? Pfffttttt. Meh, Ole Yeller is currently at about 80/1 and that's without knowing everything that's under the hood.
I hope you're not referring to Janet. I wouldn't like to find out what's under the hood there.
Janet I do not like the look of her face, looks evil. LOL>
Speaking of looks, hell, i do not like the LOOK OF GOLD here -> THIS GOLD model => http://bitly.com/1rdUK8e told us to get SHORT gold the end of OCTOBER 2014, [was accurate], and that 900 an ounce could be coming on gold soon. OH DEAR!!!
Gold bulls have panicked looks on their faces, and with the Strong USD rally, that will get their heart pulputating even more. OH DEAR!
I can't decide whether she's
the Antichrist or the Whore of Babylon . . .
Another reason why they hide that shit. Didn't want the public seeing Bernanke receiving fellatio from Liesmen and now who on earth would want to see under Janet's attire or her behind closed doors. Yikes.
Stocks vs. Forex? Which is better to trade?
http://www.globaldeflationnews.com/forex-vs-stocks-whats-better-to-trade/
The most consistent thing is buying gold and silver, adding more to your stack as they give you sale prices, and waiting for the inevitable collapse that will happen when a Too Big to BailOut Bank fails due to massive leverage on a wrong bet.
Write in the money puts till the market turns....oh wait
Tell that to the weekend Merchant Bank garbage distributor on ZH, "Fuc to Market"
Most currency traders I'd known in my yout were alcoholic degenerate gamblers.... a real hoot to party with but sadly gone too soon . Sigh .
"the Board has concluded that Members should be prohibited from permitting customers to use credit cards,” the NFA wrote."
but but casinos have ATMs
i'll stick to megamillions
better "leverage" ... and probably as good a chance of winning
lulz at gratton
Where are the transcripts of the UBS precious metals price rigging which were conducted over 'electronic communication platforms' in conjunction with other banks?
FINMA? Anyone?
That atricle was in Bloomturd. The assclowns that run the show and that are responsible for regulation are just trying to draw attention away from their own incompetence.
The leverage limits used to be much higher. Ask them why they stopped allowing hedging and CFD's in the U.S. markets, when you can trade them and hedge in all the offshore markets. Ask the a-hole regulators why they dropped leverage on paper PM's and you can still trade paper leveraged in the offshore markets.
It's all about control, and nothing else. Being able to hedge trades is a huge advantage for traders. Those idiots would have everyone in equities and all thier money in banks making ZIRP (losing money) if they had their way. Just like anything in life, you have to do your homework and master your craft. NOTHING is free unless you're a primary dealer, or a scumbag politician.
Most traders lose money because thay don't do the necessary due diligence, and treat trading like a hobby, and make irresponsible trading decisions.
Due diligence starts with READING THE FUCKING ACCOUNT CONTRACTS AND REGULATORY DISCLOSURES (and not just the bold all caps CFTC ebonics, but all the small print too- if the words weren't important (to the financial institution, and hence the customers' wallets) the lawyers would not have included them.
Where ohh where do I start with this POS article? 1) You can get 100X + at any brokerage house / bank outside the US, 2) trading institute? oh, you mean where hacks go to teach shit sold at Barnes & Noble?, and 3) give me a fucking break here - I've been trading FX for over 30+ years and made millions [just sayin'] - so this idea everybody loses is pure bullshit. Somebody email that dipshit in Arizona and tell him to follow the link below.
www.traderzoo.mobi
this is a pretty good book on how crooked the FX market is for the little guys:
The Bull, The Bear, and The Baboon: FX Lessons Learned the Hard Way
(amazon link)
read it this summer... decided no FX for me!
This setting reminds me of a story told in my early 20's .
Despite my first wife's rebellion of me playing this at my wedding reception, the quizzical reaction of 300 plus attendees was priceless. I'll never forget that moment in time. They were all clueless goats. This was around 1991.
Dead Can Dance - Indoctrination (A Design For Living)http://m.youtube.com/watch?v=r7fI2EeDeA0
Yen Cross: Spot on.
The fastest way to lose money in Forex is to trade short term moves with stops. That's all you need to know.
Believe it or not...Your choice.
I've been trading FX for six years. The first few years were awful. For the last two years I've done pretty well.
About a year ago I flat out quit trading with a stop. I've made money on 73 of my last 77 trades.
It's all about disipline and knowing the behavior of the pairs you trade. I'm not bragging about it, just saying it can be done.
The only stops I use are, trailing stops when my trades go positive. If I have to be away from a trade to sleep or a meeting I'll sometimes set a reversal near a key sup/res level that closes out the trade and reverses it.
You're absolutely right about understanding the pairs you trade. You don't have to be chasing different pairs all over the place. Just master 3 or 4 trades you really enjoy.
Ahh, that old chesnut - The Stop - also known as - The Brokers Best Friend.
The only stops you should be using are bus stops and door stops, period!
Its taken me the better part of ~2 years to be consistently profitable trading fx, its HARD but its worth it if you can see the big picture.
Most idiots get into trading (fx, options, futures) and tihnk they're going to gamble their way to riches.
I look at trading like my own 401K, except it actually makes money and I get to have fun doing it.
I trade alot of pairs..anything from the majors (eur/usd) to exotics like SGD/JPY.
Also: most of my trades are losers, but the few that go my way are my big winners.
Discipline is something most people dont have.
~DipshitmiddleclasswhiteKid
Forex pays a lot more than a doctor or a lawyer. How long it takes for a doctor or a lawyer to start making money? Forex is not a get rich quick thing. Believe me I'm in this profession for a long time and I know that people claiming big money in short time are probably after your money..... the money they can't make trading. Another thing I learned after all those years in the Forex markets is that people "teaching" it are people that failed as traders. They can't trade so they go "teach" !! My personal opinion is that you can't rely on anybody to teach you how to be a trader. Thats a journey you have to go alone. According to what I saw so far in my trading carrier 95% will fail, 70% will be margin called on the first 6 months.
Great comments Platypus.
There are people who've been trading for 20 years or more who have described the current 'markets' as the hardest they've ever known them.
DavidC
The comment section for this article is great. I blew up a $7k account the first year i traded. After 3 years of breaking even, in past 3 months, I have made a 25% return in my account in 3 months. It's about little bit of fundamentals and a lot of technicals. It's about spending hours upon hours of chart time not even really trading. I hope to quit the day job.
Once I figured out how to trend trade, it became a lot easier. include support and resistance levels, and whole number psychology.
Most importantly, HAVE A TRADE PLAN. If you don't have that, don't even try to trade.
limit your losses to 1% of your account size, you'll be okay.
Start with mini or microlots.
Good luck everyone.
A favorite broker trick of mine was when I put in a limit order and watched it trade at that price for a while. I'd call the broker to see if my order filled.
If it went above from my limit bid.
If it went down from my limit order.
If it stayed at the same price (my bid)
Fool me once...
There's only way to start to make a living trading the markets and that's really small. Even if you have a 6 or 7 figure account all ready, start small. Risk $20 a trade, learn from your many mistakes. If/when you start to make money over a set of months increase the size USING YOUR WINNINGS to say $30 or $40 a trade.
If you can't make any money you won't increase your size and your total losses will be well under $2k.
Zero sum game. That's all you need know. In the FX/options/futures game, one man's happiness is another man's sorrow. Just another form of usury, IMHO.
Forex Kong – A LOUSY SERVICE AND A THIEF
This is to warn EVERYONE as to doing any sort of business with Forex Trading with Kong, or what ever he/she/it bills itself. I signed up to the “service” in May of 2014, and once on the site, the person proclaiming themselves to be Kong was in a maelstrom of trades – all currently down. I found his combination of ranting about the markets, along with fuzzy and not explained or thought out trades was amateur at best. In fact, as a veteran trader, I took each and every trade of his on one of my demo accounts, with this “Kong” not spelling out as to whether trades he emailed on “alert” were short, mid or long term, and the ensuing results were hilarious. ALL down. I have the charts, and alerts he/she/it sent and the times he/she/it sent them, and to say this “service” is even competent is a stretch.
I’d be happy to share these charts, trades ( I took screen shots of the demo account with the idiot Kong trades getting reamed) with anyone.
The REAL “fun” started when I canceled – or attempted to cancel, my less than one month old account with Kong. First, to sign up to the…service, I had to join PayPal, which I did NOT want to do. This Kong character cajoled me into doing so “It’s the only way I work” – something to that effect.
WELL…Kong and PayPal kept right on debiting me. I caught them. Kept right debiting me AFTER I CAUGHT THEM.
I have the emails, bank statements – all of it. The good thieves at Forex Trading with Kong know this, and can not refute one iota of what I wrote. They are arrogant, claim they “never had a refund” (gee…I guess so).
STAY AWAY FROM FOREX TRADING WITH KONG. BE FOREWARNED.
THE SERVICE IS ASININE, AND THEY STEAL YOUR MONEY.
JPHFOREX at Gmail dot com….I can back up everything I just wrote.