What can happen playing the HIGH RISK game of foreign currency futures....!

A few days ago I ran into a FX futures trader, and I met with him again yesterday. In the world of finance, FX stands for "foreign exchange".... This guy trades in futures in overseas currencies, like trading between US dollars, Japanese yen, Mexican Pesos, the Euro, Australian dollars, and other currencies....

On the plus side, this is the sort of thing the well-known fund manager George Soros did (before his retirement), trading billions of dollars worth of overseas currencies, and making, and sometimes losing, billions of dollars for his fund....

It's also how Nick Leeson brought the world's first investment bank, Barings Bank, to bankruptcy, by losing them BILLIONS (if you've seen the movie, "Rogue Trader")....

It is a high risk game, with very big wins and losses.

The guy I know is named Willy.... He's originally from Switzerland, and has been trading FX futures (both professionally, and for himself) for 26 years.... It's interesting to peer into this very high risk area of making money.... I'll tell more about the details of FX Futures later.... first, here's a story Willy told me, which tells you about the risks involved!

Willy was a young man working in Switzerland in FX futures, and his wife was 7 months pregnant at the time. One day as a young trader, he started with $10,000 of his own money and turned it into $187,000 -- in ONE DAY! He felt on top of the world, he was ecstatic! He felt like he knew everything there was to know about trading FX Futures....

He decided that he wanted to show his wife what $187,000 looked like.

This being Switzerland, he went to the bank and withdrew the $187,000. He put it in an ugly brown paper bag, the kind you probably wouldn't even want to keep your lunch in. He did this so that others wouldn't think he was carrying anything valuable, just some disgusting uneaten sandwiches left over from lunch, so that no one would even want to touch it.

He took the train home, which was crowded. Willy was squashed between two people on a seat, partly crouched over the brown paper bag at his side so nobody could take it. He told me he didn't want to take a brief case handcuffed to his wrist, since that would be an INVITATION for someone to take it!

Willy got home, and in front of his wife he took the brown paper bag and poured out $187,000 in bills. He thought his wife was going to go into labor then and there, 2 months early....

The next day, he took the money back to the bank, and did some more trades.

That day, he ended up LOSING $100,000. So he had to go home and tell his wife....

He told his wife, "Honey, I made some BIG losses today...."

She said, "How big? Did we lose the house?"

"No," he said, "Not that bad.... But I lost $100,000...."

But now, many years later, Willy feels good about that loss, because you learn the MOST from your failures.... He learned the lesson of when to cut your losses in highly speculative trading like you find in FX Futures....

Sometimes, you have to go through some pain in order to learn something new.... Or the way he put it to me was more like (forgive the language), "Sometimes you need to be kicked in the balls, HARD, to learn...."

More on the details of FX Futures -- this VERY HIGH RISK opportunity -- later.... :)

Dien Rice

Dien,

Yes, please do continue to post on this subject. My husband and I are long a couple of Japanese yen futures contacts right now and we really want to learn more about FX futures trading.

It's not easy to find really good information. So, I am reading all your posts on this subject with great interest.

Looking at the Euro right now. Even after the intervention by the US and Bank of Japan recently, it hit a new low today around of around 83. Just checked the GLOBEX and saw that it is sitting at 84. Wonder how low it will go from here since the U.S. probably won't join in any more planned interventions to help prop it back up, at least not before the election.

Thank you for giving us any tips, info that you can pass on. Does this FX trader have any instructional information to sell?

Ever checked out www.yenman.com? We were just directed to that site by an acquaintance, but can't speak to it's validity yet.

Enjoying your posts on this fascinating subject.
Thanks!
Amber

> A few days ago I ran into a FX futures
> trader, and I met with him again yesterday.
> In the world of finance, FX stands for
> "foreign exchange".... This guy
> trades in futures in overseas currencies,
> like trading between US dollars, Japanese
> yen, Mexican Pesos, the Euro, Australian
> dollars, and other currencies....

> On the plus side, this is the sort of thing
> the well-known fund manager George Soros did
> (before his retirement), trading billions of
> dollars worth of overseas currencies, and
> making, and sometimes losing, billions of
> dollars for his fund....

> It's also how Nick Leeson brought the
> world's first investment bank, Barings Bank,
> to bankruptcy, by losing them BILLIONS (if
> you've seen the movie, "Rogue
> Trader")....

> It is a high risk game, with very big wins
> and losses.

> The guy I know is named Willy.... He's
> originally from Switzerland, and has been
> trading FX futures (both professionally, and
> for himself) for 26 years.... It's
> interesting to peer into this very high risk
> area of making money.... I'll tell more
> about the details of FX Futures later....
> first, here's a story Willy told me, which
> tells you about the risks involved!

> Willy was a young man working in Switzerland
> in FX futures, and his wife was 7 months
> pregnant at the time. One day as a young
> trader, he started with $10,000 of his own
> money and turned it into $187,000 -- in ONE
> DAY! He felt on top of the world, he was
> ecstatic! He felt like he knew everything
> there was to know about trading FX
> Futures....

> He decided that he wanted to show his wife
> what $187,000 looked like.

> This being Switzerland, he went to the bank
> and withdrew the $187,000. He put it in an
> ugly brown paper bag, the kind you probably
> wouldn't even want to keep your lunch in. He
> did this so that others wouldn't think he
> was carrying anything valuable, just some
> disgusting uneaten sandwiches left over from
> lunch, so that no one would even want to
> touch it.

> He took the train home, which was crowded.
> Willy was squashed between two people on a
> seat, partly crouched over the brown paper
> bag at his side so nobody could take it. He
> told me he didn't want to take a brief case
> handcuffed to his wrist, since that would be
> an INVITATION for someone to take it!

> Willy got home, and in front of his wife he
> took the brown paper bag and poured out
> $187,000 in bills. He thought his wife was
> going to go into labor then and there, 2
> months early....

> The next day, he took the money back to the
> bank, and did some more trades.

> That day, he ended up LOSING $100,000. So he
> had to go home and tell his wife....

> He told his wife, "Honey, I made some
> BIG losses today...."

> She said, "How big? Did we lose the
> house?"

> "No," he said, "Not that
> bad.... But I lost $100,000...."

> But now, many years later, Willy feels good
> about that loss, because you learn the MOST
> from your failures.... He learned the lesson
> of when to cut your losses in highly
> speculative trading like you find in FX
> Futures....

> Sometimes, you have to go through some pain
> in order to learn something new.... Or the
> way he put it to me was more like (forgive
> the language), "Sometimes you need to
> be kicked in the balls, HARD, to
> learn...."

> More on the details of FX Futures -- this
> VERY HIGH RISK opportunity -- later.... :)

> Dien Rice

dno

Dien, I don't know a lot about FX futures but I'd really like to learn more. My husband and I are day traders, but we trade LEAPS (long term equity anticipation securities). For those not used to trading stock options, "I" think of a Leap as an option that buys me time or my insurance policy because of the time decay factor in buying stock options.

I can identify 100% with your friend's story about losing the $100K and learning from one's mistakes. We went through a similar situation two years ago when we started buying options. We were real green, and experienced pure beginners' luck when we bought our first contract in a very volatile stock, and were naieve enough to believe we could continue indefinitely to make in excess of 50% gains flipping options every few days. We were in heaven.

Then of course, we had a bear market for several months this year and we're biting our nails. Fortunately, with LEAPS, many expire in 02 and 03 but we do have some 01 options that may never be profitable by Jan.01.

So, we've been through a real roller coaster of ups and downs and have learnt a lot. But, often when anything comes easy for us, we become greedy. Nothing like learning from one's mistakes.

I am serious about knowing more about the FX futures market. It opened today at something like 90+ points, one of the highest days on record. Have no idea how long this momentum will be sustainable.

Regards,

Elizabeth

Thanks Elizabeth for your encouragement!

I'll try to write a nice article explaining what I learned about how it works.... :)

It does seem quite exciting.... The main excitement comes from the very small margins you need (around 3%-5%)....

That means you can have a VERY high amount of leverage! I'll write more about it in the post I'm writing... :)

What that means in normal language is that with just $3,000, you could be buying and selling FX futures contracts worth up to $100,000....

It's this huge leverage which leads to the VERY large potential gains or losses....

Dien Rice

Hi Amber and Boyd,

Thanks for your expressions of interest! I found all this quite fascinating.... Amber, from the sounds of it you may know more than I do, since I've only started to discover this quite recently....

However, for anyone thinking of trading foreign exchange futures, remember it is HIGH RISK....

I'm writing an article explaining how it works, which I'll be posting (I'm hoping to make it easy to understand if I can)....

Dien Rice

Hi,

I hope your article won't mention "paper trading" as a way of testing oneself as a trader or as a way of testing a trading system.

I can make simulated millions paper trading, but I have yet to make a profit as a real trader of some years experience and a track record that consists of at least 1500 real money S&P 500 futures trades.

The only relation paper trading has to real trading is a misleading one.

Best,

-Boyd

Boyd, I have to agree and disagree with you on the 'paper trading issue.'

Personally, I find paper trading boring, but it has been a good learning experience for one reason, especially if you subscribe to a service that gives you real time quotes and you can track a stock.

We have a 'watch list' of those stocks/options that we'd like to own but are perhaps slow movers or are not 'strong buys' right now. But financially, we know they are strong, and just not performing well right now but we 'feel'they'll come around some time.

In hindsight, of course, we should have bought them when they were at their lows, because they have all turned out to be big gainers.

But getting back to the paper trading issue, I like it because it gives me a good idea of how the stock is performing over e.g. a 6-12 month period. Some stocks go into a long consolidation period, and as an amateur trader, often one will panic and sell if a stock is trading sideways or starts to trade down. But if you get to know a stock, you'll just be patient, wait for the volume to build and momentum for it to take off. You seem to be an experienced trader so you'll know that patience is key to gettting in and out at the right time.

I have a very amusing story to tell about 'getting to know your stocks.' When I first started trading, I wanted to have control over my own portfolio, but didn't have enough disposable cash to make it worth my time. So I and my best friend decided to open a joint account and together we started with $6,000, and we also requested that it be set up as a margin account. So, after the a/c was set up, I went online and noticed that the 'cash available' read $23,000. So, not knowing much about how much margin we were eligible for, we thought, great, we could have a field day with $23K.

So, I bought shares in a stock totalling $6K But prior to this, we had also spent $6K. Then I got THE MARGIN CALL. Merciless people that are given this very unpleasantjob. I had to come up with $5K or sell the shares because they had dropped. Naturally, I could not understand what had happened as my cash balance was showing $23K.

What had happened is, there was a systems error. And not giving any thought to how much margin we were eligible for, we just went on a spending spree. Duh!!

So now we were both very nervous as we didn't have $5K readily available, and neither of us wanted to tell our spouses about the incident, as we had promised NEVER to buy on margin. But we figured, we could outsmart the system.

Anyway, by the grace of God, the following morning, the stock gapped up $12.00, giving us a very nice profit and covering our margin call.

I can't tell you how much I prayed. In fact, that day, I never ate a meal and don't recall sleeping that night.

Since that incident, I've watched this stock's trading pattern, and know it very well. Had I done some paper trading before, I would have known that it was not unusual for this stock to trade down for several days, and suddenly gap up after 2 -3 weeks.

So, paper trading can be useful when you want to learn about a stock. And of course, for the most part, the market makers do control this pattern.

Regards,

Eliz.

Eliz.

Hi,

I stand by my earlier message, but after reading Elizabeth's well-reasoned article I now realize that what I wrote may only be true when applied to the kind of trading I did: daytrading the stock index futures.

Not bragging, but I'm an expert chart reader, using the techniques of Joe Ross and Linda B. Raschke.

best,

-Boyd

I always knew the Trick Report was not your only business. (smiles) And now that I know you're an expert at charting, I'll keep this in mind when I've got questions on the subejct matter.

I wish there was a forum where I could share some of my successes and frustrations on stock options, futures, stock indexes, etc.

Boyd, any chance you'd like to start one with others who might be interested. It's such a fascinating topic when you get into it.

We subscribe to The Option Investor Newsletter. There are several options groups in the US, Canada and I 'think' other countries, that meet monthly to discuss their trading. The group that meets in Toronto meet every third Saturday of every month, but there is no real structure and I really don't have the time to give up my Saturday afternoons to meet. So, I've been suggesting a forum for some time, but noone wants to get it started.

It appears there is a lot of interest here. Think about it.

Eliz.