Hello Friends,

It's been a long break! I hope you've been having a great time? 
Psst! I am bringing you a 'delicious' series on the "Chronicles of Koffie Black". 
Koffie, a young Ghanaian, bumped into Forex after being introduced to it by a friend. In the process, he lost his managerial job and encountered several other challenges and adventures in his quest for the golden fleece.

This is going to make for very interesting reading so don't miss it!!
It will be "airing" on this blog every Monday, Wednesday and Friday starting tomorrow. 

So watch out!

Now, it's time for some serious education...
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Ever Wondered How Currency Rates Are Calculated ?

Well, I have great information with illustrations to help you. It's a little techie though....

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Direct Currency Calculation

When stocks are exchanged using different currencies and one currency is the official currency of the country where the exchange quote is given, a direct exchange can be performed.  
In order to perform a direct currency calculation, the following four pieces of information are required.

• Originating Currency:  the three letter currency code the amount is currently in.
• Amount:  a decimal that contains the number of units of Originating currency to be converted.
• Target Currency:  the three letter currency code the amount will be converted to.
• Market Maker:  the market maker that is being used for the current company or plan.

Steps to Perform a Direct Currency Calculation

1. Retrieve the exchange rate for the Originating currency and the Target currency supplied by the current Market Maker.

1. Search the AsExchangeRate table for a single instance that contains the Originating currency as either the BASE or TERMS currency, and the Target currency as either the BASE or TERMS currency, for the current Market Maker. If rows exist, get the row that has the most recent effective date.
2. If no rows exist in the AsExchangeRate table for Originating and Target currency, a cross rate calculation will need to be performed.

2. Retrieve the DirectTermIndicator for the current Market Maker and whatever currency is the TERMS currency from the Exchange Rate retrieved from the AsMarketMakerCurrency table.
1. If DirectTermIndicator is T, then direct, or American, terms are used in the quote. The quote is the number of BASE currency units needed for one unit of the TERMS currency.
2. If DirectTermsIndicator is F, then indirect, or European, terms are used in the quote. The quote is the number of TERMS currency units needed for one unit of the BASE currency.
3. Perform the currency conversion calculation to get the number of units in Target currency:
1. If the Target currency is the TERMS currency in the exchange rate, then the conversion is done by using the amount of Originating currency to BUY some number of BASE currency from the Market Maker. This is done using the following formula:
1. If Indirect: Amount * Offer Price = Number of units of Target Currency
2. If Direct: Amount / Offer Price = Number of units of Target Currency

2. If the Target currency is the BASE currency in the exchange rate, then the conversion is done by using the amount of Originating currency and SELLING it for some number of TERMS currency from the Market Maker. This is done using the following formula:
1. If Indirect: Amount / Bid Price = Number of units of Target currency
2. If Direct: Amount * Bid Price = Number of units of Target currency

4. Retrieve the CurrencyRoundPlaces and CurrencyRoundMethod values from the AsCurrency table for the Target currency and round the result.  Rounding is described in detail later.

 

Examples of Direct Currency Calculation

Exchange Rate Indirect Quote, USD/CAD

•  BASE Currency = USD
•  TERMS Currency = CAD
•  OFFER = 1.0018
•  BID = 1.0020

 If converting 100000 USD to CAD then:

•  Originating currency = USD (the BASE currency in this example)
•  Target currency = CAD (the TERMS currency in this example)
•  Amount = 100,000
•  Currency Conversion = 100000 * 1.0018 = 100180.0000 CAN

 If converting 100000 CAD to USD then:

•  Originating currency = CAD (the TERMS currency in this example)
•  Target currency = USD (the BASE currency in this example)
•  Amount = 100,000
•  Currency Conversion = 100000 / 1.0020 = 99800.3992 USD

Exchange Rate Direct Quote, USD/CAD

•  BASE Currency = USD
•  TERMS Currency = CAD
•  OFFER = .9985
•  BID = .9982

 If converting 100000 USD to CAD then:

•  Originating currency = USD (the BASE currency in this example)
•  Target currency = CAD (the TERMS currency in this example)
•  Amount = 100,000
•  Currency Conversion = 100000 / .9985 = 100150.2254 CAD

 If converting 100000 CAD to USD then:

•  Originating currency = CAD (the TERMS currency in this example)
•  Target currency = USD (the BASE currency in this example)
•  Amount = 100,000
•  Currency Conversion = 100000 * .9982 = 99820 USD

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Why Do Many Forex Traders Lose Money?

 

In our Traits of Successful Traders series, the DailyFX Research and Education teams go through a year’s worth of trades from actual clients and discusses the results along with surprising conclusions.

Strong growth in forex trading has brought a significant increase in the number of new traders, but the influx has been matched by a similar outflow of existing traders. Why? This article discusses arguably the most important question of all – why do many forex traders lose money? 

 

Why Does the Average Forex Trader Lose Money?

Many forex traders have significant experience trading in other markets, and their technical and fundamental analysis is often quite good. In fact, in almost all of the most popular currency pairs that FXCM clients trade, traders are correct more than 50% of the time:

The above chart shows the results of a data set of over 12 million real trades conducted by FXCM clients worldwide in 2009 and 2010. It shows the 15 most popular currency pairs that clients trade. The blue bar shows the percentage of trades that ended with a profit for the client. Red shows the percentage of trades that ended in loss. For example, in EUR/USD, the most popular currency pair, FXCM clients in the sample were profitable on 59% of their trades, and lost on 41% of their trades.

So if traders tend to be right more than half the time, why do most forex traders lose money?

The above chart says it all. In blue, it shows the average number of pips traders earned on profitable trades. In red, it shows the average number of pips lost in losing trades. We can now clearly see why traders lose money despite bring right more than half the time. They lose more money or their losing trades than they make on their winning trades.

 

Let’s use EUR/USD as an example. We know that EUR/USD trades were profitable 59% of the time, but trader losses on EUR/USD were an average of 127 pips while profits were only an average of 65 pips. While traders were correct more than half the time, they lost nearly twice as much on their losing trades as they won on winning trades losing money overall.

The track record for the often-volatile GBP/JPY pair was even worse. Traders were right an impressive 66% of the time in GBP/JPY – that’s twice as many successful trades as unsuccessful ones. However, traders overall lost money in GBP/JPY because they made an average of only 52 pips on winning trades, while losing more than twice that – an average 122 pips – on losing trades.

 

Cut Your Losses Early, Let Your Profits Run

Countless trading books advise traders to do this. When your trade goes against you, close it out. This is difficult to do because it is going against the great deal of work and research you performed to first enter the trade. Closing it out at a loss is admission that you were wrong—invalidating everything you did that went into that trade.

 

Worse than admitting you’re wrong, however, is letting a small loss balloon into a large one. This is exactly the mistake we watch time and time again: traders are too willing to hold onto a losing trade in the hopes that it will come back. And to be clear, a trade can come back and there will definitely be times that you will have avoided a loss by holding onto a small loser. But those large losses completely ruin the potential reward on your overall trading.

Conversely, when a trade is going well, do not be afraid to let it continue working. You may be able to gain more profits. After taking a series of losses or perhaps one especially large loss, it is natural for us to take profits on a trade due to fears that it can go against us. Taking profits also proves that we were right—the hard work that went into the trade was valid and it feels good. Yet letting losses run and cutting profits short is how many traders lose money. 

 

How to Do It: Follow One Simple Rule

Avoiding the loss-making problem described above is pretty simple in theory, though it is admittedly difficult in practice. When trading, one rule is critical: always seek trades that offer larger potential rewards than losses. This is nothing groundbreaking, and almost every trading book will tell you the same thing.

Typically, this is called a “reward/risk ratio”. If your analysis shows that a trade will pay out 100 pips with a max risk of 100 pips, your reward/risk ratio is 1 to 1. If you risk losing 200 pips to make that same 100, then that same ratio is 1:2.

According to our data on real traders, the average reward/risk on EURUSD trades was 127 pips in average losses versus 65 pips in gains—approximately 1:2.Given that reward/risk, traders would have had to make profits on at least 66 percent of all trades to ultimately make money. Unfortunately the true win percentage was 57 percent and helps explain why most lost. 

 

You should always use a minimum 1:1 ratio.

That way, if you are right only half the time, you will at least break even. Generally, with high probability trading strategies, such as range trading strategies, you will want to use a lower ratio, perhaps between 1:1 and 2:1. For lower probability trades, such as trend trading strategies, a higher reward/risk ratio is recommended, such as 2:1, 3:1, or even 4:1. Remember, the higher the reward/risk ratio you choose, the less often you need to be right in order to make money trading.

 

Stick to Your Plan: Use Stops and Limits

Once you have a trading plan that uses a proper reward/risk ratio, the next challenge is to stick to the plan. Remember, it is natural for us to want to hold on to losses and take profits early, but it makes for bad trading. We must overcome this natural tendency and remove our emotions from trading. 

 

The best way to do this is to set up your trade with Stop-Loss and Limit orders from the beginning.

This will allow you to use the proper reward/risk ratio (1:1 or higher) from the outset, and to stick to it. Once you set them, don’t touch them (One exception: you can move your stop in your favor to lock in profits as the market moves in your favor).

Culled from xe.com 

Choosing a Forex Broker

Hi friends!
I hope you had a great weekend? Well, we'll begin this work week with some learning about Forex brokers. You probably know by now that without Forex brokers you can not trade in the Forex market. It is therefore very important to understand the types of Forex brokers and their strong points and downsides too! I have a very enlightening article on this most important topic by Grace Cheng.

As you may already know, foreign exchange (Forex/FX) is an unregulated market that is not traded on an exchange, which means that prices you see and get from one broker could vary from those of another broker. There are mainly two types of brokers. One type is an ECN (Electronic Communications Network) and another a Market-Maker.
Market-makers "make" or set the prices on their systems based on what they think is best for themselves as the counter-party. This is because every time you sell, they must buy, and when you buy, they must sell to you. This is why they can give you a fixed spread since they are setting both the bid and the ask price. Many of them will then try to "hedge" or "cover" your order by passing it on to someone else; however, some may decide to hold your order, and thus trade against you. This can result in a conflict of interest between the retail trader (you) and the market-maker.
ECNs, on the other hand, pass on prices from several banks and market-makers, as well as from the other traders in the ECN, and display the best bid/ask prices based on these input. This is why sometimes you can get no spread on ECNs, especially in very liquid currency pairs. How do ECNs make money then? They do so by charging you a fixed commission for each transaction.
Here are some of the pros and cons of ECNs and market-makers:
Market-Makers
Pros:

• Usually give free charting software and news feed
• Prices can be "smoother" and less volatile than ECN prices (this can be a con if you are scalping or trading very short term)
• Often have a more user-friendly trading and analysis interface

Cons:

• They may trade against you. In that case, there will be a conflict of interest between you and them
• The price they offer you may be worse than what you could get on an ECN
• It is possible that they may trigger stops or not let your trade reach your profit target levels by manipulating prices
• During news, there will usually be a large amount of slippage; their systems may also lock up or not allow order placing during times of high volatility
• Many of them discourage scalping and put scalpers on "manual execution" which means their orders may not get filled at the price they want

Examples of some market-makers:
http://www.goforex.net/forex-broker-list.htm#MM
ECNs

Pros:
• You can usually get better bid/ask prices since they come from several sources
• Variable spreads between bid and ask may give no spread or tiny spreads at times
• If they are a true ECN, they will not be trading against you but will pass on your orders to a bank or another customer on the other end of the transaction.
• You will be able to offer a price between the bid and ask with a chance of it getting filled
• If they support Stop-Limit orders, you can prevent slippage during news by making sure that your order either gets filled at the price you want or not at all
• Prices may be more volatile which will be better for scalping

Cons:

• Many do not offer integrated charting
• Many do not offer integrated news
• Many of the trading platforms are less user-friendly
• Because of variable spreads (between bid and ask,) it may be more difficult to calculate stop loss and profit target in pips beforehand.

Examples of some ECNs:
http://www.goforex.net/forex-broker-list.htm#ECN
 
Summary
It is important that you carefully look into the pros and cons of each broker before choosing the one which best suits your needs. You may also wish to have several broker accounts to mitigate the risks, and so that you can compare bid/ask prices and trade on the broker with the best prices for the direction you wish to trade. Because of the unregulated nature of Forex, US brokers are not required to keep your money in an untouchable account that only you can have access to if they were to collapse. As customers of Refco (was one of the world's largest brokers) found out, their unprotected accounts made them unsecured creditors, and thus are less likely to get their money back than those who had given secured loans to Refco. What this means is that the customers' money was used to pay other creditors.

The moral of the story is this:
Deposit as little money with your broker as you need for trading, and withdraw your profits when they exceed a certain amount. Keep the rest of your trading capital in your own bank accounts which are probably government-insured.

Our Choice
At Doxa Capital, we have taken our time to analyze many Forex brokers and we have decided to make use of the services of Hot Forex (www.hotforex.com) and Exness (www.exness.com). We also use local Forex brokers in Ghana, such as; Future Pips and Ghana FX.

Forex Profits: Little by Little, Consistently!

 

 For most of us, 'safe investments' are limited to the rate of return that we can earn on our savings accounts or long-term deposits. The return would depend on the interest rate applicable in each country. The interest rate earned on a savings account in many countries is around 7% a year. That is a return of 0.57% a month. Despite this fact, many have preconceptions regarding the type of returns they can make from trading the financial markets.

A novice trader puts on a winning trade and gains between ten to fifty percent of his trading account. He forms a belief that, by trading, he can quickly become a millionaire. Indeed, if we assume a 20% return per month on a $10,000 trading account, we can expect $89,161 by the end of our first twelve months of trading. What if we assume an estimate of 50% return per month? We would have $1,297,463 by the end of the year. Of course, the problem with expectations like these is that they are unrealistic. Even most of those who claim to have made these types of returns have only done so in simulated environments, in trading competitions using game accounts, for example, where real money was not at risk.

It is possible to make these types of returns for a short while but I have not heard of anybody achieving such steep returns consistently year after year. After testing hundreds of trading systems and ideas I have come to believe that systems, which seem to promise exorbitant returns, turn out to be over-optimized for the period they have been tested on. Or even worse, they have flaws in their logic or assumptions.

Lately, I have been looking at the performance reports of trading firms in the USA. What would you say if I told you that the top trading firm over the last ten years only made an average return of 25% a year and the median trading firm made somewhere around 15% a year? Well, this is in fact what I am telling you.
A 20% and a 15% return a year is 'only' 1.877% and 1.171% return a month, respectively. I am sure that many novice traders and investors reading this article will have a mix of reactions towards these figures. Some might laugh and scoff at such 'paltry' returns, secretly believing that they can do a lot better than just 1.877% a month. 

Others may be surprised or even disappointed because their dreams of living rich will not come as quickly as they hoped.
Setting aside your initial reaction to these figures however, let us refocus on what these numbers actually mean in the real world. I would like to show you that these types of returns are very powerful. With time, these seemingly small, but consistent, gains will give you enormous profits in the future.
15% A YEAR RETURN ON A $10,000 ACCOUNT

Let us start with the assumption of having a $10,000 account, making at least 1.171% return a month, or 15% a year, trading the market. Based on these, the projections are:

1. $11,500 (15% growth) after 1 year.
2. $13,223 (32% growth) after 2 years.
3. $20,108 (101% growth) after 5 years.
4. $40,432 (304% growth) after 10 years.
5. $163,475 (1535% growth) after 20 years.
6. $660,960 (6510% growth) after 30 years.

25% A YEAR RETURN ON A $10,000 ACCOUNT
Let us now assume having a $10,000 account, making at least 1.877% a month, or 25% a year, trading the market Based on these, the projections are:

1. $12,500 (25% growth) after 1 year.
2. $15,625 (56% growth) after 2 years.
3. $30,519 (205% growth) after 5 years.
4. $93,140 (831% growth) after 10 years.
5. $867,512 (8575% growth) after 20 years.
6. $8,080,034 (80700% growth) after 30 years.

It is very important to note that not all fund managers make money. Returns of 15% or 25% a year belong only to those money managers who were consistently profitable. Furthermore, these types of returns are out-of-bounds for most investors. To invest in such schemes, most of the fund managers I have been looking into will deal with you only if you are a 'sophisticated' investor with a spare $500,000 minimum to invest. In fact, the highest earner only took on investors with a minimum of $25,000,000 US dollars to invest. (I will not mention any names here, however, you can do your own research by typing "commodity trading advisors" in your favourite search engine.)

I do not know about you but I certainly do not have 25 million dollars lying around, to hand over for someone else to manage. The dilemma, however, is that life is way too short for me to be satisfied with a 7% annual return either. I guess this is why you and I have taken the decision to trade and invest in the financial markets ourselves. At least there, we have full control and responsibility over the returns we get. It has its risks, but we can all avoid being reckless if we keep realistic expectations.

(This article was first published in The Part-Time Investor Magazine, Issue 3.)
by Marquez Comelab
Marquez Comelab is a private trader in Melbourne, Australia. He is the author of The Part-Time Currency Trader, a book on how to develop trading strategies. He is also the founding editor of The Part-Time Investor Magazine: an online magazine for traders and investors.

Forex Trading: Your Money Making Enterprise!        


It is no secret that a lot of money can be made from the Forex market. There are folks who make so much money that they double their Forex margin accounts by the end of the trading month. Some have make enough money such that they do not have financial problems. Quite a number make so much money that they get to retire in their 20's! 

Forex Trading requires specialized knowledge and training because of the technicalities involved. Because good money is involved (roughly $7 trillion!). Some of the smartest brains on this planet are engaged daily in a financial rigmarole to generate profits for either themselves or the establishments employing their services; big names in international banking notably JP Morgan Chase, Royal Bank of Scotland, Deutsche bank among others.

A lot of these smart folks earn millions of US dollars annually. Many earns over $20 million annually! There is truly a lot of money to be made in the Forex market. Interestingly, the Forex market keeps getting bigger. back in the 1970s, its DTV (daily traded volume) was around US$80 billions (yes, I know about inflation digits of the US dollar! ) In the early 2000s, it was hovering around US$1.9 trillion, in 2004/5 roughly US$5.5 trillion. Today, Forex DTV is estimated by some sources to be closer to US$7 trillion!

I heard of an gentleman, an American, who is reported to have made his Forex account grow from US$400 to US$20 million over the space of 26 years! In 1993,George Soros traded against the Bank of England and made a staggering one billion pounds in a single day! He currently owns Fortune Capital Inc. A big hedge fund located in the USA. 

You can start your journey to fortune today. Sign up for our Free Forex Seminar Today, if you are in Ghana. If you are not, please visit our website: www.doxacapitaltd.com for more information. 
Or call: +233 540 61 0084