Spot Market

Currency spot trading is the most popular foreign currency instrument around the world.
The fast-paced spot market is not for the fainthearted, as it features high volatility and quick profits (and losses). A spot deal consists of a bilateral contract whereby a party delivers a specified amount of a given currency against receipt of a specified amount of another currency from a counterparty, based on an agreed exchange rate, within two business days of the deal date.
The exception is the Canadian dollar, in which the spot delivery is executed next business day.
The name "spot" does not mean that the currency exchange occurs the same business day the deal is executed. Currency transactions that require same-day delivery are called cash transactions. The two-day spot delivery for currencies was developed long before technological breakthroughs in information processing.
This time period was necessary to check out all transactions' details among counterparties. Although technologically feasible, the contemporary markets did not find it necessary to reduce the time to make payments. Human errors still occur and they need to be fixed before delivery. When currency deliveries are made to the wrong party, fines are imposed.
In terms of volume, currencies around the world are traded mostly against the U.S. dollar, because the U.S. dollar is the currency of reference. The other major currencies are the euro, followed by the Japanese yen, the British pound, and the Swiss franc. Other currencies with significant spot market shares are the Canadian dollar and the Australian dollar.
In addition, a significant share of trading takes place in the currencies crosses, a non-dollar instrument whereby foreign currencies are quoted against other foreign currencies, such as euro against Japanese yen.
There are several reasons for the popularity of currency spot trading. Profits (or losses) are realized quickly in the spot market, due to market volatility. In addition, since spot deals mature in only two business days, the time exposure to credit risk is limited. Turnover in the spot market has been increasing dramatically, thanks to the combination of inherent profitability and reduced credit risk. The spot market is characterized by high liquidity and high volatility. Volatility is the degree to which the price of currency tends to fluctuate within a certain period of time. Free-floating currencies, such as the euro or the Japanese yen, tend to be volatile against the U.S. dollar.
In an active global trading day (24 hours), the euro/dollar exchange
rate may change its value 18,000 times. An exchange rate may "fly" 200 pips in a matter of seconds if the market gets wind of a significant event. On the other hand, the exchange rate may remain quite static for extended periods of time, even in excess of an hour, when one market is almost finished trading and waiting for the next market to take over. This is a common occurrence toward the end of the New York trading day. Since California failed in the late 1980s to provide the link between the New York and Tokyo markets, there is a technical trading gap between around 4:30 pm and 6 pm EDT. In the United States spot market, the majority of deals are executed between 8 am and noon, when the New York and European markets overlap (See Figure). The activity drops sharply in the afternoon, over 50 percent in fact, when New York loses the international trading support. Overnight trading is limited, as very few banks have overnight desks. Most of the banks send their overnight orders to branches or other banks that operate in the active time zones.

The major traders in the spot market are the commercial banks and the investment banks, followed by hedge funds and corporate customers. In the interbank market, the majority of the deals are international, reflecting worldwide exchange rate competition and advanced telecommunication systems. However, corporate customers tend to focus their foreign exchange activity domestically, or to trade through foreign banks operating in the same time zone. Although the hedge funds' and corporate customers' business in foreign exchange has been growing, banks remain the predominant trading force.
The bottom line is important in all financial markets, but in currency spot trading the antes always seem to be higher as a result of the demand from all around the world.
The profit and loss can be either realized or unrealized. The realized profit and loss is a certain amount of money netted when a position is closed . The unrealized profit and loss consists of an uncertain amount of money that an outstanding position would roughly generate if it were closed at the current rate. The unrealized profit and loss changes continuously in tandem with the exchange rate.

1. Spot Market
2. Forward Market
3. Future Market

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Forward Market

The forward currency market consists of two instruments: forward outright deals and swaps. A swap deal is unusual among the rest of the foreign exchange instruments in the fact that it consists of two deals, or legs. All the other transactions consist of single deals. In its original form, a swap deal is a combination of
a spot deal and a forward outright deal.
Generally, this market includes only cash transactions. Therefore, currency futures contracts, although a special breed of forward outright transactions, are analyzed separately.
According to figures published by the Bank for International Settlements, the percentage share of the forward market was 57 percent in 1998. Translated into U.S. dollars, out of an estimated daily gross turnover of US$1.49 trillion, the total forward market represents US$900 billion.
In the forward market there is no norm with regard to the settlement dates, which range from 3 days to 3 years. Volume in currency swaps longer than one year tends to be light but, technically, there is no impediment to making these deals. Any date past the spot date and within the above range may be a forward settlement, provided that it is a valid business day for both currencies. The forward markets are decentralized markets, with players around the world entering into a variety of deals either on a one-on-one basis or through brokers. In contrast, the currency futures market is a centralized market, in which all the deals are executed on trading floors provided by different exchanges.
Whereas in the futures market only a handful of foreign currencies may be traded in multiples of standardized amounts, the forward markets are open to any currencies in any amount. The forward price consists of two significant parts: the spot exchange rate and the forward spread. The spot rate is the main building block. The forward price is derived from the spot price by adjusting the spot price with the forward spread, so it follows that both forward outright and swap deals are derivative instruments. The forward spread is also known as the forward points or the forward pips. The forward spread is necessary for adjusting the spot rate for specific ettlement dates different from the spot date. It holds, then, that the maturity date is another determining factor of the forward price. Just as in the case of the spot market, the left side of the quote is the bid side, and the right side is the offer side.

1. Spot Market
2. Forward Market
3. Future Market

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Future Market

Currency futures are specific types of forward outright deals which occupy in general a small part of the Forex market Because they are derived from the spot price, they are derivative instruments. They are specific with regard to the expiration date and the size of the trade amount. Whereas, generally, forward outright deals—those that ature past the spot delivery date-will mature on any valid date in the two countries whose currencies are being traded, standardized amounts of foreign currency futures mature only on the third Wednesday of arch, June, September, and December.
There is a row of characteristics of currency futures, which make them attractive. It is open to all market participants, individuals included. This is different from the spot market, which is virtually closed to individuals - except high net-worth individuals—because of the size of the currency amounts traded. It is a central market, just as efficient as the cash market, and whereas the cash market is a very decentralized market, futures trading takes place under one roof. It eliminates the credit risk because the Chicago Mercantile Exchange Clearinghouse acts as the buyer for every seller, and vice versa. In turn, the Clearinghouse minimizes its own exposure by requiring traders who maintain a non-profitable position to post margins equal in size to their losses.
Moreover, currency futures provide several benefits for traders because futures are special types of forward outright contracts, corporations can use them for hedging purposes. Although the futures and spot markets trade closely together, certain divergences between the two occur, generating arbitraging opportunities. Gaps, volume, and open interest are significant technical analysis tools solely available in the futures market. Yet their significance extrapolates to the spot market as well.
Because of these benefits, currency futures trading volume has steadily attracted a large variety of players.
For traders outside the exchange, the prices are available from on-line monitors. The most popular pages are found on Bridge, Telerate, Reuters, and Bloomberg. Telerate presents the currency futures on composite pages, while Reuters and Bloomberg display currency futures on individual pages shows the convergence between the futures and spot prices.

1. Spot Market
2. Forward Market
3. Future Market

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Currency Options

A currency option is a contract between a buyer and a seller that gives the buyer the right, but not the obligation, to trade a specific amount of currency at a predetermined price and within a predetermined period of time, regardless of the market price of the currency; and gives the seller, or writer, the obligation to deliver the currency under the predetermined terms, if and when the buyer wants to exercise the option.
Currency options are unique trading instruments, equally fit for speculation and hedging. Options allow for a comprehensive customization of each individual strategy, a quality of vital importance for the sophisticated investor. More factors affect the option price relative to the prices of other foreign currency instruments. Unlike spot or forwards, both high and low volatility may generate a profit in the options market. For some, options are a cheaper vehicle for currency trading. For others, options mean added security and exact stop-loss order execution.

Currency options constitute the fastest-growing segment of the foreign exchange market. As of April 1998, options represented 5 percent of the foreign exchange market. The biggest options trading center is the United States, followed by the United Kingdom and Japan. Options prices are based on, or derived from, the cash instruments.

Therefore, an option is a derivative instrument. Options are usually mentioned vis-a-vis insurance and hedging strategies. Often, however, traders have misconceptions regarding both the difficulty and simplicity of using options.

There are also misconceptions regarding the capabilities of options. In the currency markets, options are available on either cash or futures. It follows, then, that they are traded either over-the-counter (OTC) or on the centralized futures markets.

The majority of currency options, around 81 percent, are traded overthe- counter. The over the-counter market is similar to the spot or swap market.

Corporations may call banks and banks will trade with each other either directly or in the brokers' market. This type of dealing allows for maximum flexibility: any amount, any currency, any odd expiration date, any time. The currency amounts may be even or odd. The amounts may be quoted in either U.S. dollars or foreign currencies.

Any currency may be traded as an option, not only the ones available as futures contracts. Therefore, traders may quote on any exotic currency, as required, including any cross currencies.

The expiration date may be quoted anywhere from several hours to several years, although the bulk of dates are concentrated around the even dates—one week, one month, two months, and so on. The cash market never closes, so options may be traded literally around the clock. Trading an option on currency futures will entitle the buyer to the right, but not the obligation, to take physical possession of the currency future. Unlike the currency futures, buying currency options does not require an initiation margin. The option premium, or price, paid by the buyer to the seller, or writer, reflects the buyer's total risk.

However, upon taking physical possession of the currency future by exercising the option, a trader will have to deposit a margin.

Seven major factors have an impact on the option price:
1. Price of the currency.
2. Strike (exercise) price.
3. Volatility of the currency.
4. Expiration date.
5. Interest rate differential.
6. Call or put.
7. American or European option style.

The currency price is the central building block, as all the other factors are compared and analyzed against it. It is the currency price behavior that both generates the need for options and impacts on the profitability of options.

The impact of the currency price on the option premium is measured by delta, the first of the Greek letters used to describe aspects of the theoretical pricing models in this discussion of factors determining the option price.

Currency Options

Currency Option Delta

Currency Option Gamma

Currency Option Vega

Currency Option Theta

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Currency Option Delta

Delta
Delta, or commonly A, is the first derivative of the option-pricing model Delta may be viewed in three respects:
• as the change of the currency option price relative to a change in the currency price. For instance, an option with a delta of 0.5 is expected to move at one half the rate of change of the currency price. Therefore, if the price of a currency goes up 10 percent, then the price of an option on that particular currency is expected to rise by 5 percent.
• as the hedge ratio between the option contracts and the currency futures contracts necessary to establish a neutral hedge. Therefore, an option with a delta of 0.5 will need two option contracts for each of the currency futures contracts.
• as the theoretical or equivalent share position. In this case, delta is the number of currency futures contracts by which a call buyer is long or a put buyer is short. If we use the same example of the delta of 5, then the buyer of the put option is short half a currency futures contract.
Traders may be unable to secure prices in the spot, forward outright, or futures market, temporarily leaving the position delta unhedged. In order to avoid the high cost of hedging and the risk of unusually high volatility, traders may hedge their original options positions with other options.
This method of risk neutralization is called gamma or vega hedging.

Currency Options

Currency Option Delta

Currency Option Gamma

Currency Option Vega

Currency Option Theta

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Currency Option Gamma

Gamma
Gamma (Г) is also known as the curvature of the option. It is the second derivative of the option-pricing model and is the rate of change of an option's delta, or the sensitivity of the delta. For instance, an option with delta = 0.5 and gamma = 0.05 is expected to have a delta = 0.55 if the currency rises by 1 point, or a delta = 0.45 if the currency decreases by 1 point.
Gamma ranges between 0 percent and 100 percent. The higher the gamma, the higher the sensitivity of the delta. It may therefore be useful to think of gamma as the acceleration of the option relative to the movement of the currency.

Currency Options

Currency Option Delta

Currency Option Gamma

Currency Option Vega

Currency Option Theta

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Currency Option Vega

Vega
Vega gauges volatility impact on the option premium. Vega (<;) is the sensitivity of the theoretical value of an option to a change in volatility. For instance, a Vega of 0.2 will generate a 0.2 percent increase in the premium for each percentage increase in the volatility estimate, and a 0.2 percent decrease in the premium for each percentage decrease in the volatility estimate. The option is traded for a predetermined period of time, and when this time expires, there is a delivery date known as the expiration date. A buyer who intends to exercise the option must inform the writer on or before expiration. The buyer's failure to inform the writer about exercising the option frees the writer of any legal obligation. An option cannot be exercised past the expiration date.
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Currency Options

Currency Option Delta

Currency Option Gamma

Currency Option Vega

Currency Option Theta

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Currency Option Theta

Theta
Theta (T), also known as time decay, occurs as the very slow or nonexistent movement of the currency triggers losses in the option's theoretical value.
For instance, a theta of 0.02 will generate a loss of 0.02 in the premium for each day that the currency price is flat. Intrinsic value is not affected by time, but extrinsic value is. Time decay accelerates as the option approaches expiration, since the number of possible outcomes is continuously reduced as the time passes.
Time has its maximum impact on at-the-money options and its minimum effect on in-the-money options. Time's effect on out-of-the-money options occurs somewhere within that range. Bid-offer spreads in the market may make it too expensive to sell the option and trade forward out rights. If the option shifts deeply into the money, the interest rate differential gained by early exercise may exceed the value of the option.
If the option amount is small or the expiration is close and the option value only consists of the intrinsic value, it may be better to use the early exercise.
Due to the complexity of its determining factors, option pricing is difficult. In the absence of option pricing models, option trading is nothing but inefficient gambling.
The one idea to make option pricing is that the option of buying the domestic currency with a foreign currency at a certain price x is equivalent to the option of selling the foreign currency with the domestic currency at the same price x. Therefore, the call option in the domestic currency becomes the put option in the other, and vice versa.

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Currency Options

Currency Option Delta

Currency Option Gamma

Currency Option Vega

Currency Option Theta

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Forex Exchange Risk

Exchange Rate Risk

Exchange rate risk is a consequence of the continuous shift in the worldwide market supply and demand balance on an outstanding foreign exchange position. A position will be a subject to all the price changes as long as it is outstanding. In order to cut losses short and ride profitable positions that losses should be kept within manageable limits. The most popular steps are the position limit and the loss limit. The limits are a function of the policy of the banks along with the skills of the traders and their specific areas of expertise. There are two types of position limits: daylight and overnight.
1. The daylight position limit establishes the maximum amount of a certain currency which a trader is allowed to carry at any single time during. The limit should reflect both the trader's level of trading skills and the amount at which a trader peaks.

2. The overnight position limit which should be smaller than daylight limits refers to any outstanding position kept overnight by traders. Really, the majority of foreign exchange traders do not hold overnight positions.

The loss limit is a measure to avoid unsustainable losses made by
traders; which is enforced by the senior officers in the dealing center. The
loss limits are selected on a daily and monthly basis by top management.

The position and loss limits can now be implemented more conveniently with the help of computerized systems which enable the treasurer and the chief trader to have continuous, instantaneous, and comprehensive access to accurate figures for all the positions and the profit and loss. This information may also be delivered from all the branches abroad into the headquarters terminals.

Forex Exchange Risk

Forex Interest Risk

Forex Credit Risk

Forex Country Risk

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Forex Interest Risk

Interest Rate Risk

Interest rate risk is pertinent to currency swaps, forward out rights, futures, and options. It refers to the profit and loss generated by both the fluctuations in the forward spreads and by forward amount mismatches and maturity gaps among transactions in the foreign exchange book. An amount mismatch is the difference between the spot and the forward amounts. For an active forward desk the complete elimination of maturity gaps is virtually impossible. However, this may not be a serious problem if the amounts involved in these mismatches are small. On a daily basis, traders balance the net payments and receipts for each currency through a special type of swap, called tomorrow/next or rollover.

To minimize interest rate risk, management sets limits on the total size of mismatches. The policies differ among banks, but a common approach is to separate the mismatches, based on their maturity dates, into up to six months and past six months. All the transactions are entered in computerized systems in order to calculate the positions for all the delivery dates and the profit and loss. Continuous analysis of the interest rate environment is necessary to forecast any changes that may impact on the outstanding gaps.

Forex Exchange Risk

Forex Interest Risk

Forex Credit Risk

Forex Country Risk

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Forex Credit Risk

Credit Risk

Credit risk is connected with the possibility that an outstanding currency position may not be repaid as agreed, due to a voluntary or involuntary action by a counter party. In these cases, trading occurs on regulated exchanges, where all trades are settled by the learing house. On such exchanges, traders of all sizes can deal without any credit concern.

The following forms of credit risk are known:

1. Replacement risk which occurs when counter parties of the failed bank find their books unbalanced to the extent of their exposure to the insolvent party. To rebalance their books, these banks enter new transactions.

2. Settlement risk which occurs because of different time zones on different continents. Such a way, currencies may be credited at different times during the day. Australian and New Zealand dollars are credited first, then Japanese yen, followed by the European currencies and ending with the U.S. dollar. Therefore, payment may be made to a party that will declare insolvency (or be declared insolvent) immediately after, but prior to executing its own payments.

The credit risk for instruments traded off regulated exchanges is to be minimized through the customers' creditworthiness. Commercial and investment banks, trading companies, and banks' customers must have credit lines with each other to be able to trade. Even after the credit lines are extended, the counter parties financial soundness should be continuously monitored. Along with the market value of their currency portfolios, end users, in assessing the credit risk, must consider also the potential portfolios exposure. The latter may be determined through probability analysis over the time to maturity of the outstanding position. For the same purposes netting is used. Netting is a process that enables institutions to settle only their net positions with one another not trade by trade but at the end of the day, in a single transaction. If signs of payment difficulty of a bank are shown, a group of large banks may provide short-term backing from a common reserve pool.

Forex Exchange Risk

Forex Interest Risk

Forex Credit Risk

Forex Country Risk

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Forex Country Risk

Country Risk

The failure to receive an expected payment due to government interference amounts to the insolvency of an individual bank or institution, a situation described under credit risk. Country risk refers to the government's interference in the foreign exchange markets and falls under the joint responsibility of the treasurer and the credit department.
Outside the major economies, controls on foreign exchange activities are still present and actively implemented.
For the traders it is important to know or be able to anticipate any restrictive changes concerning the free flow of currencies. If this is possible, though trading in the affected currency will dry up considerably, it is still a manageable situation.

Forex Exchange Risk

Forex Interest Risk

Forex Credit Risk

Forex Country Risk

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THE SIX FORCES OF FOREX

Trading forex is like watching a school of fish move. One minute is total harmony, the next, complete chaos. As the observer of this school of fish, do you believe you can accurately predict the direction the school of fish will move each time? Would you bet on it?
What causes the fish to move the way they do? Why do they work together in one moment, moving with force and precision, and move in what seems to be an infinite number of directions the next? There’s no way to know unless you can sense what the fish sense each time they move. The fish have an instinct about the nature of their environment. They understand the context of all things around them – natively – and can react accordingly. Surely if you shared this understanding you’d be a much more accurate predictor of fish movement!
Trading forex is not much different - we need to develop that keen sense of what is happening around us. Will we ever be able to predict every move in the forex markets? Absolutely not. But we can use our understanding of the context of the market – the six forces of forex – to make better, more profitable trading choices. Once we understand these forces, we can create and operate within a comprehensive trading plan:

􀂃 Who trades forex? Understand who participates in the markets, why they are successful, and how you can emulate them.

􀂃 Why trade forex? There are superior returns in forex, but not for all investors. Are you one of them?

􀂃 Where should you trade? Choose to work with service providers who can efficiently enable your style of trading.

􀂃 What should you trade? Select the currency pair, entry, exit and money management methods that will maximize your returns.

􀂃 When should you trade? Trade when the environment is most likely to produce the best conditions for executing your system.

􀂃 How should you trade? Trade using methods that maximize your ability to emulate the proven winners.

Knowledge of these forces and how they work is a major determinant of your success as a trader. Figure shows these 6 forces, their relative rarity, and their effect on profitability.

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Risk Management

How to manage your risk

Once you have the facts it is decision time. You can choose to do nothing or seek to reduce the exposures or to hedge them in whole or in part. The unforgivable sins are to fail to consider the risks or fail to act on any decisions.

The risk culture of your business is critical and must be established at the most senior level. Above all it calls for honesty. Too often individuals are criticized for decisions that, at the time, were in tune with the organization’s perceived appetite for risk. But it is never easy to set down effective guidelines and the range of exposures for even a simple transaction can be extensive.

For example, an exporter needing to borrow to finance a sale in foreign currency may have to consider counterparty credit risk, funding risk and interest rate risk. The permutations are endless and the costs of hedging transactions to reduce or eliminate every possible exposure could potentially swallow any profit from a deal.

While losses are likely to be quantitative, the potentially infinite number of risk combinations means that the skills needed to make good decisions are usually qualitative. Even a computer programmed to consider every conceivable permutation of risks needs to be told what level of exposure is acceptable. Any program is only as good as the parameters and data fed into it by people who have themselves been conditioned by experience.

But what of the improbable, the wholly unexpected or the never-seen-before?

Effective risk management requires thinking the unthinkable. This does not in any way lessen the great value of the many sophisticated risk-management systems available. The problems come if people start to think of them, and the models they are based on, as infallible.

It is also common for the development of control systems to come after any new risk-related products. Be careful not to bet the business until the exposure is known. To be in business you must make decisions involving risk. However sophisticated the tools at your disposal you can never hope to provide for every contingency. But unpleasant surprises should be kept to a minimum.

Ask yourself…

1- Can the risks to your business be identified, what forms do they take and are they clearly understood - particularly if you have a portfolio of activities?

2 - Do you grade the risks faced by your business in a structured way?

3 - Do you know the maximum potential liability of each exposure?

4 - Are decisions made on the basis of reliable and timely information?

5 - Are the risks large in relation to the turnover of your business and what impact could they have on your profits and balance sheet?

6 - Over what time periods do the risks exist?

7 - Are the exposures one-off or are they recurring?

8 - Do you know enough about the ways in which you exposures can be reduced or hedged and what it would cost including the potential loss of any upside profit?

9 - Have trading and risk-management functions or decisions been adequately separated?

Where to place stops

We stop out of a trade when we no longer want to hold onto that particular position. The question that arises is: WHY do we want to get out of that trade?
There can be 2 reasons for stopping out of a trade. EITHER the market tells us that our intrinsic View or Directional Assessments itself was wrong. OR we stop out of a trade (even if we still believe in our basic Bullish or Bearish reading) because we think we can establish another position at a better level than the previous one.
The effort should be to choose a meaningful SL which is neither too close to the entry to get activated soon after entry (only to have the market go back in the original direction thereafter), nor so far away from the entry that we have no time or space left for follow up action.
The difficult part about the paragraph above is that it requires us to have a

Trading Plan or Strategy and to choose our Entry much more carefully than we tend to do, in accordance with that plan.
Follow through action required we come back to the reasons for wanting to stop out. In the first case, when our directional reading has been proved wrong, we should look to enter into a trade in the opposite direction - a case of Stop-and-Reverse (SAR). It needs to be pointed out here that it is NOT necessary to SAR at the same instance and level all the time. If you are an intra-week (or longer) trader, you can enter into a reverse trade after stopping out of the original trade, allowing yourself time to reformulate your strategy.

Risk Management

Risk and Reward

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Risk and Reward

Traders have no business trading if risk/reward analysis is not at the top of their concerns. If a trader has no idea of the potential profit return on any given trade relative to the initial risk of taking the trade at all, his long-term profitability is in question.

Of course, for every trader, the best case scenario would be to minimize the first and maximize the second. But how do you get a handle on the potential reward in any investment and the risk you might be taking on?

Technical analysis – what’s popularly called charting – can help traders evaluate both risk and reward. The technical indicators used to read the charts will give you the simplest kind of picture you can get of a currency’s performance.

Simply by placing your support and resistance and by looking at the past performance of a currency you can get a record of its closing price over time. Once all of the elements are in place for an analysis, you can calculate your pips difference and verify, depending on the trend of the market, if you will make more profit or loss and if it is after all worth the position.

For example, if the market is in a bullish situation, you need to have a higher pips difference between your buy-stop order and your resistance price than between your support price and your buy-stop order so that your reward will be maximize and your risk will be minimize.

In each case, upside (bullish) or downside (bearish), the tools of technical analysis will tell you important things about risk and reward. Don’t trade without them.

Risk Management

Risk and Reward

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Turtles Traded

What the Turtles Traded

The Turtles traded liquid futures that traded on U.S. exchanges in
Chicago and New York.

The Turtles were futures traders, at the time more popularly called commodities traders. We traded futures contracts on the most popular U.S. commodities exchanges.

Since we were trading millions of dollars, we could not trade markets that only traded a few hundred contracts per day because that would mean that the orders we generated would move the market so much that it would be too difficult to enter and exit positions without taking large losses. The Turtles traded only the most liquid markets. In general, the Turtles traded all liquid U.S. markets except the grains and the meats.

Since Richard Dennis was already trading the full position limits for his own account, he could not permit us to trade grains for him without exceeding the exchange’s position limits.

We did not trade the meats because of a corruption problem with the floor traders in the meat pits. Some years after the Turtles disbanded, the FBI conducted a major sting operation in the Chicago meat pits and indicted many traders for price manipulation and other forms of corruption.
The following is a list of the futures markets traded by the Turtles:

Chicago Board of Trade
􀂃 30 Year U.S. Treasury Bond
􀂃 10 Year U.S. Treasury Note

New York Coffee Cocoa and Sugar Exchange
􀂃 Coffee
􀂃 Cocoa
􀂃 Sugar
􀂃 Cotton

Chicago Mercantile Exchange
􀂃 Swiss Franc
􀂃 Deutschmark
􀂃 British Pound
􀂃 French Franc
􀂃 Japanese Yen
􀂃 Canadian Dollar
􀂃 S&P 500 Stock Index
􀂃 Eurodollar
􀂃 90 Day U.S. Treasury Bill

Comex
􀂃 Gold
􀂃 Silver
􀂃 Copper

New York Mercantile Exchange
􀂃 Crude Oil
􀂃 Heating Oil
􀂃 Unleaded Gas

The Turtles were given the discretion of not trading any of the commodities on the list. However, if a trader chose not to trade a particular market, then he was not to trade that market at all. We were not supposed to trade markets inconsistently.

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Fast Markets

At times, the market moves very quickly through the order prices, and if you place a limit order it simply won’t get filled.
During fast market conditions, a market can move thousands of dollars per contract in just a few minutes.
During these times, the Turtles were advised not to panic, and to wait for the market to trade and stabilize before placing their orders.
Most beginning traders find this hard to do. They panic and place market orders.
Invariably they do this at the worst possible time, and frequently end up trading on the high or low of the day, at the worst possible price.

In a fast market, liquidity temporarily dries up. In the case of a rising fast market, sellers stop selling and hold out for a higher price, and they will not re-commence selling until after the price stops moving up. In this scenario, the asks rise considerably, and the spread between bid and ask widens.

Buyers are now forced to pay much higher prices as sellers continue raising their asks, and the price eventually moves so far and so fast that new sellers come into the market, causing the price to stabilize, and often to quickly reverse and collapse partway back.

Market orders placed into a fast market usually end up getting filled at the highest price of the run-up, right at the point where the market begins to stabilize as new sellers come in.

As Turtles, we waited until some indication of at least a temporary price reversal before placing our orders, and this often resulted in much better fills than would have been achieved with a market order. If the market stabilized at a point which was past our stop price, then we would get out of the market, but we would do so without
panicking.

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Trading Psychology

Trading psychology is the most important aspect of trading, and understanding yourself and your own personality as it relates to your trading is critical. This journey is much more about making a sincere and open minded attempt to understand your own personal psychology than it is about finding the magic psychology book with all the answers.

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Money Management

Money Management is the most important aspect of a mechanical trading system.
Controlling risk in a manner that will allow you to continue trading through the inevitable bad periods, and survive to realize the profit potential of good systems, is absolutely fundamental.

Yet, the interplay between entry signals, exits and money management is often non-intuitive. Study and Research into the state-of-the-art in money management will pay enormous dividends.

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Trading Research

There is no substitute for statistically valid historical research when developing mechanical trading systems.

In practice, this means learning how to program a computer to run simulations of trading system performance.
There is a lot of good information on curve-fitting, over-optimization, trading statistics and testing methodologies on the web and in books, but the information is a bit hard to find amongst the hype and bull. Be skeptical, but keep an open mind, and your research will pay off.

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Why Traders Trade

At first glance, the answer to this question is obvious. The simple fact of the matter is that traders trade, or participate in markets, in order to make profits. But there are many aspects to this simple answer.

1. Futures Trading Requires Relatively Small Start-Up Capital
   Typically, one can get started in futures trading for as little as $10,000. In some cases
   less capital is required. Many professionally managed trading pools require from $2,500
   to $5,000 for participation. While most traders are not successful when starting with
   limited capital, this is one way to get your foot in the door.
   Futures options trading requires even less capital. Therefore, it is possible for
   the individual to begin with an even smaller amount of capital. In. most other areas,
   considerably greater capital is required.
   The small amount of capital can work for or against you -- most often against you.
2. Leverage is Immense
   The typical futures contract can be bought or sold for one to three percent of its total
   value. For example, a 100-troy-ounce gold contract at $400 per ounce ($40,000 cash
   value) can be bought for about $1,500-$2,000.
   The balance of the money will, of course, be due if and when the contract is completed
   (i.e., when you take delivery).
   In the meantime, about $2,000 is controlling $40,000. In Treasury Bill futures, the
   contract size is $1 million and the margin is about $2,500. In other words, you have
   immense potential using small amounts of money.
   This can work for or against you. It is the goal of the futures trader to make leverage
   work in his or her favor.
3. Futures Markets Make Big Moves
   Prices fluctuate dramatically almost every day. There is considerable opportunity to
   win or lose daily in futures trading. Many markets will permit potential returns of
   100% or more per day on the required margin money (i.e., money required to buy or
   sell a contract).
   This, too, can work for or against you. Where there is great opportunity, there is often
   great risk as well.
4. Futures Markets are Very Liquid
   By this I mean that it is possible to get into or out of a market very quickly. This is not
   so with many stock and real estate investments. Some speculative stocks rarely trade,
   and real estate is often hard to dispose of quickly.
   With futures transactions, as with active stock transactions, one can enter and exit within
   minutes, or even seconds. This makes the market ‘ideal’ for the speculator with limited
   capital.
   It is possible for the individual to begin with an even smaller amount of capital. In most
   other areas considerably greater capital is required. The small amount of capital can
   work for or against you -- most often against you.
5. There are not Many Secrets to Successful Trading
   In some areas of investment, you need to know either the right people or the right inside
   information. While correct inside information can be very helpful in trading futures,
   success does not depend on such information. There are few secrets to successful
   trading.
   Good trading is a skill that can be learned and, in fact, be taught very specifically, objectively
   and successfully to those willing and able to learn. Virtually any individual with
   speculative capital, self-discipline and the motivation to succeed has an opportunity to
   do so in the futures markets -- but it’s not easy.
6. There are Many Futures Vehicles
   In addition to the traditional buy and sell short positions, there are many vehicles in
   futures trading. These include options, spreads, option spreads, futures versus options
   positions and combinations of the above.

Summary
The bottom line of all futures trading is to either make money or to keep from losing it. The futures markets provide an excellent vehicle for doing this.

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Don't Borrow Capital

Don’t Borrow Your Starting Capital

Let me caution you against a practice I have witnessed on a number of occasions during my years in the futures market. It has become more and more common for individuals to borrow money in order to speculate in futures. Specifically, second mortgages or home equity loans are often used for this purpose.
I recommend you do not consider this foolish behavior. There is no sound judgment in such behavior and the results of such actions can be disastrous.
The individual not only places him or herself at financial risk, but jeopardizes his or her trading by using funds that should not and cannot be placed at risk.
Certainly it takes no great insight to see that the trading decisions of the speculator will be based on fear and this will seriously affect his or her judgment.
Another pitfall to avoid is the following mental trap: “I’ll put more money into my account than I
intend to lose, but the rest will draw interest and, of course, I will watch the money closely.” As
I explained, this is a rationalization based on unrealistic thinking.
Even with the best intentions, when “extra” money is in the account, chances are it will be used for trading. Put into your account only what you can afford to lose in its entirety.
Don’t be fooled by the lure of interest rate earnings on the unused funds, especially low-risk tradingprograms, fail-safe programs, “no risk” option strategies, minimal risk spreading programs and a host of other seemingly simple “minimal risk” programs.
I’ve seen them come and I’ve seen them go. There are some big winners, but there are many, many more big losers. Do not accept the claims of any trading system, your own or that of someone else, as the basis for deciding how much of your money you will place at risk.

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Trade with Partner

Trade Alone or With a Partner?

There are pros and cons to each alternative. If you trade alone, there will be no one to help you with your work (unless you hire employees) and there will be no one who can trade for you in your absence. Furthermore, there will be no one with whom you can discuss various markets, indicators, techniques and trades.
To those individuals who need this type of assistance, a partner or well-trained assistant might be desirable. However, before you make such decisions consider the potential negatives of having a partner.

1. Too Many Cooks Spoil the Broth
   Futures trading is a ‘loner’s game’. Sometimes a partner or partners will get in your way. You may be influenced to avoid some trades you should have made and to make some trades you should have avoided.
2. Who’s Responsible?
   It is always good to know that you alone have the responsibility for profits and losses. If you have a partner or partners, it may be difficult to know who is responsible for each decision.
   Lacking such knowledge will slow the teaming process and may, in fact, stall it entirely.
3. Sharing the Profits
   Do you really want to share your profits with partners? Granted, they may also share in your losses, but since you may end up with more losses if you have partners, the benefits may prove nil.
4. Do you Want to Share Your Research?
   Many of us consider our research proprietary. We work long, hard hours to develop trading systems and methods and we may not want to share these with a partner regardless of what he or she may bring into the relationship.
5. Slower Decision Time
   As you know, decisions in the futures markets must be made quickly. Many times the
   presence of a trading partner may slow down the decision-making process and, hence,
   severely limit the speed with which you can execute orders. This, as you can well imagine,
   can frequently have negative results.

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Factors

Factors You Should Consider in Making this Decision

1. Trading System
   While some trading systems are more ideally suited to short-term trading, others are
   better suited to long-term trading.
2. Time Availability
   Only you know how much time you have available. To trade for the short term or
   intraday you will need to make a major time commitment.
   If you have another job and you can’t make this commitment, don’t even try! Be
   realistic and determine what you can do with the time you have available. This may
   automatically make your decision for you.
3. Commissions
   Are you paying sufficiently low commission’s to permit short-term trading with a
   positive bottom line?
4. Personality
   Can you take the pressure of short-term trading? Are you more in tune with long-term
   trading, its less demanding pace and the patience required?
5. Health
   Believe it or not, health is a consideration. If your health is at stake, then by all means
   don’t push your luck. Trade with that period of time in mind, which will best be suited
   to any health concerns. Answering this question honestly will help make many decisions
   for you without considering any of the other aspects.
6. Data
   Many individuals are under the false impression that they can day trade the market
   without a steady source of tick-by-tick data. Don’t fool yourself.
   To day trade you need up-to-date, tick-by-tick, accurate and reliable data. If you can’t
   afford it, if you don’t know how to use it, then don’t kid yourself. Day trading is not for
   you.
   In addition to the above, there are other factors which are specific to your individual situation that must be considered before a final decision is made about the type of trading you wish to do.
   This is an important decision. Do not take it lightly.

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Affiliate Program

What is an Affiliate Program?

When a company provides you with the ability to sell their products and services and they pay you a specified commission on each sale, they have what is known as an affiliate program.

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Developing

Developing Your Marketing Strategy

Developing a successful marketing strategy is an essential part of your online success.
In order to succeed, you must develop and implement a strategic plan that includes all of the following:

• A great product and or service
• A web site specifically designed to sell
• A killer marketing strategy


Each step plays an important role in your overall strategy and must be developed to its fullest potential. If even one step fails, your chances of success will be minimal.

What should I sell?

What is an Affiliate Program?

One Tier Verses Two Tier

Residual Affiliate Programs

Developing Multi Streams of Income

Developing Your Web Site

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What should I sell?

Your first step will be to either develop a great product of your own, or simply locate quality products and/or services you can market via affiliate programs.
If you’re just starting out, it is highly recommended that you start out marketing quality products and/or services that are already developed. This will provide you with the ability to earn while you learn, as most quality affiliate programs provide you with marketing and advertising information to assist you.

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One Tier Verses Two Tier

One tier affiliate programs pay commissions on one level. For each sale an affiliate makes, they will receive a commission. For example, if a company offers their affiliates a 30% commission and their product sells for $39.99, for every sale you make, you would receive a onetime $12 commission.
30
Two tier affiliate programs pay commissions on two levels. Affiliates will receive a commission for each sale they make and for each sale their recruits make, which means you would have to get others to join the affiliate program.
Two tier affiliate programs usually divide the commissions over the two levels. For example, if a company wants to give their affiliates a total of 30% commission for each sale, they would offer a 20% commission on their first level sales and an extra 10% commission on second level sales. If their affiliate makes a $39.99 sale, they would receive an $8 commission. If one of their recruits makes a sale, they would receive an additional $4 commission.
Although this may look good on paper, my experience has been that the one tier affiliate program is much more profitable than the two, as most affiliates never make any money. Why? Because they fail to try…

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Residual Affiliate Programs

Although joining affiliate programs that pay a onetime commission on sales can produce some extra income, the key to developing a nice monthly income is to join residual affiliate programs.
A residual affiliate program will pay you a monthly commission on sales for as long as the customer remains with the company.
Joining a combination of both types of affiliate programs will be your best option.

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Developing Multi Streams

Developing Multi Streams of Income

The key to developing a successful Internet business is to create multiple streams of income. You must not solely rely upon one stream of income, as you will literally be placing all of your eggs in one basket.
By developing income from multiple sources, when one source is having a slow period, the other sources will help to supplement.
You must first decide upon your target market and offer products and/or services that will be of interest to your market. In addition, the products and/or service you’re offering should be closely related. For example, if you’re selling computers, you could also offer printers, Internet service, software, etc.
Once you’ve decided upon your target market and what type of products and/or services you’d like to sell, your next step will be to locate quality affiliate programs.

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Developing Your Web Site

Once you've developed a great product and/or selected your affiliate programs, your next step will be to develop a great web site. Your web site must be specifically designed to sell the products and/or services you’re selling.
Everything within your web site should have one specific purpose -- getting your visitor to take action. Words are the most powerful marketing tool you have. The right words will turn your visitors into customers. The wrong words will cause them to click away and never return.
Your words are the entire foundation of your business. Your product, your web site and your marketing strategies all depend upon your words. Fancy graphics don't make sales -- words do.
Every word, sentence and headline should have one specific purpose -- to lead your potential customer to your order page.
Write your web site copy as if you are talking to just one person. Identify a problem and validate that one visitor's need for a solution. Continue to write and explain why your product is the solution to their problem. Tell them exactly what your product will do for them -- why it will solve their problems and how. Pack your copy with benefits and more benefits. Write to persuade -- that's the bottom line.

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Developing a successful

Developing a successful Internet business

Developing a successful Internet business is the ultimate goal of the Internet entrepreneur. However, statistics show that most Internet businesses never make any real money.
Making money on the Internet isn't easy -- it takes a great deal of time and effort and requires a total commitment.
You must be completely passionate about your business and have a sincere desire to succeed. Anything less will be a complete waste of your time and will most likely result in failure.
You must also realize that success isn't going to happen overnight. There will be many obstacles along the way and a great deal to be learned. However, anything worth having is worth working towards and won't come easy. There will be many long days and sleepless nights. However, if everything falls into place, and you plan each step very carefully, the end will justify the means. The largest obstacle you will ever encounter is fear -- fear of the unknown -- fear of change -- fear of failing. Fear is the root of failure and prevents dreamers from living their true passion. They fail to try. Above all else, you must take the first step to overcome your fears. With each step you take, you will become a little closer to achieving your dreams. As long as you keep trying, you'll never fail. There are many common characteristics shared by successful Internet entrepreneurs. Below are some of the most important:

Developing a successful

Set Your Goals

Self-Disciplined

Self-Motivated

Positive Attitude

Organizational Skills

Attention to Detail

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Self-Disciplined

Get up early each day just as if you were working outside your home. You have to take your business very seriously and be completely self-disciplined.

Developing a successful

Set Your Goals

Self-Disciplined

Self-Motivated

Positive Attitude

Organizational Skills

Attention to Detail

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Set Your Goals

Set your goals and write them down on a piece of paper. Set short-term reachable goals and long-term higher goals. However, don't set them too high, as this will cause you to become discouraged if you don't achieve them. Work consistently toward accomplishing your goals each day, each week and each month until you reach your short-term goals. When you have attained your short-term goals, set them a little higher each time -- ultimately you will achieve your long-term goals.

Developing a successful

Set Your Goals

Self-Disciplined

Self-Motivated

Positive Attitude

Organizational Skills

Attention to Detail

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Self-Motivated

Set up a daily schedule and stick to it. Your own personal drive will have a great impact on your success. You must have the ability to work independently and stay on task.

Developing a successful

Set Your Goals

Self-Disciplined

Self-Motivated

Positive Attitude

Organizational Skills

Attention to Detail

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Organizational Skills

Create a list of all the things you want to accomplish during the day. This will give you an organized approach to each day.

Developing a successful

Set Your Goals

Self-Disciplined

Self-Motivated

Positive Attitude

Organizational Skills

Attention to Detail

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Positive Attitude

Your attitude is one of the most important factors that will determine your success. Your attitude will either guarantee your success or guarantee your failure. If you have a positive attitude and believe in yourself above all else, you will succeed.

Developing a successful

Set Your Goals

Self-Disciplined

Self-Motivated

Positive Attitude

Organizational Skills

Attention to Detail

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Attention to Detail

Whatever you're doing, do it to the best of your ability. Pay close attention to detail. Nothing is ever going to be perfect, as you're only human. However, if something is worth doing, it's worth doing right. Developing your own Internet business is one of the most difficult, yet rewarding experiences of a lifetime. It is a continuous learning experience and will be filled with many valuable lessons you will carry with you for the rest of your life -- some good, some bad, but lessons still the same. Although there aren't any shortcuts to achieving your dreams, there is something you can do to speed up the process -- Don't try to reinvent the wheel. Follow in the footsteps of successful Internet entrepreneurs who are already successful. Not only will you save yourself a lot of time and money, but you'll also have a road map to success.

Developing a successful

Set Your Goals

Self-Disciplined

Self-Motivated

Positive Attitude

Organizational Skills

Attention to Detail

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Success Demands

Success Demands That You Set the Right Goals

“If a person gets his attitude toward money straight, it will help
straighten out almost every other area in his life.” —Billy Graham

From the moment you begin your working life until retirement at age sixty-five, you will earn a considerable fortune—for most Americans, far more than $2 million!

The economy of North America provides unparalleled opportunities for tens of millions of us to earn an income that enables us to acquire investments and a wealthy lifestyle that was unimaginable by those who lived in all past generations.
The question is this: What will you do with this astonishing opportunity to achieve financial success?
According to the U.S. Census Bureau, “the real median household income remained unchanged between 2002 and 2003 at $43,318.”
This means that the average American family will earn in excess of $2 million dollars that will pass through their hands during their working years. However, the vast majority of citizens will neither plan nor arrange their financial affairs to achieve the financial success that is clearly within their grasp.

Between now and age sixty-five you will earn the following amount:
These figures reveal the enormous economic resources you have been given to handle during your life. But the question is: How much of this fortune will you retain to invest and use to provide income during your
retirement? Ultimately, it is not what you earn, but what you save and invest that will produce financial successor failure.

If you can discipline yourself to save even 10 percent of your monthly earnings, you can wisely and conservatively invest these funds to achieve true financial independence for yourself and your family.

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Financial Independence

YOUR GOAL FINANCIAL INDEPENDENCE

Financial independence can be defined as accumulating an amount of invested capital that will produce a stream of guaranteed income to meet your financial needs without your needing to work to earn a salary.
Financial independence is a practical goal that can be achieved if you apply some fundamental and biblical principles of finance and work consistently toward your goal. In a later chapter we will examine several strategies to build your investments as well as preserve and protect yourself and your family against the special financial risks in this new millennium.
The reason the majority of people reach retirement without achieving financial independence is that they have failed to plan properly and to consistently invest the tremendous resources that God has placed in their hands during their working lives. They do not plan to fail; they simply fail to plan for financial success.
Many people have had the experience of trying and failing to develop a workable budget and savings plan.
They cash their paycheck, then pay their bills and living expenses, hoping to tithe to God and save some money out of the surplus that may be left at the end of the month. The problem is, you will never have any cash left at the end of the month to tithe or save. Many believe the solution to their dilemma is to increase their income.
However, unless they change their strategy and habits, they will never escape the financial bondage of living paycheck to paycheck.
For most people, the only practical solution is to change their entire saving strategy. The principle is simple but fundamental: When you cash your paycheck, pay God his tithe first, then pay yourself by depositing 10 percent of your check into your savings account.[GRANT, DOES THIS INCLUDE PUTTING MONEY IN A 401(k) PLAN?] Then pay your outstanding bills and living expenses out of the remaining 80 percent of your funds.
If you are now living hopelessly from paycheck to paycheck, this simple but profound change in your saving and spending strategy will mark the first step on your long but effective road toward financial success.
You may feel that you cannot afford to save 10 percent of your income because you are too deeply in debt. The truth is that you cannot afford to delay beginning your savings plan no matter how deeply you are mired in debt.
The best way to end your financial and spiritual bondage to debt is to take control of your finances by beginning your new savings strategy today. If you cannot commit to save 10 percent of your income today, then begin at 5 percent and gradually increase the percentage.
The key is to begin today.
Will there ever be a better time to begin to take control of your financial destiny?
Promise yourself that you will begin today to follow a plan that will lead you and your family to financial freedom.
Then you will begin to see light at the end of the tunnel as your savings account begins to grow past one thousand dollars to five thousand dollars, and then you can begin to invest.
This small but profound change can start you on the long road to financial freedom.
As you faithfully tithe to God’s work, he will prosper your efforts.
As you see your savings account grow each month, you will unlock your motivation to
financially succeed.
Instead of working just to pay your bills and service your debt, you will begin working for your financial freedom.

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