Frequently Asked Questions

This seems like the right thing to do. We have the knowledge why not share it freely? We believe it will come back to us. We can save people money. Money’s important, not as important as good health, but still we can have a positive impact on peoples’ lives doing this, so we do. It fits in well with the mission of our company. I’m still a capitalist.

And my response, good info in here:

You do sound like you’ve been doing your homework - excellent questions. I like that you want exposure to FX but prefer to have somebody else trade for you - I feel the same way. As for Ponzi schemes - that’s why I prefer managed accounts. Then you can have the brokerage send your money back anytime, it isn’t locked up like a fund would be, and the trader can’t run off with your money, though there is risk of the brokerage running off. There is also transparency - you get statements every day and can log in to your account as well. I like PFG as they are big, next door to me, privately held, they take small initial accounts and I know the owners. They have over 500 million on deposit. You know that the managers are acutally trading as PFG isn’t going to give money away, and you see the trades and PnL each day. FXCM is also a big name FX brokerage with strong capitalization. There is always going to be risk on that side. One way to mitigate it is to keep some of your funds at your bank and use margin on the funds at the FCM. I’m looking for guys who will be continually consistent - but I agree with you - you need to stay on top of the game and keep adding new ones, pushing the ones that are good while they are good, and quick to cut the bad ones, and the ones that go bad. There are groups that make consistent money, but often they are closed to new investors or have very high minimums. I can answer questions for you and I will watch your accounts for you as well to make sure they are being traded properly and keep mistakes to a minimum. I’ve written up a booklet on what to look for, I’m putting the finishing touches on it, I’ll get it to you when I’ve finished it.

You open an account with a Forex broker, also known as an FCM.  Once the account is opened, you fund it.  Then you sign a Power of Attorney giving the trader(s) you choose the authority to trade your account for you.  Then you sit back and watch the trading over time.

You first open a trading account at a forex and/or futures firm.  Once your account is opened and funded, you give power of attorney to one or more money managers to trade your account(s) for you.   Then we watch and monitor the trading in your account(s).

You have full transparency meaning you can log in to your account any time and watch the trading in your account and monitor the risk if you'd like.  You also have full liquidity, menaing there is no lock-up period and you can have your money sent to you within 24 to 48 hours.  Also favorable tax treatment and many other advantages including potential to make money regardless of the stock market.

We prefer to start small with our own money and our client money as many of these programs in our experience don't work out.  The smaller you start, the less pain if you are wrong.  On that note, we also prefer and seek out managers with very low drawdowns relative to their returns.  If a manager has say a 5% max drawdown and a 20% annualized return, that is a 4:1 ratio, and we are interested.  If the manager runs a 20% max drawdown and does 10% per year, we don't think that is worth it.  We want to risk as little money as we can to make as much as possible.

We like managers to use low leverage, the lower the better.  To us this generally signals lower risk.

We are also partial to daytraders as it reduces overnight risk and you generally find out if the trader is profitable more quickly.

This is the million dollar question.  I wish I could say  I'd never been scammed but I can't.  One thing that is essential is to easily and willingly get account statements from the manager.  If they hem and haw that's a bad sign.  Another good one is audits though those are rare for smaller emerging traders.  A third item and maybe the best is referrals from people you know that have done well with them, or referrals they provide.  Decent though sometimes biased to high volume, high commission paying traders is employees at brokerages, they can sometimes vouch for a trader as they can see the statements.  Ultimately the only way to really know is to have your own money with a manager for a period of time and watch the trading to make sure they do as they say, use leverage as they stated, and actually make you money in a similar fashion to their track record.  A lot to this game, it isn't easy.  Please always feel free to contact us and ask us before investing in anybody - we have a list of known cheaters in the industry that we can share with you if you ask.  They like to sue us if we post it and we aren't in the fighting business.

What is the perfect manager?  If I could have everything I asked for in a manager, they would:

1. Have very low drawdowns relative to their annual performance.  3:1, 4:1, 6:1 or better.

2. Strict risk control.  Place exit stops every time they place a trade.  Do not add to losers.  Have daily or weekly risk control meetings with a trading partner or trading group.

3. Be a daytrader.  Hold positions a short time, be flat or near flat each evening and over the weekend.  Thus avoiding price shocks, global altercations, systemic risks.

4. Have an audit done on their track record by a reputable firm.

5. Have at least 18 months, the more the better, of solid returns.

6. Be experienced, 15, 20, 30 years in the markets.

7. Generous, easy to get along with managers and marketing folks that I enjoy dealing and working with and can trust.

8. Scalable system.

9. Low or very low use of leverage, the lower the better.  If you can make 15% using 2% margin or 50% margin - all else being equal I’ll take the 2% margin guy every time - that much less risk.

10. Leveragable - if I can put up 50k and have it traded as a million - terrific.  Again, less capital risk in terms of FCM risk. (i.e. Refco, Tradex)

11. Solid back office based within a large firm.

12. Small minimum for a test account.

 13. Simple, understandable trading methodology and edge that makes sense and seems sustainable.

14. Partial systematic, part discretionary so the traders can adapt to market changes.

15. Have good friends and a good reputation in the indstry.

16. Work with big names, large institutions.

17. Have allocations from big names.

18. Have a top-ranked trader on staff.

19. Over, or well over, 20 million under management

It costs nothing to work with us and take advantage of our expertise.  The managers and the brokerage firms pay us, and the rates are the same whether you go direct or through us.  Sometimes rates can actually be better through us.  Makes no difference, so may as well use our help to show you the managers making us money and the ones who have lost for us in the past.  Or not, up to you.

"Foreign exchange"(also known as "forex" or "FX") is the simultaneous buying of one currency and selling of another. The overall forex market is the largest, and one of the most liquid financial markets in the world with an average range of USD $1.5 to 2.0 trillion per day and includes all of the freely exchanged currencies of the world; much larger than the combined volume of all U.S. equity markets.There actually is no central marketplace for currency exchange, as with the stock and futures markets. The FX market is an over the counter (OTC) or 'interbank' market.

Today, more than 85% of all daily transactions involve trading of the Majors, which include the US Dollar, Japanese Yen, British Pound, Euro, Swiss Franc, Canadian Dollar and Australian Dollar. A true 24-hour market, forex trading begins each day in Sydney, and moves around the globe as the business day begins in each of the world's major financial centers, first to Tokyo, London, and then New York. The foreign currency exchange market offers virtually unparalleled trading opportunities but also is one of riskiest because of the high volatility and access to high leverage of trading equity. Currencies are traded in pairs, for example Euro/US Dollar (EUR/USD) or US Dollar/Japanese Yen (USD/JPY). The first listed currency is known as the base currency, while the second is called the counter or quote currency. The base currency is the "basis" for the buy or the sell. For example, if you BUY EUR/USD you have bought Euros (simultaneously sold US Dollars). You would do so in expectation that the Euro will appreciate (go up) relative to the US Dollar.

Appreciation - A currency is said to "appreciate" when it strengthens in price in response to market demand.

Arbitrage - The purchase or sale of an instrument and simultaneous taking of an equal and opposite position in a related market, in order to take advantage of small price differentials between markets.

Ask (Offer) Price - The price at which the market is prepared to sell a specific Currency in a Foreign Exchange Contract or Cross Currency Contract. At this price, the trader can buy the base currency. In the quotation, it is shown on the right side of the quotation. For example, in the quote USD/CHF 1.4527/32, the ask price is 1.4532; meaning you can buy one US dollar for 1.4532 Swiss francs.

Balance of Trade - The value of a country's exports minus its imports.

Bar Chart - A type of chart which consists of four significant points: the high and the low prices, which form the vertical bar, the opening price, which is marked with a little horizontal line to the left of the bar, and the closing price, which is marked with a little horizontal line of the right of the bar.

Base Currency - The first currency in a Currency Pair. It shows how much the base currency is worth as measured against the second currency. For example, if the USD/CHF rate equals 1.6215 then one USD is worth CHF 1.6215.

Bid Price - The bid is the price at which the market is prepared to buy a specific Currency in a Foreign Exchange Contract or Cross Currency Contract. At this price, the trader can sell the base currency. It is shown on the left side of the quotation. For example, in the quote USD/CHF 1.4527/32, the bid price is 1.4527; meaning you can sell one US dollar for 1.4527 Swiss francs.

Bid/Ask Spread - The difference between the bid and offer price.

Big Figure Quote - Dealer expression referring to the first few digits of an exchange rate. These digits are often omitted in dealer quotes. For example, a USD/JPY rate might be 117.30/117.35, but would be quoted verbally without the first three digits i.e. "30/35".

Broker - An individual or firm that acts as an intermediary, putting together buyers and sellers for a fee or commission. In contrast, a 'dealer' commits capital and takes one side of a position, hoping to earn a spread (profit) by closing out the position in a subsequent trade with another party.

Bretton Woods Agreement of 1944 - An agreement that established fixed foreign exchange rates for major currencies, provided for central bank intervention in the currency markets, and pegged the price of gold at US $35 per ounce. The agreement lasted until 1971, when President Nixon overturned the Bretton Woods agreement and established a floating exchange rate for the major currencies.

Candlestick Chart - A chart that indicates the trading range for the day as well as the opening and closing price. If the open price is higher than the close price, the rectangle between the open and close price is shaded. If the close price is higher than the open price, that area of the chart is not shaded.

Central Bank - A government or quasi-governmental organization that manages a country's monetary policy. For example, the US central bank is the Federal Reserve, and the German central bank is the Bundesbank.

Chartist - An individual who uses charts and graphs and interprets historical data to find trends and predict future movements. Also referred to as Technical Trader.

Closed Position - Exposures in Foreign Currencies that no longer exist. The process to close a position is to sell or buy a certain amount of currency to offset an equal amount of the open position. This will 'square' the position.

Collateral - Something given to secure a loan or as a guarantee of performance.

Commission - A transaction fee charged by a broker.

Counter Currency - The second listed Currency in a Currency Pair.

Country Risk - Risk associated with a cross-border transaction, including but not limited to legal and political conditions.

Cross Currency Pairs or Cross Rate - A foreign exchange transaction in which one foreign currency is traded against a second foreign currency. For example; EUR/GBP.

Currency Symbols
AUD - Australian Dollar
CAD - Canadian Dollar
EUR - Euro
USD- US Dollar
JPY - Japanese Yen
GBP - British Pound
CHF - Swiss Franc
 

Currency Pair - The two currencies that make up a foreign exchange rate. For Example, EUR/USD

Currency Risk - the probability of an adverse change in exchange rates.

Dealer - An individual or firm that acts as a principal or counterpart to a transaction. Principals take one side of a position, hoping to earn a spread (profit) by closing out the position in a subsequent trade with another party. In contrast, a broker is an individual or firm that acts as an intermediary, putting together buyers and sellers for a fee or commission.

Deficit - A negative balance of trade or payments.

Depreciation - A fall in the value of a currency due to market forces.

Devaluation - The deliberate downward adjustment of a currency's price, normally by official announcement.

Economic Indicator - A government issued statistic that indicates current economic growth and stability. Common indicators include employment rates, Gross Domestic Product (GDP), inflation, retail sales, etc.

Euro - the currency of the European Monetary Union (EMU). A replacement for the European Currency Unit (ECU).

European Central Bank (ECB) - the Central Bank for the new European Monetary Union.

Federal Reserve (Fed) - The Central Bank for the United States.

Flat/square - Dealer jargon used to describe a position that has been completely reversed, e.g. you bought $500,000 then sold $500,000, thereby creating a neutral (flat) position.

Foreign Exchange - (Forex, FX) - the simultaneous buying of one currency and selling of another.

Fundamental Analysis - Analysis of economic and political information with the objective of determining future movements in a financial market.

FX - Foreign Exchange.

G7 - The seven leading industrial countries, being the US, Germany, Japan, France, UK, Canada, Italy.

Going Long - The purchase of a stock, commodity, or currency for investment or speculation.

Going Short - The selling of a currency or instrument not owned by the seller.

Gross Domestic Product - Total value of a country's output, income or expenditure produced within the country's physical borders.

Gross National Product - Gross domestic product plus income earned from investment or work abroad.

Hedge- A position or combination of positions that reduces the risk of your primary position.

Inflation - An economic condition whereby prices for consumer goods rise, eroding purchasing power.

Initial Margin - The initial deposit of collateral required to enter into a position as a guarantee on future performance.

Interbank Rates - The Foreign Exchange rates at which large international banks quote other large international banks.

Leading Indicators - Statistics that are considered to predict future economic activity.

Leverage* - Also called margin. The ratio of the amount used in a transaction to the required security deposit.

Limit order - An order with restrictions on the maximum price to be paid or the minimum price to be received.

Liquidity - The ability of a market to accept large transaction with minimal to no impact on price stability.

Long position - A position that appreciates in value if market prices increase. When the base currency in the pair is bought, the position is said to be long.

Lot - A unit to measure the amount of the deal. A standard size Lot is $100,000 (or $100K).

Margin - The required equity that an investor must deposit to collateralize a position.

Margin Call - A request from a broker or dealer for additional funds or other collateral to guarantee performance on a position that has moved against the customer.

Market Risk - Exposure to changes in market prices.

Mark-to-Market - Process of re-evaluating all open positions with the current market prices. These new values then determine margin requirements.

Maximum Drawdown - Maximum drawdown means the most that a system has ever gone down from a previous high (peak to valley), usually measured in terms of percentage of the peak value.

Offer (ask) - The rate at which a dealer is willing to sell a currency. See Ask (offer) price.

Open position - An active trade with corresponding unrealized P&L, which has not been offset by an equal and opposite deal.

Over the Counter (OTC) - Used to describe any transaction that is not conducted over an exchange.

Overnight Position - A trade that remains open until the next business day.

Pips - The smallest unit of price for any foreign currency. It is 0.0001 in most cases, but 0.01 for JPY. Also called Points.

PAMM - Percent Allotment Management Module.

Position - The netted total holdings of a given currency.

Price Transparency - Describes quotes to which every market participant has equal access.

Profit /Loss or "P/L" or Gain/Loss - The actual "realized" gain or loss resulting from trading activities on Closed Positions, plus the theoretical "unrealized" gain or loss on Open Positions that have been Mark-to-Market.

Range - The difference between the highest and lowest price of a currency recorded during a given trading session.

Rate - The price of one currency in terms of another, typically used for dealing purposes.

Resistance - A term used in technical analysis indicating a specific price level at which analysis concludes people will sell.

Risk Management - the employment of financial analysis and trading techniques to reduce and/or control exposure to various types of risk.

Roll-Over - Process whereby the settlement of a deal is rolled forward to another value date. The cost of this process is based on the interest rate differential of the two currencies. This occurs every day at 5:00PM EST.

Round Turn (or Round Trip) - Buying and selling of a specified amount of currency, basically meaning one completed trade.

Short Position - An investment position that benefits from a decline in market price. When the base currency in the pair is sold, the position is said to be short.

Slippage - The difference in price between what the computer signal indicates and the actual price that gets executed on the trading platform. For example: if the computer signals a "buy" at a price of 1.3200 and the trading platform actually executes the "buy" at 1.3202, there would be 2 pips of "slippage" or difference between the signal price and actual execution price.

Spread - The difference between the bid and offer prices.

Stop Loss Order - Order type whereby an open position is automatically liquidated at a specific price. Stops are often used to minimize exposure to losses if the market moves against an investor's position. As an example, if an investor is long USD at 156.27, they might wish to put in a stop loss order for 155.49, which would limit losses should the dollar depreciate, possibly below 155.49.

Support Levels - A technique used in technical analysis that indicates a specific price ceiling and floor at which a given exchange rate will automatically correct itself. Opposite of resistance.

Technical Analysis - An effort to forecast prices by analyzing market data, i.e. historical price trends and averages, volumes, open interest, etc.

Unrealized Gain/Loss - The theoretical gain or loss on Open Positions valued at current market rates. Unrealized Gains/Losses become Profits/Losses when position is closed.

US Prime Rate - The interest rate at which US banks will lend to their prime corporate customers.

Volatility (Vol) - A statistical measure of a market's price movements over time.

Whipsaw - slang for a condition of a highly volatile market where a sharp price movement is quickly followed by a sharp reversal.

 

*Without proper risk management, a high degree of leverage can lead to large losses as well as gains.