Here is what we talked about using our full members this week:
- The factor of liquidity is perhaps this least understood yet most generally important aspects of trading.
- Volatility exaggerates the two risk and potential rewards, and is one of the defining characteristics of the Forex market.
- A clear understanding of property and volatility in tandem, allows us understand much of what is happening sold in the market and why.
- We look at a real market place example of liquidity and volatility working in tandem during a important news announcement which shows a pitfalls of trading during these unpredictable conditions.
FULL Video clip TRANSCRIPTION:
Facilitator: Bryan Stickney
Webinar Length: 19:18
[slide] [Complete Foreign currency Trader – OPENING SLIDES]
[slide] [How Big may be the FOREX Marketplace?]
Hey, everyone! Thanks, very much, for being here. Now is our weekly summary video for Complete Foreign money Trader and this is the week ending August 6th. It’s already been a couple of weeks since we’ve executed a recap video and i also apologize for that–at a number of level. We were out of the country, relishing some beach time and solar down in Puerto Rico with the family. That’s one of the benefits of being able to work web trade–it’s that you’re capable to pick up and go when you want to and you don’t possess employees to worry about; you’re continue to able to operate your business far from others (as long as you have a good Internet connection plus a laptop). We can continue to deal, which is a very, very key thing for us, as traders.
We at the same time did our regular lessons over the last couple of weeks for our 100 % members and just to bring an individual up to speed on what we’ve also been doing, I thought I’d capture this quick video to strike a couple of different points to suit your needs. We’ve gone through quite a bit of your foundation work with our fresh, full members and what many of us covered was–[incomplete statement] We talked about the marketplace, what it is, how it works. We started out discussing liquidity, volatility and also, then, we talked about various market mechanics that come in concert for the different types of participants already in the market and how that impacts [them] in your abilit[ies] to trade. Then, within the very end of the video I need to show you a quick piece about news and one of the reasons we talk about not trading news. It also gives a very good visual of how these current market mechanics all come together speedily.
Today’s video will probably be longer than the usual five to seven minutes since we have a lot to cover out of not having recorded a go over for you in the last couple of weeks. So… let’s get to it!
To kick elements off, we started with this FOREX marketplace, what it essentially is–obviously, I can’t proceed through every piece of what everyone–every piece of the one of the trainings that we did for our full members, even so am going to hit the high pieces to tie up all the parts that I think are informative towards the bulk of the people who are watching this video.
One of the things I really prefer to bring up to you is the Fx marketplace. We often hear the amount of five trillion dollar a day. The five-trillion-dollar-a-day number? We hear that kicked around quite a bit. ‘Challenge is, we don’l actually trade in that entire, five-trillion-dollar-a-day market. FOREX is huge. It really is.
The thing is, we trade in the spot market, which is a tiny proportion of that full, foreign exchange market. The area you choose market is where we exchange cash for cash. Right? We’concerning taking U. S. Bucks and exchanging them with regard to Euros. We’re taking Cash and exchanging them with regard to Yen, and so on and so forth.
The Foreign exchange market is a utilitarian market. That’utes what it is: the spot market that any of us trade in–it’s the switch of currencies that happens in between banks, it happens between organizations; it’s banks doing lending options to other countries, it’s corporations generating a transaction to make payroll in a different country than they’regarding operating in. That market–this stop market only accounts for one-and-a-half million trillion a day. Now, I say that kind of tongue-in-cheek since “only” one-and-a-half million trillion–it’s still a large market and it’s nevertheless triple the size of the futures market which is the next most significant market out there.
It’s nonetheless important to know that the number most of us hear bantered about with Forex trading isn’t the market we’re in fact trading in. Now, the other thing to understand about FOREX whenever we think about the market that we’actu trading in and talking about–
[slide] [How Substantial is Speculative Trading?]
[cont.]… how large it actually is, is that we’re questioning within this and, as I stated, the FOREX market is utilitarian, thus we’re trading within the area market which is one-and-a-half million million dollars of that five trillion today.
The speculative side within this cease market? That’s even reduced, as well! That’s only about thirty percent. Again, the remaining eighty percent involving transactions have nothing to do with speculation. They’re there because they must trade. They have to make pay-roll. They have to do loans; ply their trade between governments, between financial institutions, between businesses, between corporations that exist in other parts on the planet.
It’s good to have that footing because that helps us know some of the randomness that occurs in the FOREX market. We often think that things should occur in a certain way due to what our expectations originate from a speculative point of view.
However, entire, the market is not speculative. A lion’s share of the Forex exchange market exists for hedging and for inter-bank together with inter-country, inter-business exchanges that are occurring now there. Speculations are a very, very small portion of that. That, initially, is very, very important to understand.
The alternative that we talked about in class–[incomplete statement] Clearly, there’s a lot more to the Foreign exchange marketplace than just that, on the other hand think this is a key point that could be brought up and shared with all of us. It’s something that needs to be fully understood very well in order to create that firm foundation we need so we can be continuous in our trading.
[slide] [Role of Liquidity – SUMMARY]
[cont.]… The next thing that I think that is critical to share with you from the pieces of type that we’ve done over the last few weeks is the role with liquidity. Liquidity and volatility are words that we hear quite a bit, but we don’testosterone always understand or really get the impact of what they are really fully.
Liquidity can mean different things to several traders. It means different things depending on where we are. But, following the day, liquidity impacts that which we can trade, when we will be able to trade it and at what precisely cost the orders usually are executed. That’s a big element to know.
When we’re trading–depending on the time we’re trading–we could have unique levels of liquidity. Just think about it all! Common sense tells us that we’re going to have a great a higher level liquidity at… let’s say, 6 A.M. U.Utes. Eastern time–or 9 The.M. U.S. Western time then we would from 6 P.M. U.S. Eastern time. At 9 A.M. You.S. Eastern time, we’ve the U.S. Market, the Canadian Market, many of the European Market, and the Liverpool Market all going concurrently. We have a lot more people thinking of doing business and trying to do business with 1 another than we would at Six P.M. U.Ohydrates. Eastern when we only have this Sydney Market open.
Liquidity will be different by the time of day. That’verts something we’ll have to have an understanding of when we’re trading. We’lmost all want to know who we’re dealing with and what the choices are for us to be crammed. Right? There’s the immediacy of our own ability to be filled, how much quicker do we want to be filled–depending on the structure type that we’re utilizing. What’s the depth associated with liquidity there, meaning the way deep do those orders go that we can drink, depending on the time of day that we’lso are trading, which will impact your order size–the lot size we can trade. And, such like and so forth.
Liquidity also impacts our own cost of the trade given that when there’s times of cheaper liquidity our spread’s will be higher. That’s going to affect us, as well.
Liquidity is also linked to volatility and what volatility truly does is it exaggerates both our chance and rewards that we have during the FOREX market, so we’ve insured this in depth for our complete members numbers so that they could very well really dig in in addition to understand the roles of together liquidity and volatility to the trading.
Understanding that–[incomplete statement] Having that is component of our core knowledge as well as our foundation helps us to remain in a position to make decisions which are in our best interests when we’regarding trading.
There’s always going to become emotions in trading, certainly, but understanding what we’re executing, why we’re doing it; precisely why the markets are acting in a certain way simply helps us, if we had that understanding, to make a more education determination as opposed to making an emotional judgement that’s based on instinct against fact and what not.
The subsequent couple of topics that we covered were around market technicians.
[slide] [Review Point]
[cont.]… Again, these are very important portions. We often say to our total members that, if clearly there was any one thing that you really had to dig into first and actually understand and accept in a core level, it’s market place mechanics; how the markets work well.
Again, for a recap video similar to this, I don’t have time to buy the nitty-gritty of every piece of the following. But some of the takeaways i think are very important for you to begin understanding is that the markets could and do move substantially without any orders actually going down and the exchange actually occurring. That’s because the FOREX market is usually an auction market, for not enough a better term. The prices that will we’re seeing quoted regarding our dashboard are the costs we’re seeing quoted regarding our terminal are prices at which our market manufacturers or dealers are willing to commerce.
It’s not the prices regarding trades that happen; it’s the prices where people are willing to do business. Naturally, as we have periods connected with lower liquidity, as we have periods of uncertainty all around news, we have changes in that the market makers and where this market makers are willing to trade. They’re going to change what they’regarding willing to do.
Maybe we have a information event coming up. They’re likely to pull orders off simply because they don’t want to be overexposed to a single side or the other. This, subsequently, creates lower liquidity.
They could possibly put orders on with sure expectations of where they have to be from their inventory objectives. Ultimately, the prices that we see would be the prices that the dealers (the market makers) are willing to trade, and so because of that, the prices can change with virtually no trading actually taking place.
That’verts important to understand. That, all over again, as we think that through and think about the fact that the FOREX market is actually a utilitarian market that helps people understand and, maybe, comprehend the randomness of the marketplace sometimes because, once more, markets are moving, prices are relocating; they’re changing, they’re changing fast. As we have news activities coming up, the spreads are widening; things are changing for a second time. It’s not because exchanging is actually occurring, it’s since the dealers (the market makers) are operating to control their risk. While they’re doing that they’lso are changing where they’re willing to buy or sell which is just altering the prices that we see displayed on our trading terminals. Which causes some of that randomness in the marketplace–
[slide] [More concerning this – Liquidity of Price]
[cont.]… that’s out there.
That randomness is what actually creates the potential for us to trade for some level because, at some point, prices, when they move, they have that tendency to move toward the least liquidity. Coming back to where we were talking about before utilizing liquidity and volatility, you have got market makers adjusting the place they’re willing to trade, acquiring orders off–but the market is even now utilitarian, so even though natural meats have news coming up, orders are still flowing in. Forex trading doesn’t simply cease mainly because there’s a news occurrence coming up. Trading is still gonna occur, but where the sector makers are willing to buy or sell may change, based on their expectations or risk comfort is that upcoming event. They’ll change where they’re able to trade–meaning they’ll take orders off, put orders with; so on and so forth. As we have liquidity lessening–[incomplete statement] Maybe there’s requests coming in and they’re if it turns out the amount of liquidity that’s there and that’s pushing expense one direction or the other.
Let’utes say we have a lot of shop for orders coming in but we’ve got limited liquidity of people who are going to sell at certain quantities. As the buy orders are available [they] consumes the liquidity at the certain level, pushing cost to the next–pushing price to a different; so on and so forth, cascading in one direction or the other, which is the fundamental process of how we trade–
[slide] [Fundamental Principle regarding CCT]
[cont.]… with Complete Currency Dealer.
Price has already started to change because of an increase demand from buy-side traders and that tendency is causing charges to move, which, then, is bringing about dealers, maybe, to reduce their assets of offers, so they’re cutting down their exposure. It, next, causes prices to move. You can compound that issue plus, as prices are moving, natural meats hit stop-losses (placed by alternative traders) which simply are impending market orders, right? These stop orders then start consuming more liquidity (which are unresolved orders) further on along with that’s what we’re trying to capitalize on is that factual section of how price moves. We’re looking to capitalize on that with Entire Currency Trader.
In a few words, that’s the fundamental principle of precisely how we trade, which is predicated in who’s participating in the market and the type of market that we have, and also the order types we employ, which have all been taken care of in the last few classes within the last couple of weeks.
Now, I mentioned that I stood a quick screen shot for yourself just to talk about news. Them kind of shows a bit more element of what [I’m] talking about here.
[slide] [Cartesian graph and or chart – pale green lines, purple dots on black]
[cont.]… What I’meters going to show you now is just a quick screen shot I really took yesterday during away from our payroll. I feel like that is a good kind of teaching stage for you because–
[slide] [blank black screen – walking about yellow pointer]
[cont.]… very often–[incomplete statement] I apologize for the darkness of this screen nevertheless, ultimately, it’ll give you the good option.
Oftentimes, traders come in and they view these big bars [pointer relocated vertically far right, up and down on blank screen] and they declare, “Wow! Look at that momentum! See that volatility! Man! I could’onal made so many pips!” Yes, you could’ve. What we’re losing, though, is what’s transpiring within here. What’s operating this move?
There’s many things to consider. One, it is heading very rapidly. If it is moving quickly like that, it’s because there’ersus some liquidity all the way down. Which liquidity’s being absorbed, causing it to move quite rapidly. That’vertisements causing slippage and, maybe, the ability to be filled. You already know, if you’re on the mistaken direction on this–let’s express, maybe, you’re in a shop for order and you have a self applied stop–you have a stop down in this article [pointer rests center right for blank screen] to get you out of this order, if price is transferring very rapidly like this with the liquidity–even though you’re stop might be prompted at–I don’t know what the time is–seventy-seven fifty, you actually might be filled at seventy-seven forty, which could often be detrimental to your account, depending on your level of risk and the lot dimensions that you were using.
That’azines one thing to consider. The other factor when we’re talking about media training is this. (I’m likely to back up a little bit.) [cursor drug quit along bottom bar, for a tenth from right side–eco-friendly tight vertical lines, red dots above, green dots below] I don’t know if you will find what’s happening, but arriving to the news event, that currency had about a two-pip–certainly, about a two pip, two-and-a-half-pip spread. Rather consistent there, just plugging along at two, two-and-a-half pips. What exactly we’ll see is, since news begins to occur, this takes place. You can see that spread went by two pips to about twelve pips. Yet another good thing to consider there when we don’to trade news, it is because–[incomplete statement]
Let’vertisements say you had it yet again, you were in an order–maybe you a tight stop-loss and, suddenly, you may have your spread widen (along these lines). [points to far rt horizontal pubs of red, white] This spread’ohydrates widening because there’s hardly any liquidity between here. That isn’t a trick through your broker. It’s not anything that’vertisements a trap or a tip or anything devious. What’s occurring there is where the orders of the market makers or the suppliers are willing to trade has been eradicated. They’re looking to control his or her risk so they’ve taken off where they’re willing to commerce that’s too close to the present-day price because they want to control their current risk. Suitable? They don’t know what the following announcement’s going to be. They don’to know what’s going to result from it. They’re limiting their risk. They’re changing where they’re willing to buy or sell for you to offset risk from one side to the other. As that occurs, distributes widen.
Now, let’s say, once more, you might’ve had a stop-loss at seventy-seven sixty-four. Well, all of a sudden, spreads expand and you can’t be packed until seventy-seven seventy-two. Again, [this] could be unfavorable to your account depending on what bunch size you had and what standard of risk you were using, although, you could’ve been ended out at a much, considerably greater level than where by you’d expected to be.
So… it appears as though an exciting time to trade although because of the things that are taking place, this [points far bottom proper corner] is why we choose not to exchange around news. We understand the basics of the market, what’s taking place in the marketplace and, because we all know what’s driving these–these higher bars–these exaggerated moves. I would prefer to sit on the sidelines and not take the risk, in that case come back in when factors normalize and we could take a look at the real mechanics of the market and the balances that are manifesting in today, that are causing prices to move in our favour versus trying to take advantage of a good news-driven type announcement.
I know a lot of people trade news and that’ohydrates fine. I mean, there’s a huge quantity of of ways to make money! But this is actually ours and this is one of the reasons all of us don’t trade news. And then we don’t teach it because we want to limit the risk. We’re about to trade things [in] the same fashion that our institutional traders trade as well as, because we’re doing that, we always trade within the objective of protecting some of our account first and handling it effectively.
Anyway, that’s–that, the bottom line is, is what we’ve covered the very last couple of weeks. Here, going forward, we’ll get back on a regular schedule to have these weekly summaries out to you. But, there it is for now. We imagine you guys enjoyed it in addition to, if you have any questions, obviously, inform us. Of course, our staff’s now there Monday through Friday and that we endeavor to get all of our lotto tickets answered within twenty-four hours from it being delivered–unless it’s the weekend! If it’s a weekend, we can’t send you an email until Monday–Monday afternoon. It lets you do take a little bit longer whenever you’re submitting something for Friday night, Saturday, Weekend. Those’ll be answered for Monday and Tuesday.
All proper! So, there you have it! Have a superb day and we’ll talk with you soon!