Neils Christensen

The world of foreign exchange is similar to other financial markets in that the one guiding principle is supply and demand; however that is where the similarities end.

The foreign exchange market lists investors plenty of opportunities. But these come with real challenges. Choosing the wrong investment can quickly become a nightmare. Professionals in the field know that it’s not easy to determine which investments are likely to list consistent profits at the lowest possible risk.

The good news is that investors don’t have to swim alone in these murky waters. By investing in the right managed currency account, one can benefit from the skills and abilities of a rare class of professional foreign exchange traders: those who understand the risks, the markets, and the psychology of trading.

Although the rules behind currency trading sound simple, the reality is complicated. For example, the currency market operates twenty-four hours around the globe. The price of a country’s currency can be affected by any number of factors. A surprise announcement from a central bank or better than expected employment data can drive a currency up or down by more than a cent. That may not sound like a major move but for a professional trader who has a position of a more than a million dollars that cent is worth $10,000, and this is with 1:1 leverage! At 10:1 leverage that cent is worth $100,000, or 10% of the account balance. Novice traders using 100:1 leverage would lose their entire account by a move of one cent.

Forex Money Managers

The professional foreign exchange trader’s job is to make sense of the market’s volatility, and profit from it. These traders spend their entire day monitoring news events, political storms, trade balances, supply and demand, support and resistance, all in an effort to determine whether or not to trade, and in what direction.

Many of these traders are professional forex money managers. It takes years of experience as well the right resources for a professional trader to properly interpret this data and then profit from the short-term volatility. The greatest value of a managed currency account is in the traders behind it.

The currency trading accounts monitored by The Review list some of the best professional traders in the world. They’ve been in the business for a long time and understand how hundreds of forces from many directions can impact foreign exchange markets.

For the most part, a country’s economic status drives its currency prices. But there are also outside factors that can provide professional traders with great investment opportunities.

For example, in the past the Australian dollar was not a major currency in the open market. With gold prices rising, however, it has now become a major player. Not only does Australia have an abundance of gold mines, its economy is heating up. In January 2010 the Aussie dollar traded around $0.86 USD and in the last few months it has been trading at parity, around $1.01. That’s a 17.4% gain in a year. In fact the Aussie dollar has made similar gains against all major currencies. Using 3:1 leverage, a sophisticated investor would have earned a 52% return during this period.

Oil prices and a strong economy are also having the same impact on the Canadian dollar, which is trading around parity against the U.S. dollar. A number of professional foreign exchange traders have made strong profits from these types of commodity plays.

Finding the right trades is but a small part of the work. A professional foreign exchange trader must also carefully manage his positions. Most inexperienced (and sadly, some experienced) traders do not understand the importance of position sizing. It is commonplace for an inexperienced investor to have multiple trades open at once. With all of his margin used, he has no air to breathe when a trade goes underwater. He’s put too much of his account at risk, and a single open trade will wipe him out. In effect, it is as if he’s swimming over a shipwreck, picking up so many bars of gold that he drowns.

Most investors want to find the next big trade. Everyone wants to get rich, as quickly as possible. Foreign currency trading lists that opportunity. Scams and schemes flood the internet with promises of 99% accuracy, zero losing trades, 100% returns a month, $1,000 into $1 million in a year. Unfortunately, many investors discover the hard way that these promises are hollow.

All of them rely on the principle that leverage can work for you. Some of them tell you that stop losses are for sissies. But a good currency trader has a strong sense of discipline. He knows how to take profits as well as cut losses. Professionals know how to use leverage. And they use it judiciously, if at all. The account managers with staying power use leverage as low as .5:1. At most, they’ll push it to 5:1. Beyond that, the risks outweigh the potential rewards.

Currency trading continues to grow in popularity. If you’re an investor wanting to capitalize on this market, then we encourage you to do your homework. Find the best traders, look at the history of their accounts, imagine what it would be like to lose 15% a month (or whatever the worst month has been), and make sure that you are ready to experience both the lows and the highs.