Whether you are an FX novice or a current investor in another equities or derivatives market the aim of this booklet is help you to understand the world of foreign currency trading – in doing so I have addressed the answers to the most frequently asked questions that we receive from people like yourself who are entering the market for the first time. Although Forex (often referred to as FX) is the largest financial market in the world it is relatively unfamiliar to most retail traders and investors. In fact, until the advent of the internet FX was primarily the domain of central banks, large financial institutions, multinational corporations and hedge funds.
But times have changed, and individual investors are hungry for information on this fascinating and lucrative market. In 2013 retail traders, i.e. you and me, make up the largest participants in the currency market however the vast volume and liquidity still comes from financial institutions. Unlike stocks, futures or options, FX trading does not take place on a regulated exchange. It is traded electronically through FX dealers who provide software and the necessary trading platform for retail investors such as yourself
This platform is linked to your personal trading account that you open with the dealer.
So effectively the dealer does nothing more than facilitate your access to the FX market. Essentially, trading in the largest, most liquid market in the world is open to anyone!
At first glance, this opportunity might seem bewildering to investors who are used to the structured exchanges such as the ASX or NYSE.
If you become a little confused, just remember that our professional traders are committed to guide you on your trading journey and help you build your own personal trading plan so that you can become an independent profitable FX trader. LTG have trained hundreds of clients just like you, from all walks of life, and have provided them with the skills and knowledge to trade the biggest market in the world.
Training is our business…
Andrew Barnett
DIrEcTor
Table of Contents
our credentials
6
What are you really buying and selling?
7
What you pay the dealer
8
Understanding Leverage in FX
9
What value per pip will you trade?
10
Understanding risk and reward
11
I’m told it’s soooo risky!
12
Fundamental vs Technical Trading
13
What currencies are traded?
14
Learning to manage positions
15
Medium term trading
16
Understanding your own risk
17
Things to consider
18
When in doubt – stay out!
19
Learn to trade with the “BIG MoNEY” at LTG
20
About us
21
Expertise
22
You can do this!
23
LTG Goldrock was founded in early 2009 by Andrew Barnett and Peter Elsworth and today has evolved into the premier currency trading business in Australia. over the past 4 years the LTG Goldrock community has grown to over 4000 students across Australia, New Zealand, Asia, US, UK and beyond. In 2011 LTG Goldrock was awarded the World Finance ‘Best Global FX Educator’ award at the London Stock Exchange. Following from that success LTG Goldrock was recognised in the World Finance 100 listing for 2012, alongside industry heavyweights for excellence in our field. In 2013 LTG Goldrock was awarded the ‘Best Forex Institution’ award at the Australian Government Finance and Banking Awards.
The Principals of the LTG Goldrock business have had extensive backgrounds in all aspects of stock market and derivatives trading. In fact, one of our founding directors – Andrew Barnett is regarded as one of the country’s leading foreign currency commentators and seminar presenters.
our credentials
The short answer is “nothing”. The retail FX market is purely a speculative market. No physical exchange of currencies ever takes place. All trades exist simply as computer entries and are netted out depending on market price. For dollar-denominated accounts, all profits or losses are calculated in dollars and recorded as such on the trader’s account.
The primary reason the FX market exists is to facilitate the exchange of one currency into another for multi-national corporations that need to trade currencies continually (for example, for payroll, payment for costs of goods and services from foreign vendors, and merger and acquisition activity).
However, these day-to-day corporate needs comprise only about 20% of the market volume. 80% of trades in the currency market are speculative in nature. They are put on by large financial institutions, multibillion dollar hedge funds and retail traders who want to express their opinions on the economic and geopolitical events of the day.
Because currencies always trade in pairs, when a trader makes a trade he or she is always long one currency and short the other. For example, if a trader sells some EUr/USD, they would, in essence, have exchanged Euros for US dollars and would now be “short” Euros and “long” US dollars.
What is a “pip” you ask? Pip stands for “percentage in point” and is the smallest increment of trade in FX. In the FX market, prices are quoted to the third or fourth decimal point. For example, if a bar of soap in the supermarket was priced at $1.20, in the FX market the same bar of soap would be quoted at 1.2000. The last decimal place is the pip – sometimes referenced as the point.
Investors who trade stocks, futures or options typically use a broker, who acts as an agent in the transaction. The broker takes the order to an exchange and attempts to execute it as per the customer’s instructions. For providing this service, the broker is paid a commission when the customer buys and sells the tradable instrument.
The FX market does not have commissions. Instead, they make their money through the bid-ask spread. The dealer gets the price from the banks, puts a small mark up on that currency pair and offers it to his/her clients to buy or sell.
In FX, the investor cannot attempt to buy on the bid – or sell at the offer like in exchange-based markets. You will place the trade and once the price clears the cost of the mark up or spread, there are no additional fees or commissions. Every single penny gain is pure profit to the investor and you only pay the dealer once on entry. The spread or mark up you pay is incremental to the value per pip you trade.
ExamplE: Trading $1 pEr pip
EUrUSd Spread: 2 (can vary) Your trade value: $1 per pip (0.10) You pay: $2 no matter what your result
ExamplE: Trading $10 pEr pip
aUdUSd Spread: 2 (can vary) Your trade value: $10 per pip (1.0) You pay: $20 no matter what your result
You can credit and redeem funds on your account when you wish. You will get daily statements sent to you via email if you have traded that day along with end of month statements.
If you live in Australia or New Zealand you will be required to pay tax in accordance to what entity the account is set up in. You can trade as an individual, company name, family trust and in Australia a self managed super. When you will pay the tax will depend on the entity which operates your account, however for most it will be at the end of the Financial Year.
In FX investors use leverage to profit from the
fluctuations in exchange rates between two different countries. The leverage that is achievable in the FX market is one of the highest that investors can obtain. Most Goldrock clients are using accounts that offer leverage of 1:100, or 1% of the trade volume. Leverage essentially means that you are able to use a smaller amount of capital than the value of the trade. For example, with a leverage of 100:1, you would be able to trade a volume of one hundred times the size of the initial capital you put into the account.
of course when you use risk profiles of 0.5% and 1% risk on trading capital per trade you are not using the full leverage available and nor should any trader. If you were however, and you are trading 100,000 AUD.USD (a lot size of 1.00 on the platform or approx $10 per pip), the margin requirement in your account will be $1000 AUD. The margin requirement is the amount of money you would need in the account to be able to place a trade.
If the account balance dropped below the margin requirements, you would get a margin call, and likely be closed out of the trade by the dealer. However, again when using institutional risk profiles, as our clients are instructed to do at Goldrock and correct stop loss positions in the market, margin calls should not be part of any clients trading experience. For example, if you had $1100 in your account, you could place an order of 1 lot on the AUDUSD. This would put your initial margin at $1000. If the trade went into a loss, and your account balance dropped to $990, you could be closed out of the trade.
Goldrock traders Do NoT trade in this manner but an explanation of this may be helpful to understand what can occur if traders use the full leverage made available. Standard lot trading is done on 100,000 units of currency (1.00 or $10 per pip), however our clients can trade micro and mini lots. Effectively from .10 cents per pip and up.
Although the ability to earn significant profits by using leverage is substantial, leverage can also work against investors who use it poorly. For example, if the currency underlying one of your trades moves in the opposite direction of what you believed would happen, leverage will greatly amplify the potential losses IF you were using a high risk profile on trades and no stop losses. To avoid such experiences, Goldrock traders implement a strict trading style that includes the use of stop and take profit orders and tight risk profiles. capital preservation is KING!! Principles that are drummed into every Goldrock client. We recommend all clients start with just a few thousand dollars in the first few weeks to get comfortable with all the money management aspects before adding additional capital if they wish.
What value per pip you may trade will be determined by three main factors:
1. The amount of capital in your trading account. 2. The % of this capital you are prepared to risk on the
trade.
3. The size of stop loss target in pips.
Prior to entering any trade any professional trader knows what he is prepared to risk and what he desires in reward. More on reward later.
The calculation to work out what value per pip you may trade is done like this…
ExamplE OnlY
Trading Capital: $10,000
risk: 1% (max. loss on this trade) Stop loss Size in pips: 50 (will vary)
CalCUlaTiOn:
$10,000 * 1% = $100 / 50 = $2.00 per pip (0.20) No matter what the account size professional traders conserve loss by managing risk as the No.1 priority. As your account grows so should the value per pip you trade. And the opposite if your account is being drawn down. If you are in multiple positions at once your overall risk exposure on your capital should not exceed a maximum 2.5%.
So you may elect to take your first trade at 1% risk, your second at 1% and if a third was available it maybe taken at 0.5% risk or less. remember capital preservation is KING!!
So what about the reward you may ask? If I’m risking 1%, or in the example we showed $100 what should my potential reward be? You should aim for 2% or greater. or using the previous example $200 or greater. This in trading terms is a risk to reward ratio.
Some of the biggest losers in the currency market do not understand risk and reward and how critical it is within any trading business. No matter if their account is growing or decreasing they often trade the same value, have no risk mitigation and no real idea where their reward should be.
Many successful Goldrock clients have win/loss ratios of less then 60%. Their account grows because they understand the power of taking out of the market far more than they are prepared to give back. If the probability of a trade cannot deliver you more than double what you are prepared to risk, it is unwise to take the trade.
And what about if you use a risk to reward ratio of 1:3 you may ask? Well you do that math and you tell me who are the most profitable ones.
How come one trader achieved a larger roI % over others? regrettably many traders are looking for nothing but the golden goose of trade set ups that delivers them a winning trade more than 80% of the time. Let me tell you right here and right now… they don’t exist!
The trade set up is only one part of the puzzle. risk mitigation and understanding risk and reward is critical and are big parts of any profitable traders trading plan. Fail to adopt these principals and you will likely join the long list of struggling or unprofitable people trading FX.
Let me say that if you genuinely believe you can make money, and potentially a lot of it without risk, making additional income on top of what you do right now is probably never going to happen.
You cannot make money without risk, however, what you can do is identify, understand and learn to manage that risk professionally.
Let me take you outside FX for just a minute. Every private and commercial business you drive past today and tomorrow has degrees of risk. Some more than others. You even have risk as an employee. They have staff, stock, rent, advertising, equipment and often much more. Is the success of many of these businesses always just about the product and the customer? No of course not. It’s a combination of them all and those that manage those risks the best are often the ones that stay operating year in year out.
Well FX trading is no different. Is it all about the trade set up? No, it’s about managing your trading business in the same ways that successful private and commercial business do. Knowing how to manage risk comes first. Is going to bed at night knowing you have a trade running risking no more than 1% of your trading account, knowing you took the trade using a risk to reward greater than 1:1 going to keep you up at night? I would certainly hope not.
So the next time you have someone say to you “oh that FX stuff is all too risky”, you can justifiably say “yes making money can be if you don’t know what you are doing. But I’m far more informed now… thank you”. oh and by the way, we are talking about a truly
recession-proof business. currencies don’t go to zero. one is either rising and the other falling. You buy a currency and it goes up – you can make money. If you sell it and it goes down, you can do exactly the same. Most investors cringe in times of economic uncertainty. FX traders revel in these times due to the opportunity of trading “long” (buying) or going “short” (selling).
Technical analysis is based on forecasting the future using past price movements – it is also known as price action.
Fundamental analysis, on the other hand, incorporates economic and political news to determine the
future value of the currency pair. We have often seen fundamental factors rapidly shift the technical outlook, or technical factors explain a price move that fundamentals cannot.
The real key, however, is to understand the benefit of each style and to know when to use each discipline. Fundamentals are good at dictating the broad themes in the market, while technicals are useful for identifying specific entry and exit levels.
At Goldrock we will always firstly have an overall sentiment on a currency direction based on
fundamental factors, ie. we may feel over the next 3 months the GBP will for economic reasons move lower. So in effect we will only look for selling opportunities on the GBP during this time.
If we do sell, it may be because of a technical indicator of price on the chart. Sadly purely technical traders will often have what they believe as the greatest technical set up in the world, enter the position and then get taken out for a loss due to economic reasons that they had no idea were coming.
Does trading with one eye closed make a little more sense now? Great… learn what really drives currencies from professionals and you will be ahead of the pack! At Goldrock you will be given this information daily by way of email and video. The question of which is better can be a hotly debated subject. I will say however that pure technical traders are some of the biggest losers in the FX market.
Although some dealers offer exotic currencies the majority trade the most liquid currency pairs in the world, which are the four “majors”:
n EUr/USD (euro/dollar)
n USD/JPY (dollar/Japanese yen) n GBP/USD (British pound/dollar) n USD/cHF (dollar/Swiss franc)
and the commodity pairs:
n AUD/USD (Australian dollar/dollar) n USD/cAD (dollar/canadian dollar)
These currency pairs, along with their various combinations (such as EUr/JPY, GBP/JPY and EUr/ GBP), account for more than 95% of all speculative trading in FX.
oh and don’t worry we trade the kiwi too!
FOrEx markET JargOn
Every discipline has its own jargon, and the currency market is no different. Here are some terms to remember that will make you sound like a seasoned currency trader:
n cable, sterling, pound – alternative names for
the GBP
n Greenback, buck – nicknames for the U.S. dollar n Swissie – nickname for the Swiss franc
n Aussie – nickname for the Australian dollar n Kiwi – nickname for the New Zealand dollar n Loonie, the little dollar – nicknames for the
canadian dollar
n Yard – a billion units, as in “I sold a couple of
yards of sterling.”
There is nothing worse than watching your trade be up 75 pips one day, only to see it completely reverse the next, go back through your entry and take out your stop loss. If you haven’t already experienced this as a trader firsthand, consider yourself lucky – it’s a feeling most traders face more often than you can imagine and is a perfect example of poor trade management.
one of the cardinal rules of trading is to protect your profits and at LTG Goldrock we will teach you techniques to manage positions professionally, ensuring you are at all times mitigating risk and managing reward. Many traders will jump into a trade with their entire volume at once. At LTG Goldrock we teach you techniques of scaling in and out of trades. Learn to enter with only half of your risk, but ultimately be rewarded with all of your desired volume.
There are ways to never let a winner turn into a loser. A basic method is to trail your risk (stop loss), which is essentially when price moves a certain distance in your favour, you mitigate your risk by moving the stop loss to your entry, or even inside your entry to lock in profit. Half of trading is about strategy, the other half is undoubtedly about management. Even if you have losing trades, you need to understand them and learn from your mistakes. No strategy is fool-proof and works all of the time. However, if the failure is in line with a strategy that has worked more often than it has failed for you in the past, then accept that loss and move on. The key is to make your overall trading approach meaningful but to make any individual trade
meaningless. You will learn to manage each trade like a professional.
Learning to manage positions
You have no doubt by now heard of the phrase “risk Profile”. Each professional trader has one as a major part of their trading business.
At Goldrock the 1% range is often recommended and used by our clients. Losing only 1% per trade means that you would have to sustain 10 consecutive losing trades in a row to lose just 10% of your trading account. remember I spoke earlier about capital preservation, risk and reward. Sadly some of biggest losers in FX trade in excess of 5% per trade, have a risk to reward of 1:1 or less and try to get it right 80% or more of the time. They generally dive in head first, usually losing their first account – and then they either give up, or they take a step back and do a little more research and open a demo account to practise. The art of trading is not about winning as much as it is about not losing. By controlling your losses, much like a business that contains its costs, you can withstand the tough market environment and will be ready and able to take advantage of profitable opportunities once they appear.
To help avoid the losses from hastily diving into Forex trading, Goldrock will introduce you to a framework for a medium-term Forex trading system that will get you started on the right foot, help you save money and ultimately become a profitable retail Forex trader. crawl, walk, jog, run and then sprint. There is one golden rule that you must follow if you are going to trade real money from day one… learn the platform first, then trade small position sizes
first to prove your success. Don’t kid yourself and think you can just roll with an account of $50K and trade large positions. You will crash and burn.
Crawl, walk, jog, run
and then when you
are ready… sprint to
A trader who looks to open and close a trade within minutes, often taking advantage of small price movements with a large amount of leverage.
A trader typically looking to hold positions for one or more days, often taking advantage of both economic and technical opportunities.
A trader looking to hold positions for months or years, often basing decisions on long-term fundamental factors.
Quick realization of profits or losses due to the rapid-fire nature of this type of trading.
Less time in front of charts. Price action is more consistent. You can use wider stop and take profit targets. Management of your trade is comfortable.
More reliable long-run profits because this depends on reliable fundamental factors.
Large capital and/or risk requirements due to the large amount of leverage needed to profit from such small movements. A heck of a lot of time spent in front of charts.
Fewer opportunities because these types of trades take a little more time to come around. remember however frequency of trades does not mean more profits. Large capital requirements to cover volatile
movements against any open position.
Short-Term (Scalper)
medium-Term
long-Term
Medium term trading
At GoldRock we are medium term traders combining
both fundamental and technical analysis.
our client’s trading plans stem from years of observation of price action in the FX market and provide high probability approaches to trading both fundamental and technical setups. However, they are by no means a guarantee of success. No trade setup ever is. That is why we show you ways of managing any losses – so that you may learn and understand the profit possibilities, as well as the potential pitfalls of each plan that you adopt. Trading is an art rather than a science. Therefore, no rule in trading is ever absolute except the one about always using stops losses!
1. Never let a winner turn into a loser.
2. Logic wins, impulse kills.
3. Never risk more than 1% per trade.
4. Trigger fundamentally, enter and exit technically.
5. Remember capital preservation is king!
6. Forget about the $$. Follow the process.
7. Profitable traders think differently to amateurs.
8. Be realistic!
9. Risk can be predetermined, but reward is unpredictable!
10. No excuses – EVER!
At one time, it was one of the most prestigious hedge funds in the world, whose partners included several Nobel Prize winners.
In 1998, LTcM went bankrupt, nearly bringing the global financial market to its knees when a series of complicated interest rate plays generated billions of dollars worth of losses in a matter of days.
Instead of accepting the fact that they were wrong, LTcM traders continued to double up on their
positions, believing that the markets would eventually turn their way.
It took the Federal reserve Bank of New York and a series of top-tier investment banks to step in and stem the tide of losses until the portfolio positions could be unwound without further damage.
In post-debacle interviews, most LTcM traders refused to acknowledge their mistakes, stating that the LTcM blow up was the result of extremely unusual circumstances unlikely to ever happen again.
LTcM traders never learned the “no excuses” rule, and it cost them their capital base. If you do not understand what is going on in the market, it is always better to step aside and not trade. That way, you will not have to come up with excuses for why you blew up your account. No EXcUSES. EvEr. That’s the rule professional traders live by.
MarkeTs can – and will do anyThing…
File this story about the blow up of long Term capital Management (lTcM) in your long term memory bank.
Every time you enter a trade, you are effectively entering a competition with the banks and seasoned veterans in the Forex markets.
Anyone serious about trading must learn how these banks and institutions trade, use the same equipment they use and apply the same business-like systems that they use to make their money in this trillion dollar market.
The LTG Goldrock Trading Team is the heart and soul of your learning and trading experience. our professional team work together with you Monday to Friday, as they follow the ForEX Market, analyze its movements, and advise and train you on how to place live trades on your own account.
Their job is to assist you to make money as you gain confidence and independence, trading international currencies in the live market. It is important to understand what you are trading and our Trading Professionals are there to assist you to learn how the markets work and how to trade Forex.
The Trading room Team are there to help impart their years of experience and to mentor you in the live market, they are not there to provide you with an ‘easy copy us approach’ as this is not how you will become a profitable, independent trader.
Besides the training, it is equally important for any trader to be surrounded by professionals who walk the walk with you and trade their own accounts in the market every week.
Over 400 people attended “Bootcamp”
The LTG Goldrock Trading Team is the heart and soul of your learning and trading experience. our professional team works together with you as they follow the ForEX Market, analyze its movements, and advise and train you on how to place live trades through your own account. Their job is to assist you to make money as you gain confidence and independence, trading international currencies in the live market. Besides the training, it is equally important for any trader to be surrounded by professionals who walk the walk with you and trade their own accounts in the market every week.
LTG Goldrock has an award-winning comprehensive FX training and education system that will open up the lucrative world of currency trading for you.
A “LIvE” training program staffed by a professional team of trainers and traders who will teach you the systems, techniques and strategies used by some of the largest banks, institutions and successful investors in the world. our members trade and learn with a truly dedicated community of like-minded investors who every day share their skills and techniques with you.
And now you can discover how it works, and learn the same techniques used by some of the most successful investors in Forex through our award-winning
education, master classes, online training room, trader summits, daily Insider reports and ongoing support.
There is no expiry date to being a LTG Goldrock Platinum Member. our staff have been chosen not only for their own outstanding individual trading success, but also because of their professionalism, empathy, understanding and ability to guide members through each trading experience. our professional traders are committed to guide you on your trading journey and help you build your own personal trading plan so that you can become an independent profitable FX trader. In Australia the licensing of all financial service providers (including foreign exchange dealers), is the responsibility of the Australian Securities and Investments
commission (ASIc). LTG Goldrock holds our own AFSL with ASIc, however it is important to note we are not FX dealers. We are traders and educators.
“ Now I don’t need to go out to work, I have time for the family. I don’t
have to rent premises, buy stock or pay staff. I get great training, inspiring
mentoring and above all down to earth, simple up to date information
and training which has enabled me to develop a straight forward trading
plan and over time become profitable month on month.”
JO giBSOn, aUSTralia
“ After trying different business opportunities I looked at different areas of
trading, as I’ve always been entrepreneurial and drawn to markets and
trading. I decided to invest in some forex education before I committed
funds to trading and chose LTG Goldrock after a lot of research. I believe
trainers should have some soul and passion and I found that in LTG
Goldrock. I traded a small account for the first 9 months then, once I was
being profitable each month, I increased the account size incrementally
so as to be comfortable with trading higher dollar amounts. I love it!”
kEiTh BakEr, Qld aUSTralia
Do you operate your own a super fund?
Trading dEriVaTiVES
The growth in both derivative trading and SMSFs over the last decade raises the question as to whether derivatives can be traded inside a Self Managed Super Fund (SMSF), and if so, under what restrictions or parameters?
The Superannuation Industry Supervision (SIS) Act (the body of superannuation law) actually prescribes very few restrictions on exactly what type of investments trustees can go into, however it is very prescriptive about the way that investments can be structured.
In relation to derivatives, the main issue here is that some derivative contracts have an asset collateral requirement, and accordingly may fall foul of regulation 13.14. This section states that the trustee must not give a charge over, or in relation to, an asset of the fund.
however, there is an exception when it comes to derivatives such as options and futures contracts as regulation 13.15a states that a trustee may give a charge over an asset of the fund if:
n The charge is given in relation to a derivatives contract n The charge is given in order to comply with the rules of
an approved body (such as the options clearing house)
n The fund has in place a derivatives risk statement n The investment to which the charge relates is made in
accordance with the derivatives risk statement
So it would appear that under the SIS act, derivatives are a
here are some things for trustees to include on their check-list:
Trust deed
Your trust deed governs the rules of your fund. For you to do anything in your fund, your trust deed must allow it. check in the “Investments” section of your deed, and see if it allows investment in derivatives. Most deeds should, but never just assume. You always need to check that this is the case.
derivatives risk Statement
A Derivatives risk Statement is required (and must be adhered to) where the trustees are entering into derivatives contracts where an asset of the fund is held as collateral. covered calls on shares are an example. This statement follows a specific format and requires certain specific information to be included.
Written investment Strategy
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“ At LTG Goldrock we have forged strategic
alliances with world class service
providers to deliver you an enriched
financial experience.”
andrEW BarnETT
Andrew is a Foundation Director of the company and heads up the FX operation at LTG Goldrock. A former national slalom water ski champion he loves life in the fast lane. When he isn’t coaching the hundreds of LTG clients who attend his weekly training workshops, you will find him glued to the computer screen as he trades international currencies for the company’s Multi currency FX Account.
The risk-return characteristics and market strategies that he employs have delivered consistent over-performance in a time when most fund managers are having difficulty simply tracking the Index. It’s no wonder that his Master class Workshops are fully booked, months in advance!
A passionate and accomplished presenter, Andrew is constantly in demand as a market commentator and is a regular on the Sky Business channel. He has a Diploma in Financial Services and is an Authorized representative of Live Trader Goldrock – a company licenced with the Australian Securities and Investment commission (ASIc).
T: 1800 436 739