By Aline Heller

Foreign currency trading seems to be the ideal path for getting rich quickly. After all, it is a legitimate business. The rationale behind currency trading is to lower the risks posed by foreign exchange movements to businesses that have a significant international base. Forex trading minimizes their losses due to currency fluctuations. However, getting to know the subtle implications of political and economic developments on currency movements is not an easy skill to acquire. It really takes an expert to sense the dynamics involved in this trade.

A lot of skepticism surrounds self-proclaimed gurus who profess to teach laymen the tricks of the trade through their course materials, videos and webinars. The plain truth of the matter is that this is a risky business. It does not really offer an easy money solution for getting rich fast. The risks are higher than the potential benefits for ill-informed investors. Even if you have a broker or a pitchman handling your investment, there’’s still a big chance you will get burned.

We hear a lot of success stories, but usually these are exceptional cases. For instance, there’’s this story of a client who gained a 1951% return on investment. From an initial investment of $961, his capital grew astoundingly to $20,000. These success stories can certainly grab people’’s interest. Like the California gold rush, it can entice people and cause a frenzy among fortune hunters. We must, however, maintain a level-headed attitude and proceed with caution when entering any type of investment.

Back in the 1990′’s, pay phones were being marketed as a prime investment with huge income potentials. The advent of cell phones proved them wrong, very wrong. Local phone companies, after recognizing the cellular phone’’s growth potentials, pulled away gradually from their pay phone businesses. Opportunists took advantage of unsuspecting investors and lured them into purchasing pay phones at very attractive rates. They cunningly portrayed these soon-to-be superceded pieces of technology as if they were still indispensable instruments. Investors thought they were getting a bargain in buying a whole bunch of pay phones at prices ranging from $19,000 - $25,000. But, it all ended up as junk. It was a terrible loss for those investors.

A similar scheme is on the run with foreign currency trading. Dow Jones reported that individual investors are getting into the business while the big players are pulling out. These respected players are no fools. They were in the trade and had flourished in it. Their withdrawal from the market portends a gloomy outlook for the industry. Then, all of a sudden, we are seeing this influx of websites and experts who are inviting small level and novice investors to make the leap and be in the foreign exchange bandwagon with glorious promises of success and wealth.

It just looks uncannily like the payphone investment disaster all over again. In times of recession, rapid, high return investments just seem so attractive. It will probably be more prudent, however, if we heed those warning bells in our mind. Foreign currency trading might just turn out to be the proverbial pot of gold at the rainbow’’s end.

About The Author

Aline Heller writes on investment and finance. For more information on foreign exchange trading, visit http://www.dp-db.com/signals-forex. Another resource is http://www.dp-db.com/fx-pip-snager.

By Stephen Egan

The data reported by hedge funds and commodity trading advisors managers strongly support that users of systematic approaches will perform better than decretionary investors and traders over time.

Firstly, a definition on what systematic and algorithmic methodologies are.
A systematic or algorithmic trading methodology is a set of interrelated rules to enter and exit market positions and to manage risk across a portfolio of instruments.

Trading rules are based on mathematical formulas that can be somewhat complex or indeed relatively simple as is the case of trend following models.

The purpose of the formulas and models is to provide clear buy and sell, entry and exit points with appropriate position sizing and scaling methodologies. These models are executed automatically and mechanically through a computer directly into the exhanges via direct market acesss (DMA) trading technologies.

The combined result of these various interrelated entry and exit systems and algorithms for position sizing and model management is trading without human emotion, judgment or other forms of potentially fallible intervention.

Trading systems cover numerous strategies including short, medium and long term trend following and mean reversion trading models, volatility breakouts, channels, day patterns, chart patterns etc.

We consider systematic and algorithmic trading programs superior to human or discretionary trading because they:

* Eliminate human emotion, failure of judgment and other inherent problems.
* Assure consistency of execution of the trading models.
* Significantly extends the number of markets that can be effectively traded. It’’s impossible to trade much more that 3-4 markets on an intra day basis using discretionary methods. Most Hedge fund run up to to 100 instruments simultaneously.
* Increase the predictability of trading performance - profit expectancy. Risk can be calculated and anticipated with a reasonable degree of confidence - this makes capital allocation more effective.

Up to very recently the professional use of systematic and algorithmic methodologies was only available to well resourced hedge funds and large trading houses.

This is changing, the software tools and low cost DMA brokerage services which now accept private investors have made implementing a systematic trading approach feasible to most private investors.

Implementing a systematic and algorithmic approach will be the subject of another article. In summary you need to spend the time researching the approach, if you are partnering with a company to develop or lease your trading model you need to ask 2 key questions:
1. Are they trading model themseleves?
2. Are they transparent with the results?

About The Author

Stephen Egan is the Managing Director of Solas Financial. Solas Financial provides Quantitative Modeling and Systematic Trading Services on Global Stocks, Futures & Currency Markets. www.solastrader.com