Forex Update 2015


Progress has been slow, there’s has been promising, but unsustained upswings – no real concrete evidence that bigger gains can be maintained week on week. But the breakthrough must come and it must come within a year. I just feel really doubtful because currently I have no model for when this is supposed to happen.

I believe that as long as profit is steady, and your leverage is steady, you don’t borrow more, your profit will eventually top up your equity so you are moving forward.

The key is not to increase leverage chasing bigger gains only to end up with bigger losses that your equity can’t handle which is where I’ve been having trouble. Gains are steady but small, losses are prolonged and sustained.

I understand that my losses have increased because I have distributed more margin amongst the range. All my euro ranges have gone to new highs, and whereas once I had filled those ranges with tiny little 111’s now I am filling them with, 4, 5’s and 6’s. The range between 1.10 and 1.14 is now filled with another $10k worth of positions. Those positions lose 5%, in NZ$ that’s costing me . . . another $6-700 which is all I made some weeks last month.

The main margin has been spent adding to weak AUD positions, which also have at least $10k if not $20k added to them. These only moved back 2% and the aussie exchange rate is more forgiving but that could easily cover a grand. Then you add my losses on my canadian and NZ side which aren’t hedged, well that’s a cold unhedged $1500 loss. You are tabbing up over $3k losses when in the last 3 weeks you’ve only made about $2500.

So this explains why the euro has come off a peak of 1.146, the following 2 weeks I have made very little, the euro only went as low as 1.086 – still a 5% range which is incredible to be covering back and forth in a 3 week period, all through that I would have been adding in euro positions and USD positions, 17th may to june 4, I covered that range, but added a whole lot of extra margin that wasn’t there.

In the same space euro aud has gone from 1.42 to 1.39, and then jetting from 1.39 back to 1.46 which again is 5% move where it’s collected a lot of baggage as it headed down.

So basically you’ve been screwed by the bounce finally escaping gravity, but in the USD case, it is once again the worst case scenario you could have predicted under your current strategy.

I knew coming down, there was more euro now, but now it’s gone up again and I’ve done it on both sides!

Euro goes to 1.04, massive hedge build up there. Then up to 1.14, big hedge build up there, then down to 1.086, hedge there, and now gone back to 1.136, hedge there, so we’ve been trapped into building all these hedges as the range consolidates, and although it’s not so dangerous because you’re hedged on both sides, it does feel precarious, as these hedges soak up your equity.

Eventually there will be a break out, and you can pick your top or trail out, and a new risk presents – pick your moment to leave the party correctly and you’ll make money on both sides, but if you leave to soon, you’re going to get caught in the rolling tide and you’ll need to get back in at a worse spot to cover your butt.

When you’re on the edge of the hedge, mistakes are so much more costly. But that’s on the outside. What I am learning now is that there are problems on the inside too but they are within limits.

I have a strategy. My belief is that any run on the euro, especially now with good USD reads, will be very limited, the euro will fall against the USD, GBP, and AUD – there it is right there, first euro rally it smashed the dollar, this time it was all three suffering in positions where all three can advance and regain all those losses to bring my equity back.

What this is saying is when the euro drops, I’ll take back decent equity across the board. 5% of $150k is of course $7.5k.

If and when that happens, you want to hedge to protect your gains, especially to me $20k equity seems like a place where we’re not only safe from danger, but able to crank more margin out without a short term risk

But you were talking about adding $200 margin for each $1000 equity, when 10% of $100 leveraged 1:500 is $5k – you’re allowing enough equity for a 1% loss, which is madness, we’re experiencing 5% shifts in just a few weeks, when to have a safer position in terms of returns to protect our equity, it would have to go up and down that 1% range 10x before breaking out in order not to cause pain.

This could be pretty grim but for one thing – as it goes back and forth, it is still knocking out the stops in the same range, meaning that money can be recirculated – the bigger the amounts, the bigger the profits, and the more money going back into the system, proving what I am saying, that it will break out at some point.

I have reached this position by constantly underestimating how leverage pulls the rug out, but as we swing back and forth, I get to get that rug back when returning to the secene.

Basically if I chilled conservatively for a few weeks focusing on always putting down less than I picked up, slowly the equity would reemerge. Even if I plateaued, it would still happen more slowly, and I would still generate profits, but it would be at a steady and reduced rate, rather than the attempts I’ve continually made to increase profit by increasing margin leveraged leaving me vulnerable.

It’s the fact that the margin I have added has been spread up and down preventing me from using that to make more money in a thinner range. It won’t be until we have that level on the full range we’re on can we expect the weekly earning not to fluctuate downward.

But now our margin is $3k and our earning fluctuate between $700-$1500. When we first go to $3500, it will lift income to $1000-2000 at first, but within a few weeks that will boil down again to say $800-$1800, but within 4 weeks I’ve made another $6-7k allowing me to step up to $4k margin, and again, for a few weeks I earn $1200 – $2500, but then, I slip back to $1000-2000. That’s how it rolls basically.

Slowly the amount you acquire over that month or so consolidation grows bigger and can slowly accomodate more than $500 margin and what’s more, you’re squeezing ever more into the same range. Big moves wipe out a lot of dominoes, at which point you won’t just jump back in with the same money, and it’s those points where you consolidate.

I have now made another startling discovery about my trading. The “carry” or “holding” costs for different brokers are completely different and only loosely matched to central bank lending rates.


I was shocked to discover I was paying interest on both sides of many pairs that had close interest rates.

I finally made an effort to check because I noticed that there wasn’t one single pair where I was holding more on the side with the higher interest, and even with all my NZD and turkish pairs I had bought specifically for the interest yield or carry trade, I was still paying a holding cost. How could this be?

Now I know. Most GBP and EUR pairs are a rip off on holding cost which made me realise my broker was profiting from the interest I pay, so therefore easily stinging me for $300 a week they were scooping off my trades when you add the interest to the commission. No wonder I get a call for a chit chat every few weeks, I’m making them good money!

Actual Carry rates

USD/GBP: -1.3
-USD/AUD: -2.934
-USD/EUR: -.576

-GBP/USD: -.709
GBP/AUD -2.644
-GBP/EUR: -.286

AUD/CAD: +.231
AUD/USD: +.880
AUD/GBP: +.578
AUD/EUR +1.304

EUR/AUD: -3.376
EUR/GBP: -1.745
EUR/USD: -1.442

-CAD/USD: -.394
NZD/USD: +2.601
NZD/CAD: +1.951
NZD/GBP +2.298
NZD/JPY +2.745
NZD/EUR +3.024
TRY/USD +9.557
TRY/EUR +9.880



The final chapter has come now with the rise of the pound against the US and the euro against everything, the euro now smashing me against my big pound hedge and the aussie which also has a hedge, the pound smashing me against the aussie, and finally the ass dropping out of the NZ dollar which I used for carry trades to keep my interest costs down.

The NZ drop has wiped over $2k off my equity which is bizarre since I can only count $700 losses on the NZ crosses. Again it just makes me feel like with the new information I got about the carry trade rates – what is going on that I can’t see why I can’t seem to win?

Suddenly a big aussie jobs report drops and I win $1k back. It’s now bad, but not over the edge. I was so relieved.

It was feeling like a write off of a day. But I went for a run, I’ve been running every day. Now I feel great again. Maybe I should run first thing.

Suddenly it seems straightforward. My trading plan will win in the end, we just don’t know how much sacrifice it will take. That’s what it just keeps coming back to, how long will this all play out?

What is the new worst case scenario we have to face? There is no way we will ever let our equity go screaming into the ground.

What if we can only earn a grand a week for the rest of the year? Surely, surely after adding another $25k and going to $110k surely we’re not going to get this same situation where the equity continues to drain away? It seems apparent I will have to cool down yet again. But really all of that could change if the US started pumping and the Euro sinking, and that could take months also.

It seems obvious now I was as wrong about the hedging as I was about the euro plummeting in the first place. Add to that the turkish and canadian and NZ problems, you’re seeing where it all adds up.

How often will I keep being wrong? Will I eventually get to a point where I can trade for higher stakes with losses trailing me back and forth?

Did you honestly not consider that as your profits grew that so would the losses? You thought that eventually the money generated each week would surpass the losses generated going back and forth over the same stretch. But when you started to increase the margin, you also increased the losses. When I first put in the hedge, I jumped from about $1700 margin to $2300.

The fear I have is that the extra margin has not been spread far enough yet to create the kind of harder losses that have eventuated – we haven’t swung 10%, there is not reason to expect the xtra margin would have materialized to this extent.

But what I see happening is that the longer you dwell in one area, the easier it is to build up little banks of resistance where position build up unresolved. This only happens when the markets become congested and don’t move, the moves are so small, you don’t have the big moves that end up clearing out many positions.

Could it be that it really is all just piling up between 1.14 and 1.10? It moves smaller, and so more positions are slotted in.

But it’s the shifts that are happening around other levels that count. Remember if your base currency is dropping, then those positions are costing you more and subsequently you lose more on them and they cost more in terms of margin. Also, the interest is also costing me more.

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