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How To Make A Full-Time Income Trading Less Than
Part Time 
Big Dogs Exposed
Sound familiar? You have spent
years surfing the 'Net, and studying books and charts in search of commodity trading rules, a currency trading
strategy, stock market successful trading strategies, or information on how to use commitments of traders data. All
you really want is the 'Holy Grail' of entry techniques. You usually end
up adding one indicator on top of another, switching from one guru to the next,
until you are so confused and unsure of your entry system that you are unable to
make entry decisions and stay organized. You get so distracted and
frustrated that you quit watching the markets all together!
Shows you how FAST you can make money when the BIG DOGS make their move - by
shamelessly copying this winning group . Even I am STILL surprised by how much power they have
over ALL markets - not just commodities futures, currencies, and stocks.
Newsletter: Forex Hedging
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trading rules, a currency trading strategy, and stock market successful trading
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the invitation when you click away.
Forex Hedging
(Currencies - Hedging Exchange Rates):
Currency Trading Strategy Backround -
Traders often employ the currency options that trade on the Philadelphia Stock
Exchange (PHLX), which lists six U.S. dollar-based standardized currency option
contracts, to hedge exchange rates. They settle in the physical currency, if
exercised.
At the PHLX, currency options are U.S. or European-style exercise. Long-term
options are European-style exercise. What this means is that you can only
exercise your positions on the last day of trading. You can exercise U.S. style
options at any time up to, and including, the last day of trading.
The PHLX offers a variety of expirations with its currency options contracts.
These include mid-month expirations and month-end expirations. Mid-month options
stop trading, and expire, on the Friday preceding the third Wednesday of the
expiration month. Month-end options stop trading, and expire, on the last Friday
of the expiration month.
Premiums for dollar-based options are stated in U.S. cents per unit of the
underlying currency – the exception being the yen, which is quoted in hundredths
of a U.S. cent.
Currency Trading Strategy Example -
Okay, let’s pick a currency to illustrate the use of options for hedging.
Let’s suppose the premium on a particular Canadian dollar call is quoted at
1.25. The underlying value of each Canadian dollar option is $50,000. US$.0125
per Canadian dollar contract represents a premium of US$1.25. The total option
premium would be US$625 (50,000 x $0.0125), since each Canadian dollar option is
worth $50,000.
Now, let’s consider hedging. Each Canadian dollar call option is exercisable
into $50,000. At a U.S. dollar exchange rate of US75 cents (in the case of a 75
call option), that would translate into each Canadian dollar call having the
right to buy US$37,500.
Let’s suppose you are a Canadian business person who regularly transacts in U.S.
dollars, and you are worried about the loonie rising to US85 cents. You decide
to buy the call for US$625 to protect yourself against losses you would incur
should the loonie in fact rise. The call will rise in tandem if the loonie does.
If the loonie does rise in value, as you continue to do business in U.S.
dollars, your dollar sales would begin to slip, even though unit sales may keep
pace with past performance. That’s because you would be receiving U.S. dollars
from purchasers, which when converted back into Canadian funds, would translate
into less purchasing power.
Enter the option advantage and its hedging feature.
Assume that the Canadian dollar goes up to US85 cents. At that point, the
Canadian dollar 75 Call would be worth US10 cents (the new US85 cent exchange
rate less the strike price of US75 cents), or US$5,000 per contract ($50,000
times 0.10). The profit on the currency option would be US$4,375 (US$5,000 less
US$625).
That tidy little profit would cushion you against the blow of a rising loonie,
and probably come close to compensating you for any real losses you were to
incur in the exchange of currencies.
Were the loonie to fall, you would only lose the premium paid for the call.
However, you would benefit from the stronger U.S. dollar payments.
Currency Trading Strategy ‘Options’ -
Of course, if you are a trader of currencies, you can use the same strategy,
with limited risk, to lock in a position you see coming. For example, if you
notice the commercials going longer a particular currency, you may wish to play
it safe and buy an option – while perhaps at the same time day trading the
currency in the cash (forex) or futures markets.
If you have trouble getting your entry points right in the futures or spot
markets and/or keep getting stopped out, at least you will have the peace of
mind of knowing your option is working for you – and making money. You can
employ the same strategy for ‘short’ situations through the use of put options.
In addition to employing this options strategy, you could also position trade
the cash (forex) or futures markets, if that is your preference over day
trading. The options strategy would give you the added comfort of knowing you
are participating in a potential move, while you are trying to get your entry
points down in the other markets.
Just remember that the commercials are never a week late when they move, but can
be as early as three months too soon before the underlying currency reacts to
their sizeable positions – either long or short. But, knowing what their true
bias is means that you can use technical analysis to take you into the trade
when the indicators you are using confirm that the time has come to act.
And more …
For more on how to interpret what the commercial traders are up to, don’t forget
to get yourself a copy of my popular book on dissecting their every move. It’s
available by clicking here:
currency trading strategy
Even funds do it too.
Canadian U.S. funds use
derivative hedging to minimize the impact of currency fluctuations. Rather than
providing an element of currency speculation, they use derivatives to render all
investment gains into Canadian currency. They hedge their portfolios using
forwards contracts to ensure they are always giving Canadian investors a return
in Canadian dollars.
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How To Make A Full-Time Income Trading Less Than
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