Forex Trading: An Interview With Forex Market Expert Thomas Fischer, Part 1
by Dr. Scott Brown, Education Director of Investment U
Tuesday, June 16, 2009: Issue #1019
Forex trading is hot, hot, hot right now. And one of the biggest reasons why is that traders are using leverage to amplify returns by 200 times - where $1 controls $200 worth of foreign currency. The returns can be staggering.
For example, on the British "Black Wednesday" of September 16, 1992, George Soros made a single day's forex profit of $1 billion by short selling the Great Britain Pound Sterling.
At the time, these kinds of profits were only available to large players.
But recently, a major change in the way forex trading is done has opened the trading desks to the little guy. The Internet has opened the door to the small investor into this $3.98 trillion daily market.
But forex, or foreign exchange trading, has a reputation as "one of those" financial derivatives. And while much of its reputation is deserved, that doesn't mean you shouldn't be aware of forex and its uses...
Forex Market Expert Thomas Fischer
Unfortunately, forex isn't only intimidating to the average investor - it can be downright confusing for even the shrewdest money managers. So I sat down with an expert on forex, Mr. Thomas Fischer, to clear the fog around this hot topic.
Thomas Fischer, of Jyske Global Asset Management in Denmark, is a veteran of the interbank foreign exchange market with a 22-year profitable history under his belt. I was lucky enough to talk with him at the Investment U 2009 Conference in St. Petersburg, Florida last March.
I sat down with him last week to get his thoughts on forex for Investment U readers - because of his relationship to Investment U and because Mr. Fischer trades in transaction sizes that are nearly unimaginable to us mere mortal investors.
He considers a "light" day one where he's traded only $100 million in foreign exchange. And, he's been so kind as to sit down for an interview
Over the next three articles, I'll get his thoughts on how he got started forex trading, what traders need to be aware of and some of the best ways to limit your risk if you decide to jump into this market.
What I've found most interesting, above all, is that much of the advice he gives about forex trading can be applied to stock trading just as easily. A good investor is a good investor regardless of the security...
Here's part one of my three-part Q&A interview...
Dr. Brown: So, Thomas how did you get started trading forex?
Thomas Fischer: Well Scott, after finishing my bank education in 1978 in Denmark, I was "invited" to begin a trading career in the bank's newly established foreign exchange room. When I walked through the door and saw and heard (in those days trading was done with voice brokers) the noise I knew I had found my vocation. I remained a trader/broker for 22 years!
Dr. Brown: You mentioned to me that small traders have to trade infrequently so that they don't get addicted to the "screen" - they have to try to get in on a trend where the profits of winning trades far exceed losing trades. Could you elaborate?
Thomas Fischer: Sure, most novices in trading get pulled into the world of virtual trading. The [exchange] rates flash before your eyes and the trade is just one mouse click away. The worst-case scenario is that the first trade you make is a winner - you get hooked and start trading all over the place regardless of currency pairs.
You have to get accustomed with the trading pattern before jumping in.
Concentrate your efforts with a few currency pairs. The EUR/USD pair is a good starting point, since almost one in three trades takes place in this currency pair. It is thus a very liquid and transparent rate. Get a feel for the movements and use tight stop losses.
When you have a winning trade, take profits and try to ride the movement/wave for as long as possible, locking in profits as it moves in your direction. It does not matter whether you have eight losing trades and two winning trades as long as the winners pay for the losers and some more.
Dr. Brown: You mentioned to me in St. Petersburg, Florida last March that it's easy to get addicted to the screen and overtrade. What do you mean by that?
Thomas Fischer: In the currency market, rates are moving constantly. There's always an opportunity to make, or a trap to lose, money. You can have instant results because sometimes it only takes a minute to make a winning/losing trade. It becomes addictive - like being in a casino.
Dr. Brown: There are a lot of things taught in international financial management MBA courses about forex, ranging from interest rate parity to Big Mac indexes. And economics professors love to say the markets can't be forecasted in the short term. Do you agree? And what do you feel are the most important things forex traders should pay attention to?
Thomas Fischer: Fundamental trading is a completely different animal. Here you make long-term predictions (Big Mac Index), and all things being equal, you can make a good prediction five to 10 years out in the future.
However, most investors cannot wait five to 10 years and in between, the rates, could have been all over the place. I have heard speakers [Thomas is referring to Harvard University Economics professor Dr. Kenneth Rogoff, Ph.D.] say that making a currency prediction for less than two years is like flipping a coin!
I don't fully agree - but there is some truth to that statement.
However, with experience and patience, you can learn to read the market and make a profit. But it's paramount that you have a strict discipline and follow the strategy. You can never just log on to the computer and make a profit for a new suit or an expensive dinner with your wife - the market doesn't work that way.
- End of Part 1
I'll be going into more detail in the next part of this interview with Thomas Fischer, currency trader of Jyske Global Asset Management, in my next column. Next time we're going to talk about setting trailing stops, forex money management and analysis.
It all starts with education,
Dr. Scott Brown
Editor's Note: The risk of loss in trading forex can be substantial. Leverage can be used both ways - it magnifies gains, but it also magnifies losses. This leverage increases risk in forex to levels where many investors should not be. Trading in forex is not for your novice investor and should be used only in conjunction with a broadly diversified portfolio like our Asset Allocation model.