what we’re going to do now is continue
to build out our foundation and link all
of this together so you’ll recall in
video 1 we were looking at opportunity
set and so far in video 2 we’ve looked
at fixed and floating regimes the
differences between them and the
advantages and disadvantages of both
regimes and our understanding of these
regimes now is going to give us the
ability to move on and look further into
the potential opportunities and
volatility in the forex market what
we’ve also done by doing this is what we
mentioned earlier which was to start to
really build an understanding and
foundation of all things macroeconomics
all things macro and this is gonna
continue to be a theme throughout the
video series as we refer to earlier the
forex trading master class is as much a
lesson in macro economics in
international trade as it is for
learning how to trade the currency
markets outright or as part of a
portfolio so we’ll continue to build
that out and build our macroeconomic
knowledge but we can use this knowledge
now for our objective of defining an
opportunity set and we’re going to
continue to drill further in defining
what our opportunities may be in fixed
regimes
there’s obviously very little volatility
unless the fixed regime breaks and that
means the central authorities basically
decide not to support their currency
anymore or decide in some way to leave
the regime
but what we’ve got to do in order to
continue to build out our opportunity
set is we’ve got to understand further
how the pegs actually work in practice
and this is also by default going to
increase our macroeconomic knowledge so
if we ever see these things in the
future where a fixed regime or PEG
breaks away then we know potentially
that volatility is going to occur and we
know how to deal with this situation so
we’ve got to understand how the pegs in
the real world actually work and you’ll
remember earlier from the forex markets
organized sheet that we split up our
pegged regimes into X commodity and
commodity pegged situations in the
commodity section we had most or all of
the GCC countries and we had the Chinese
yuan in the X commodity paint area we
had the Danish kroner the Hong Kong
dollar and the Singapore dollar and what
we’ve done for you in the download
section of video number two there is
another spreadsheet entitled Forex
universe tradable complex and in the
first couple of sheets within the
spreadsheet file and you’re going to see
tables which relate to pegged regimes so
let’s go in there and to open this up
now
so what we have here is ex commodity
paint and commodity paint and inside the
next sheet we have them all laid out as
ex commodity paint and commodity paint
but with what we call the upper and
lower bounds of the fixed or pegged
system and on the right-hand side here
in column a we also have some
qualitative notes on how the pegs
actually like now we’re not going to go
through every single one of them we
don’t really have time for that in a
video series but what you should do is
in your own time go through every single
one of these and really learn about them
because in the future these pegs may
change and you should always keep this
in the background so overall what we’re
going to do is basically make the
statement that in fixed and pegged
regimes day to day week to week month to
month or over any decent time horizon
the value of the peg or the value of the
exchange rate is not going to change
materially we’re not going to get
significant volatility out of them
regularly and therefore we can’t make
money consistently as traders out of
these currencies so we’re going to have
to disregard the vast majority if not
all of our peg currencies but we’re not
going to be lazy and just completely
ignore them
we’re still going to learn about them so
in your own time please learn about
these and go through all of the
qualitative
the qualitative statements here in : hi
and learn about these pegs and what they
actually mean you’ll learn some
different definitions for example the
Chinese yuan being pegged to a crawling
as a crawling band being pegged to the
u.s. dollar
and essentially of being a hybrid
situation where it’s a crawling band
slash manage float and there’s a daily
fixing 9:15 in the morning Beijing time
and the bands and bandwidth of the pegs
are managed every day so go through all
of these learn about them and in your
own time you can begin to really
understand how they work we’re just
going to go back to the presentation now
and what we’re going to try and move
onto is where our real opportunities
will exist and for our real
opportunities exist in the floating
situations the floating regimes so our
opportunities as traders in the currency
markets are really dictated by
volatility and the volatility is
primarily in the floating regime
currencies and what we’ve done is we’ve
taken the same approach as the fixed or
pegged we’ve in the forex universe
tradable complex spreadsheet file got a
couple of sheets in there that break
down everything for you by ex commodity
floating and also by commodity floating
07:59
so let’s go into the sheet now and we
08:03
can show you how this is broken down so
08:06
we have all our floating currencies here
08:08
whether it’s X commodity or commodity
08:12
and we have our two tabs here X
08:14
commodity and
08:16
mati floating and if we go into the ex
08:19
commodity floating you can see that we
08:21
defined by developed float EMEA float
08:25
and Asian float so there are no Latin
08:29
floats for ex commodity and in commodity
08:33
float we’ve defined by developed EMEA
08:37
asian and letter so now we’ve drilled
08:42
down a further level we’ve drilled down
08:47
another level and said ok we understand
08:50
fee for the fixed Forex regimes but
08:57
we’re going to understand them but not
09:01
trade them over timeframes that as
09:06
traders we need to trade over in order
09:10
to make consistent profit the fixed
09:13
regimes are not going to make us money
09:15
over classic time horizons like one day
09:19
one week one month three months maybe
09:23
even a year because the fixed regimes
09:26
are trading in extremely tight ranges
09:31
and we don’t want to be sitting here as
09:33
trailers for months or years on end just
09:37
watching currencies doing nothing and
09:40
hoping for something to happen but we
09:44
need to understand them because when
09:46
something does happen we will be able to
09:48
trade them so let’s not 100% forget them
09:51
let’s just put them to one site and what
09:55
we’re trying to achieve here is to get a
09:58
tradable opportunity set that allows us
10:01
to consistently make money from the
10:03
forex market and we’re trying to define
10:07
this opportunity set not just in terms
10:13
of consistent volatility and consistent
10:18
opportunities we’re also trying to
10:21
define this opportunity set in terms of
10:25
what is tradable
10:28
what is tradable on general trading
10:32
platforms and get to a point where we
10:34
have an opportunity set that’s tradable
10:37
for the retail environment it’s going to
10:41
be obviously very difficult if you’re a
10:43
retail trader to take positions in the
10:47
Egyptian pound so we then even move on
10:52
to the next level which is to say oK
10:56
we’ve defined our opportunity set in
10:59
terms of volatility and opportunities
11:02
but now we need to break down even
11:04
further what we can and can’t trade and
11:09
what’s tradable is what you see here in
11:13
front of you defined as X commodity
11:16
pegged X commodity floating and
11:20
commodity floating so we have included
11:24
some X commodity pegged currencies here
11:28
because they are actually tradable on
11:30
most decent retail brokerage trading
11:35
platforms whether that’s as CFD so
11:38
contract for difference in the United
11:41
Kingdom Europe and Asia Pacific or in
11:44
the futures market in the US and Canada
11:48
and we’ve got this list for you here in
11:52
the forex universe tradable complex
11:56
spreadsheet in that file and we have all
12:01
the tradable instruments here what we’ve
12:04
also got is what’s generally not
12:08
tradable so we’ve split that up into the
12:12
X commodity floating currencies the
12:14
commodity floating and the commodity
12:16
pegged currencies these are a universe
12:22
that basically are generally not
12:24
tradable
12:25
on retail trading platforms so again
12:30
download the spreadsheet go through the
12:32
process yourself understand how we’ve
12:34
got to this point and you’ll be able to
12:38
do that in your own time
12:40
we have the tradable complex here what
12:47
we have here is the non-tradable complex
12:49
so screenshots of the spreadsheet that
12:52
you have access to in the Downloads area
12:54
and what this leaves us with is a
12:58
situation where we can now define in an
13:04
even more specific way so we can start
13:09
to define as X commodity floating majors
13:16
now what that means is is that the
13:18
currency is a floating regime it has
13:24
diversity in its exports so it’s not
13:27
dependent on one or two commodity prices
13:29
and it’s considered a major currency by
13:35
retail brokers we have here the X
13:41
commodity floating – so these are
13:45
currencies that are available on a lot
13:49
of retail brokerage trading platforms
13:52
but they’re defined in our set as
13:55
floating currencies floating raegene
14:00
currencies that don’t have significant
14:02
commodity exposure and diversity in
14:06
their exports but they’re considered by
14:09
the retail brokerage platforms as the
14:11
minors so minor currencies we also then
14:17
split up by commodity float and
14:22
commodity foot so commodity float majors
14:25
and commodity float – so the commodity
14:29
float majors so majors is considered by
14:33
retail brokers that are floating regimes
14:37
and the value of the currency depends
14:41
very heavily on the prices of one or two
14:45
international commodities and then we
14:48
have miners that are considered miners
14:52
by retail brokerage platforms
14:55
that are also dependent heavily on one
15:01
or two commodities so what you see in
15:04
this table here is a big extension of
15:07
what you might see on typical media
15:11
outlets where you get that a lot of the
15:14
noise perpetuated by participants with
15:19
conflict of interest we’ve created the
15:23
big extension we’ve increased our
15:26
universe by defining correctly how
15:30
currencies should be defined or any
15:33
asset should be defined as a trader
15:35
defined by volatility opportunity risk
15:40
and availability we also have right on
15:45
the corner here our X commodity pegged
15:47
situations so these currencies are
15:49
generally available on retail brokerage
15:51
platforms but really we’re interested in
15:54
where the volatility is we’ve included
15:57
them just in case
15:58
Peg’s may change but we’re really
16:02
interested in what’s going on over here
16:05
we had earlier the dollar majors and the
16:08
major crosses as a table that’s the
16:11
generally accepted table for media
16:14
outlets and participants with conflict
16:17
of interest in the currency markets what
16:19
we’ve done is now extended this and what
16:22
we’ve got here is a breakdown of the
16:29
classifications that we’ve applied so
16:33
we’ve got X commodity float majors 5 in
16:37
total X commodity float miners 4 in
16:42
total commodity float majors 3 in total
16:45
commodity float miners 8 in total X
16:49
commodity paid 3 in total total
16:52
opportunities equal 23 but debatable
16:55
because of the commodity paint situation
16:58
total opportunities 23 gross net 20 and
17:04
all of these currencies
17:07
in theory can all be traded against each
17:09
other so the maximum opportunity set
17:12
we’ve got if we have a platform where we
17:15
can trade all of these currencies well
17:17
they can all be traded against each
17:19
other not just against the US dollar and
17:21
not just the majors traded against each
17:24
other but across the whole spectrum so
17:29
in theory the Norwegian kroner doesn’t
17:33
have to be just traded against the US
17:36
dollar the Norwegian kroner can also be
17:39
traded against the Aussie dollar so
17:44
we’ve also applied some qualitative
17:47
analysis here in that we’re looking at
17:52
potential volatility and generally
17:54
speaking what you’re going to find is
17:57
that the more liquid the currency pair
18:01
the less likely volatility will occur
18:06
because with more liquid currencies
18:12
there’s more participants at any one
18:14
price find buying and selling and this
18:17
reduces volatility overall it’s kind of
18:21
the opposite to the way retail traders
18:24
think a lot of retail traders think that
18:26
it’s good to go and trade the liquid
18:29
currencies because they have less risk
18:32
but risk is subjective especially if
18:35
you’re leveraging 200 times in that
18:38
asset to try and capture volatility that
18:41
doesn’t really exist so generally
18:44
speaking the more liquid the currency
18:47
pair the less likely volatility is going
18:50
to occur with more illiquid currencies
18:53
we’re going to pay a wider spread and
18:56
have a higher margin requirement however
18:59
we can use less exposure to obtain
19:03
higher volatility and returns with
19:06
liquid crosses retail traders are
19:09
generally forced into over leveraging in
19:11
an attempt to magnify the volatility
19:14
over short time horizons and we’re
19:18
talking about volatility here that might
19:20
not
19:20
Sara Lee exists and what you’re going to
19:23
find in trading currencies is that the
19:26
big profits can be made in currencies
19:33
that you wouldn’t normally expect the
19:37
big profits are the big opportunities
19:39
they come obviously with risk but the
19:43
risk can be controlled whereas the
19:46
volatility can’t the volatility just is
19:49
the volatility of the asset and that
19:52
gives you even beep opportunity or not
19:54
to take positions and make my big
20:00
profits in trading liquid currencies can
20:03
be made especially if you’re massively
20:06
over leveraging but this comes with a
20:09
huge risk of hefty losses and this is
20:13
one of the main reasons why the vast
20:16
majority as in over 90% of retail
20:21
traders lose all of their money or very
20:24
close to all of their money in a very
20:26
short space of time it’s because they’re
20:29
trying to capture volatility that
20:31
doesn’t exist with large amounts of
20:36
leverage now we need to think about this
20:38
on the flip side volatility creates
20:42
opportunities for traders now if we
20:45
select a very liquid very popular
20:48
currency pair to trade and we want to
20:53
trade this on a very short time frame
20:55
and there’s very little volatility in
20:58
the popular currency pair
21:00
that means there’s less opportunity for
21:03
the trader but it also means there’s
21:05
less risk for the broker and we’re going
21:08
to come on to this later one of the main
21:11
reasons why brokers want everybody to
21:15
trade these currency pairs the majors
21:18
and the major crosses so the dollar
21:21
majors and the major cross is against
21:23
each other is because simply they’re
21:26
just the most liquid and that means less
21:30
risk for the broker we’ll come on to
21:33
that later
21:34
but essentially we’ve got a maximum
21:36
opportunity set now of five hundred and
21:38
six currency pairs across this entire
21:44
spectrum here you’re going to find this
21:47
sheet over here and this is the tradable
21:53
crosses opportunity ranked Excel
21:56
spreadsheet we’ll be looking at this
21:59
later as well
22:00
when we look at the examples that were
22:03
going to use in further video modules