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Off Exchange Foreign Currency Market (FOREX)

FOREX - The Perfect Market To Trade - updated August 7, 2014

Markets exist to provide a way for people to buy or sell commodities and to raise or invest funds. Many people and businesses trade FOREX for the purpose of speculation, that is to buy and sell currencies solely for the purpose of making profit. Speculative FOREX trading helps make markets more efficient and liquid. FOREX trading is a noble pursuit that contributes to the health of the markets, reducing the cost of doing business and assisting in the stabilization and expansion of the global economy.

FOREX is the best wealth creation and recession proof business there is. Here is why Forex is the best opportunity for informed investors and traders and why that opportunity is growing and will continue to grow for many years to come.

Global Markets Volume Annually ...

  • Stocks: $54 Trillion
  • Bonds: $157 Trillion
  • All Forex: $1400 Trillion ($4 T daily: Spot, Futures, Swaps, Options, Forwards)
  • Spot Forex: $547 Trillion ($1.5 T daily, the market ForexGridMaster trades)

eurusd weekly volume of trading increasing

Each of the green vertical lines at the bottom of the above EURUSD weekly price chart graph, represent the volume traded for one week. The EURUSD is the most heavily traded currency pair. This indicates very clearly that the number of investors participating in the FOREX market has grown considerably as the great majority of traditional investments are no longer safe.

The Spot Forex market offers amazing potential for informed investors and traders. Recessions around the world are getting worse and Stock markets are expected by those in the know to dive any day now. Investors will most likely lose at least half of their money and any kind of recovery will probably not happen for many years. We already know that it's a very vulnerable market, that stocks crash and lose value. The bond markets are in deep trouble too because they are debt markets based on loans. Argentina and Iceland have already defaulted on their loans and went bankrupt. The US came within 8 days of going bankrupt. Greece, Portugal, Spain, Italy, Ireland, Japan, Singapore are all on the edge, and when they go bankrupt, their debts can no longer be paid, and so they instead will be written off. So it's not if the stock and bond market will crash but when.

The Forex market is safe however because what can happen to stocks and bonds cannot happen in Forex. Not considering inflation, there is a fixed amount of money in circulation globally. The money supply, the Spot Forex which is what forex traders trade in, does not disappear. The value of one currency may become worthless within its economy and so that currency won't buy much in that country but the money itself does not disappear. When one currency loses value another currency has to rise in value because in the Spot Forex market one currency is always traded for another. If you travel to another country, you usually exchange your currency for that country's currency to be able to spend money there. The overall balance of global currencies always remains the same. It's the transfer of value from one side to another. As an example, if you are trading the USDCAD, or watching the USDCAD exchange rate, if the US dollar is falling in value, then the CAD dollar is rising in value proportionately. While stocks and bonds lose their value forex always remains balanced. The Forex "market" can't lose value like other markets.

This is what is already happening ...

  • Governments are going broke.
  • Equity markets including stocks and bonds will be wiped out & savings, investments, pensions, social security funds and everything else traditionally tied to those markets will be devastated to some extent.
  • Most investors are already losing or will lose their money.
  • Spot Forex trading can be more volatile but overall, the net value remains intact.
  • Spot Forex traders will be safer and able to profit
  • Spot Forex trading can also be done more safely by trading a portfolio of currencies.

There is another aspect of Forex that most people, even most Forex traders are not aware of, that is very much in their favour. This is about the money circulating within the Spot Forex market, where it comes from and where it goes. Forex is regarded as a speculative market. Swaps, Forwards, Options and Futures are used for speculation and make up 60% of the total market. We don't trade in that side of the Forex market, we trade the Spot Forex market, a stand alone market separate from the rest of the Forex market. The spot market is mostly non-speculative, 70 to 90% of all spot transactions being done for non-profit making purposes. Speculators only account for 10 to 30% of the spot market transactions. Therefore speculation is a minority activity and almost all of the trading is done by people and organizations that are not the least bit interested in making a profit.

When you travelled to another country, did you exchange your money for theirs to make a profit or to simply be able to pay for your stay and activities in that country using their currency. Most of the spot market is there to enable International trade between countries. When Canada buys a fleet of Toyota vehicles from Japan they must exchange Canadian dollars for Japanese yen in order to pay their Japanese suppliers. Speculation and profit play no part in that exchange of those two currencies. These types of traders are making utilitarian trades but in essence they are losing traders to speculators. Spot Forex is the largest money market in the world, with the highest volume of money in history flowing through it and only 10-30% of it is there for profit making. Forex traders are speculators operating in a mostly non-speculative market. The value in the Spot Forex market cannot be wiped out. Forex is recession proof, always holding its total value in balance. The profit flows from the 70-90% to the 10-30%.

And it gets even better because the market structure and the way liquidity is offered is changing, and in favour of Spot Forex traders. The provision of liquidity can be a complex topic. To keep it simple, up to now liquidity has been mostly provided on a dealer to dealer basis between banks. It has been a bank to bank market. Because we are not banks, traders have been given liquidity on a 2nd or 3rd tier structure via dealers to client which is not as competitive as the inter-bank rate.

Starting in 2010 however, there's been a flood of new "all-to-all" multi dealer platforms signaling a shift in how banks are re-structuring their forex services in the wake of the 2008, 2009 banking crises. Banks are starting to give us as retail traders more direct access to their liquidity by cutting out more middle men. This means that we are getting more and more liquidity at more and more competitive prices and quicker. Forex trading is getting easier, faster and cheaper. It's the best market in the world and getting even better. ForexGridMaster owners can directly connect to bank liquidity via an ECN forex broker such as IC Markets, giving them full control over their own future.

The FOREX market is unlike any traditional market not only because of its sheer magnitude, but also because the entire market is run electronically, within a network of banks and it is not centralized. The currencies traded in this spot market are the lifeblood of the global financial system which is used nearly every day by every person and business in the world. This market's liquidity and competitive pricing is unsurpassed. FOREX speculative spot trading and related business activity is accelerating exponentially. Online trading, web-based research and analysis, combined with competitive pricing have made the market much more accessible since 1998, and no longer a monopoly of the large banks, financial institutions, and investment funds. Millions of individuals and smaller businesses now actively trade FOREX.

FOREX trading can be very lucrative. However ... BE WARNED ... that it is not for everyone, and in fact, it seems that only a small percentage are able to trade and consistently make profit, while the other 95% or so fail. It requires a great deal of discipline and know how in regards to technical, fundamental, and sentiment analysis as well as risk and money management to trade the FOREX successfully. You are also trading in the same environment as the big banks and the government entities that intervene when they please to make price go the way they want it to. Like any other profession, it takes years to become proficient at it, and even then, a certain talent and ability is required. Having said that, newer and better Forex trading education, non-dealing desk ECN brokers, low latency trading from VPSs in the same data centerts as the broker servers, automated robot trading and now social trading, are real game changers enabling smart but new traders to become profitable more quickly.

Just how profitable can it be trading the FOREX market? You hear sometimes about FOREX traders making as much as 50 per cent per month and even more, but months that profitable are rare and you don't hear about the losing months of those same traders. In regards to establishing good long term track records I refer you to an important article by John Mauldin, the best asset manager guru of asset manager gurus out there in my opinion, whose newsletters I have been reading for several years. All the best financial experts and newsletters out there often refer to and quote John. The article is very informative and sobering regarding the truth point blank about high yield (John's website). Again, having said that, ForexGridMaster can place and exit far more trades far faster and far more accurately than even a large professional team of manual traders, and with perfect discipline, fully hands off on automatic pilot, during all open FOREX market hours, 24 hours, 5 days per week, and so 50% per year and more is not so difficult to achieve and safely.

Why is trading FOREX so attractive? The answer is leverage and low trading costs. You can dramatically leverage money and your time and place. No other market can compare. You can trade $100,000 by putting up $1000 on 1 per cent margin (100 to 1 leverage). Now many brokers allow upwards of 500 to 1 leverage, even 1,000 to 1, enabling you to trade $100,000 (standard lot size) with as little as $100 on margin. That's quite different from the usual 50 per cent margin requirement in equity markets. There are no daily limits and you have total access to your money whenever you want to open any trade position you like at any time. The FOREX market is open 24 hours a day from Sunday evening through Friday afternoon EST, and at any place in the world where you have a phone or Internet connection. There is no need for banks or brokers as you can just log on to your trading account and click buy or sell. For backup, you can always call your brokerage firm to make the trade for you, or even have someone you trust do it for you, or have your automatic trading robot in action from your always on VPS (Virtual Private Server).

The FOREX market is simpler to trade than stocks, futures and options. You can buy or sell currencies and profit when the market is going up or down. There are no restrictions when selling (shorting) currencies as there are in the U.S. stock markets. There are no required contract sizes, expiration dates, and other constraints found in the futures and options markets.

You generally do not have to pay commission fees. The brokerage firm collects the spread cost between the buy and the sell price of the currency pairs, which is built in when you open a buy or sell position in the market. The exception is at ECN brokers dealing with higher trade volumes than the regular retail FOREX brokers in which case commissions are charged and are less than the spread costs.

You can also trade with currency options enabling you to limit your risk just to the amount of the premium you paid for your options contract. You decide how much risk you are comfortable with for yourself.

You can also now trade gold and silver and much more at most FOREX brokers.

The potential for profit, trading the FOREX, can be very substantial, and it can also be very risky. FOREX as a spot market is more affordable, has far lower minimum account opening amounts (as low as $100), is less volatile, more convenient and more liquid than the stock market. Profits can be compounded, as once initial profit is made, it can be multiplied by increasing the lot size traded and or the number of open positions. Your profits are also added to your account and compound until they are withdrawn. View compounding examples.

Then along came automatic trading system robots, the most popular being MT4 Expert Advisors (EAs). This has become my favorite by far. In my opinion, automatic trading software technology understood and used properly can give you very significant advantages...

  • Trades 24 hours, 5.5 days a week, far faster and more accurately than even a large team of manual traders, and with perfect discipline. My robots trade for me and I do not even have to be there, although some strategies do need to be monitored more than others.
  • Trades multiple accounts (Master-Clone EAs), multiple strategies and currency pairs simultaneously in order to diversify and reduce risk, as well as smooth out equity curve and reduce floating draw-down periods and amounts.
  • Grid trading using EA robots is my favorite method. This means continuously placing pending trade orders above and or below market price. In my opinion, this is the most powerful trading method there is because it is able to trade and close profitable trades from all price swings in the market, from the smallest to the largest, going up or down. Grid trading however can be a high risk method because of the potential for exponential increase in floating equity draw-down when huge unexpected price swings occur, which add more and more open trades in the negative. It takes well thought out strategies to counteract this aspect of grid trading. It's not for the timid or inexperienced. It's a high risk, high reward venture. I have developed specific EA robot input settings and mathematical calculators and strategies for controlling floating equity draw-down that the grid trader will inevitably encounter.
  • Removes emotions of fear, greed, and worry, executing trading systems and strategies the way they are designed to, providing they are not interrupted by technological failure, which is becoming less and less of an issue as trading technology evolves.
  • During Technological crisis, orders may not be filled as placed. Trading on a particular electronic trading system may differ from trading on other electronic trading systems, or other market systems. If you undertake transactions on an electronic trading system, you will be exposed to risk associated with the system, including the failure of hardware and software. The result of any system failure may be that your order is either not executed according to your instructions or is not executed at all. That is why it is absolutely critical to make sure you are trading with competent brokers and that you always take this into consideration when creating your strategies.

I am very well connected to the FOREX networks and list-owners on the Internet (since 2001) and so have been able to keep track of probably all the most notable FOREX systems and robots coming out on the market. I have personally tested 100s of them and 99% are garbage and the hype is outrageous. Out of the many 100s of commercial robots available now, there are a genuine few that I am working and trading with.

Since September 1, 2013, the latest version of our ForexGridMaster (v5.00) EA robot (in development since 2005) has been available for purchase after completing two years of beta testing. It is specifically designed to enable traders to easily create their own automatic trading system strategies and also share strategies with other traders. ForexGridMaster has specific added features and uses positive CloseRuns and a HedgeGrid system to solve the key problem that most traders have with grid trading strategies, the accumulating open negative trades.

To illustrate the real potential that Automatic Trading System EA Robots have for making lucrative profits, here are the results from the 2008 (world) Automatic Trading Championship which was run from October 1st to December 26th, 2008 at Starting capital for all participants was $10,000 and all trading was totally transparent to the public, broker statements uploaded automatically for viewing, lots of trading statistics, and excellent interviews with the system developers.

  • Top 50 participants at least doubled that money.
  • Top 33 at least tripled it.
  • 5th place finished with 13.7 times the start capital.
  • 4th place with 13.8 times.
  • 3rd place with 15.5 times.
  • 2nd place with 15.6 times.
  • 1st place with 16.9 times at $169,584 from the $10,000 start over the 3 months.

You can practice and learn to trade the currency markets without risking any money by using free demo accounts and studying the tremendous amount of FOREX trading information available on the Internet, some of which is excellent. If you want to cut to the chase and go direct to the best hands on FOREX trading education possible (altho manual trading) then I highly recommend Jimmy Young (20 year big bank trader) whom I trained with at Unfortunately I spent tens of thousands of dollars on trainings, trading courses, webinars, etc. before I found Jimmy. Please note that I receive no remuneration for this recommendation. Still, in the end I have chosen automatic trading robots as my main focus and Jimmy's training has helped wiuth that too.

The six major currencies traded in the currency spot market are the USD (United States Dollar), the EUR (Euro), the GBP (British Pound), the CHF (Swiss Franc), the JPY (Japanese Yen), the CAD (Canadian Dollar) and the AUD (Australian Dollar). These are traded in pairs... EUR/USD, GBP/USD, USD/CHF, USD/JPY, USD/CAD and the AUD/USD. For example with the EUR/USD pair you may open a Buy position which means you are buying the EUR and selling the USD simultaneously. The Buy price could be 1.3350 which means it costs $1.3350 US to buy one Euro. The Sell price would be 1.3348 with maybe a 2 pip spread.

May the pips be with you, James King
Trading Forex full-time since 2002
ForexGridMaster Developer since 2005

Keys to Grid Trading

Power of Compounding CloseRuns
Proper Back-testing, Optimization
and Walk Forward Testing
Traders VPS and Latency Chart
99% Modelling Quality Back-testing

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DISCLAIMER - ALL TRADING INVOLVES RISK OF LOSS - Past performance does not guarantee future results. Trading forex, gold or silver, or any financial instrument is speculative in nature. Therefore, only risk capital should be used. Forex trading is not appropriate for all investors. You should carefully consider whether such trading is appropriate for you based on your financial situation, investment objectives, and risk tolerance. Every investor should consider all advice and all offerings of products and services on their own merits and for suitability to the investor's personal needs and circumstances.