8 Beat the Forex Dealer
 
equity capital and excluding balances (R) in limited partners’ capital accounts inexcess of their stated capital contributions), par A or stated value of capital stock,paid-in capital in excess of par or stated value, retained earnings or other capitalaccounts, may be withdrawn by action of a stockholder or partner or limited lia-bility company member or by redemption or repurchase of shares of stock by anyof the consolidated entities or through the payment of dividends or any similardistribution, nor may any unsecured advance or loan be made to a stockholder,partner, sole proprietor, limited liability company member, or employee if, aftergiving effect thereto and to any other such withdrawals, advances, or loans and anypayments of payment obligations (as defined in paragraph (h) of this section) undersatisfactory subordination agreements and any payments of liabilities excluded pur-suant to paragraph (c)(4)(vi) of this section which are scheduled to occur withinsix months following such withdrawal, advance or loan:
(1) Either adjusted net capital of any of the consolidated entities would be less thanthe greatest of:
(i) 120 percent of the appropriate minimum dollar amount required by paragraphs(a)(1)G)(A) or (a)(1)Gii)(A) of this section;
(ii) For a futures commission merchant or applicant therefor, 120 percent of theamount required by paragraph (a)(1)(i)(B) of this section;
(iii) 120 percent of the amount of adjusted net capital required by a registeredfutures association of which it is a member; or
(iv) For an applicant or registrant which is also a securities broker or dealer, theamount of net capital specified in Rule 15c3—1(e) of the Securities and ExchangeCommission (17 CFR 240.15c3—1(e)); or
(2) In the case of any applicant or registrant included within such consolidation, ifequity capital of the applicant or registrant (inclusive of satisfactory subordinationagreements which qualify as equity under paragraph (d) of this section) would beless than 30 percent of the required debt-equity total as defined in paragraph (d) ofthis section.
Provided, That this paragraph (e) shall not preclude an applicant or registrant frommaking required tax payments or preclude the payment to partners of reasonablecompensation. The Commission may, upon application of the applicant or regis-trant, grant relief from this paragraph (e) if the Commission deems it to be in thepublic interest or for the protection of nonproprietary accounts.
(Approved by the Office of Management and Budget under control number3038-0024)
[43 FR 39972, Sept. 8, 1978]Index
 
200-1 leverage 36, 59accountability shortfalls, currency markets11-12accumulation stage, trend example99-100active fund managers 26adapting to the FX market 75-82,151-5Allied Irish Bank 17alpha excess returns 26‘always be fading’ attitudes 122see also fade ...Amaranth 15-16ambushes, important times of the day 78analysts 9-10, 47-9, 113-16, 189-90critique 47-9, 113-16, 189-90jargon 113-14, 179-80roles 113-14Apple 31-2arbitrage 5, 9-10, 14, 21, 27-8, 139arrogance/self-confidence contrasts,traders 16-17, 49Asian money center 76-8, 83-5asset classes 25-6asset managers 25-6
AUDUSDStatistics 24trends 98-9
Australia
AUDUSD 24, 98-9market share statistics 25average traders, great traders 14, 121-2,147
backoffice systems 23
bank aims, off-balance sheet earnings10-11
Bank of America 10
Bank of England 26
Bank of Japan 100Bankers Trust 16banks 10-12, 19-20, 28-30, 146see also central banks; interbankmarket; prop desksdealers 27-8, 119motivations 10-11overseas bank accounts 146roles 10-11, 19a select club 10-11unfair playing fields 11-12, 34Barclay’s Capital 10Barings Bank 17baton-passing factors, money centers76-8bear markets, pivot points 79-81Bear Stearns 61behavioural psychology, markets 3-7,57, 126-7, 163, 170-1best-performing funds 3bibliography 191bid/ask spreads 23, 137-41, 181big boys of FX 10-11Big Figure Tradeconcepts 122, 123-30, 181identifying the setup 124-5keys to the trade 126, 130set your orders 125-6steps 123-5the big picture 151-5‘big-to-small’ approaches 87‘Black Monday’ 19 October 1987 4, 6,64‘Black Wednesday’ (1992) 26Bloomberg 64Bollinger bands 94-5, 153bonds 98boredom 81-2, 85bottoms 30-1, 187210
Index
 
breakouts 65-6Bretton Woods 181Bretton Woods II (BWII) 145brokers 11-12, 21-2, 27-32, 33-4,35-41, 43-6, 123-30, 137-41, 182,189-90see also FCMsBig Figure Trade 122, 123-30, 137card stacking 35-41change needs 46complaints 52-3creditworthiness factors 43critique 35-41, 43-6, 137-8,189-90dealers 27-8demo accounts 53due diligence checks 43-4, 53‘expert’ third parties 47-9, 54,113-16‘forex trading contests’ 38-9fraud 44-5future prospects 145-7historical background 35-6Internet 35, 38, 43-4, 137marketing machines 38-41minimum net capital requirements45-6, 193-208official actions 52-3outlawed operations 36-8overleveraging practices 36-8, 59price shading 11-12, 40-1pricing 11-12, 40-1, 43-4, 137-8profits 34, 37-8, 137-8roles 182‘slippage-free’ execution 44-5, 137trading against the clients 36-8transparency shortfalls 36-40
tricks 11, 19-21, 37-41, 43-5,137-8
trust 43-6
unfair playing fields 11-12, 34,36-41, 53
bubbles 3-4, 26, 35-6
‘bucket shops’ 36
building a position, concepts 163-7
bull markets 6-7, 15-16, 79-81, 181
bullets 165-6
Business Week 190
‘buy’ entry signals 81
“buy the rumor, sell the fact’ scenario120
BWII see Bretton Woods II
cable 179see also GBPUSDCADJPY orders 21Canada 21, 76-8, 163-5, 179candlesticks 69-71, 75, 99, 100, 151-5capital markets, currency markets 75, 97card stacking 35-41carry trades 26catching falling knives 30, 133CBOT 43CBs see central bankscentral bankssee also banksroles 28-9, 65-6, 76, 181CFMA see Commodity FuturesModernization ActCFTC see Commodity and FuturesTrading Commissionchange needs, regulations 46charting applicationsindicators 95price feeds 51-2, 68-71, 138-41chartists 3-4, 67-71, 75-6, 105-8,151-5, 166-7see also technical analysisconcepts 67-71, 75-6, 151-5,166-7four-hour charts 75-6, 151-5chess 14-15, 57CHFJPY 91Chicago Mercantile Exchange (CME)43, 53, 78China 145-6Christian Science Monitor 189Citigroup 10, 11, 40CME see Chicago Mercantile ExchangeCMS 46CNBC 49Coca-Cola 28Commodity Exchange Act 35Commodity Futures Modernization Act(CFMA) 35Commodity and Futures TradingCommission (CFTC)background 35, 43-4, 45-6, 48,52-3, 120-1, 193-208minimum finance requirements 45-6,193-208official actions 52-3complaints, brokers 52-3COMs see currency overlay managersconsolidations, trends 97-8, 174 
Index 211contrarian indicators 30-1, 49 technological developments 11, 23-6,corporate accounts, concepts 27, 28 35-6, 43-4corrections/consolidations, trends 97-8, thin markets 77-8, 83-5, 93-6,
174 120-2, 134-5correlation, future prospects 145-7 third-party services 43-4, 47-9, 54,crashes see stock market crashes 113-16
Creative Technology Ltd (CREAF)31-2credit risk 10-11creditworthiness factors, brokers 43CRM 98crosses, concepts 87-91, 133-5crude oil 98CTAs 27-8see also speculatorscurrency marketssee also FX...accountability shortfalls 11-12adapting to the FX market 75-82,151-5analysts 9-10, 113-16asset classes 25-6baton-passing factors 76-8big boys of FX 10-11Big Figure Trade 122, 123-30capital markets 75, 97CME 53concepts 9-12, 23-6, 43crosses 87-91, 133-5distinctive elements 75‘experts’ 47-9, 113-16FOMC_ 103-8, 183future prospects 143-7knee-jerk reactions 19-20, 110-11money centers 75-82, 121, 131-5,151-5, 166-7over-the-counter markets 35-6, 43,53players 27-32political events 16, 63, 175-6‘pure’ aspects 9
 
regulations 9, 11-12, 35, 43-5,146-7
research benefits 9-10
scams 48-9
scenario planning 153-4
aselect club 10-11
statistics 23-5
stops 41, 51-2, 58, 65-71, 83-5,93-6, 103-8, 110-12, 123-4,125-30, 131-5, 141
time management needs 81-2times of the day 75-82, 83-5, 121,151-5, 166-7today’s market 23-6trading the FED 103-8trading tips 75-116, 122, 123-30,149-76transparency shortfalls 11-12, 36-40trends 68-9, 97-101, 126-30, 151-5turnover statistics 23-5, 27unfair playing fields 11-12, 34,36-41currency overlay managers (COMs)see also speculatorsconcepts 26, 28Currenex 11, 23current account 63custodian banks 25-6*...cut losers short’ 10, 166-7, 169-76
daily trading ranges 94-5, 153-5Darwin, Charles 15dealer trades 117-41dealers 5, 11-12, 19-21, 27-32, 34,37-41, 103-8, 117-41, 183see also market makersbanks 27-8, 119brokers 27-8, 34concepts 19-21, 27-32, 34, 37-41,103-8, 117-41, 183creditworthiness factors 43
electronic dealing 11, 23-6, 37
fade tactics 6, 19-20, 30, 97, 103-8,109-12, 122, 153
FOMC_ 103-8
future prospects 145-7
‘head fake’ tactic 19-20information flows 119-22jargon 179-80
loss leaders 19
order book information 37‘piggy back’ practices 120-2roles 19, 27-32, 37-8, 183runaway market dangers 20‘sticking it to your dealer’ 137-41traders 20-1, 119-22212
Index
 
dealers (continued)trading against dealers 119-22tricks 11, 19-21, 37-41, 43-5,123-30types 21unfair playing fields 11-12, 34,37-41demo accounts, brokers 53Dentsu 61derivatives 17, 35-6, 59, 69-71see also forward ...; futures; options;swapsDeutsche Bank 10developing nations 16-17digital options 71discretionary tradingsee also price actionconcepts 66-71distinctive elements, currency markets75DOJI 69dot.coms 5see also InternetDow Jones 3-4due diligence checks, brokers 43-4, 53
EBS 11, 23, 51, 138‘economic war criminals’, FX traders 16edge, traders 14-16efficient markets 9, 11-12eight-hour charts 75-6electronic dealing 11, 23-6, 37emerging markets 98, 146emotions, markets 5-6, 13-14enemies, friends 43enter/exit positions 66-71, 163-6entry considerations, price ranges 163-6equities
‘big-to-small’ approaches 87
FX contrast 75ERM 26ETF 146EUR/other statistics 24EURCHF 91EURGBP 67-71, 89-91, 120-2EURJPY 24, 91, 124-30European Union, ERM 26euros 24, 26, 40, 67-71, 84-5, 87-91,
94-5, 103-8, 109-12, 115-16,120-2, 124-30, 134, 139-40, 179
EURUSD 24, 84-5, 87-91, 94-5,103-8, 109-12, 115-16, 128-30,134, 139-40, 179fading news 109-12Statistics 24stops 94-5, 110-12thin markets 84-5trading the FED 103-8exchange rate risk, definition 183exchange-traded securities 11, 43, 53Exodus 61‘experts’ 47-9, 113-16extensions, Friday to Sunday priceextension 131-5
fade tactics 6, 19-20, 30, 97, 103-8,109-12, 122, 153, 175falling knives 30, 133FCMs 21, 34, 35-41, 43-6, 123-30,140see also brokersBig Figure Trade 122, 123-30fraud 44-5profits 34trust 43-6FDIC 43, 183fears 5-6Federal Open Market Committee (FOMC)103-8, 183Fibonacci levels 123, 151-2fightback methodssee also trading tipsBig Figure Trade 122, 123-30CME alternative 53concepts 51-4, 57-61, 75-116,149-76flexibility needs 59-61, 163-7,169-70, 171-6Friday to Sunday price extension131-5money management rules 58, 60, 63,146-7, 164, 169multiple lots 59-61, 164-7official actions 52-3overleveraging dangers 59price feeds 51-2, 68-71, 138-41record-keeping needs 52, 154-5self awareness 57-8small trades 59-61, 164-7trading habits 54trading to your strengths 57-8flags 187Index
213
 
flexibility needs, fightback methods59-61, 163-7, 169-70, 171-6flow information, concepts 119-22focus needs 154-5FOMC see Federal Open MarketCommitteefood chain, players 29, 39Forbes Magazine 189foreign exchange see FX markets‘forex trading contests’ 38-9forward contracts, definition 184forward rates, definition 184forward/swap dealers 21, 24-5see also dealersfour-hour charts 75-82, 151-5Frankfurt 76-8fraud, brokers 44-5Friday to Sunday price extensionconcepts 131-5keys to the trade 133-5friends, enemies 43front running 11-12FSA 44FTSE 61fundamental analysis 63, 146-7, 184future prospects 143-7futures 35-6FX marketssee also currency marketsconcepts 9-12FX Solutions 46FX transactions, definition 10-11FXAI 11, 23FXCM_ 38, 46
Gain Capital 46
gambling, traders 14, 35, 37
gaps 83-5, 187
GBPCHF 91
GBPDM 26
GBPJPY 88, 91, 129-30, 140
GBPUSD 24, 89-91, 96, 121-2, 130,
132, 134, 139-40, 152, 179
see also United Kingdomcrosses 89-91flow information 121-2Statistics 24stops 96
GDP 63-4
GE 28
Geneva 76-8
Germany 16, 25, 26
GFT 46globalisation effects 16-17glossary 181-8‘go with the flow’ trading mentalities122gold 98, 100-1Goldman Sachs 10, 12, 26, 40Google 13government bonds 23great traders 13-17, 49, 54, 57-61,121-2, 147, 169-76see also winning tradersaverage traders 14, 121-2, 147greed 5-6Gross, Bill 49gut reactions 175-6
Hamanaka, Yasui 17hammers 69hanging man 69‘head fake’ tactic 19-20hedge funds 5-6, 15, 24-5, 27-9, 47,53, 64-5, 146see also speculatorsconcepts 28-9‘hedging’ capability 40, 146highs, pivot points 79-81Hong Kongbackground 25, 76-8market share statistics 25‘hot money’ moves 70-1, 99, 100HSBC 10‘hunting’ models 16
IBM 4identifying the setup 124-5, 151-5Ikebe, Yukiko 29-30IMM 78imperfect markets 9-10industry contracts 21inefficient markets 9, 11-12inflation 145information 9, 11—12, 14-15, 19-20,23, 31, 37, 51-2, 71, 83, 95-6,103-8, 119-22see also news releasesdealers 119-22insider trading 11-12institutional investors 114-15insurance companies 114-15214
Index
 
interbank market 9-10, 24-6, 27, 33,36, 39, 123-30see also banksconcepts 27, 33, 36, 39turnover Statistics 27interbank rates, definition 184interest rates 63, 98, 100-1, 103-8,
145-6, 183-4Internetbrokers 35, 38, 43-4, 137‘experts’ 47stocks 5, 35-6, 61, 113iPods 31IPOs 113
irrational markets 6-7
Japan 20, 24, 25, 29-30, 35, 91, 97,99-101, 133, 170-6, 179CHFJPY 91EURJPY 24, 91, 124-30GBPJPY 88, 91, 129-30, 140market share statistics 25USDJPY 20, 24, 30, 91, 99-101,133, 170-6, 179jargon 113-14, 179-80Jones, Paul Tudor 13JPMorgan Chase 10jumps 83-5
knee-jerk reactions, currency markets19-20, 110-11Krieger, Andrew 16
Lasker, Ed 14-15last minute positioning, important timesof the day 78learning curves, retail traders 49, 54,147Leeson, Nick 17Lehman Bros 61‘let your winners run, cut losers short’10, 166-7, 169-76LIBOR 78, 185liquidity 11, 15-16, 23-5, 76-81,83-5, 95, 106, 135, 145-7future prospects 145-7news releases 145thin markets 77-8, 83-5, 93-6,120-2Livermore, Jesse 37, 66‘locals’ 5
London money center 76-81, 83-5,131-5see also United KingdomLong Term Capital Management 64long-term players 114-15, 151-5,157-61loonie 179see also USDCADlosing positions 94, 169-76loss leaders, dealers 19lows, pivot points 79-81
M&As 27macro funds 114-16macroeconomic events 16, 63, 175-6Malkiel, Burton 3manipulations, important times of the day78, 93-4margin deposits 21market makerssee also dealersconcepts 27-32, 34, 37, 119-22order book information 37market theory, concepts 5-7marketing machines, brokers 38-41marketssee also currency ...behavioural psychology 3-7, 57,126-7, 163, 170-1concepts 3-7emotions 5-6, 13-14irrational markets 6-7mental toughness, great traders 13-14,174mentoring services 47-9Merrill Lynch 10MIGFX 30, 67-8minimum net capital requirements,brokers 45-6, 193-208mistakes 58, 61‘money attracts sharks’ 190money centers, concepts 75-82, 121,131-5, 151-5, 166-7money management rules 30-2, 38-9,49, 58, 60, 63, 146-7, 164, 169Morgan Grenfell 17moving averages (MAs) 64-5, 94-5,151-5, 159-61mp3 players 31multi-viewpoint perceptions [4-15multiple lots, flexibility needs 59-61,164-7, 171-6Index
multiplication effects, turnover statistics25
‘must do’ flows, important times of theday 78
mutual funds 3, 25-6
NASDAQ 4National Futures Association (NFA)background 35, 43-5, 52-3BASIC 44official actions 52-3natural gas 15-16neural networks 64‘never trust the first price?’ 19-20New York money center 76-81, 83-5,131-5see also United StatesNew York Times 189New Zealand 16, 135, 140news releases 83, 95—6, 103-8,109-12, 131-5, 145see also informationfading news 109-12FOMC_ 103-8liquidity effects 145reversals 110, 112stops 95-6, 103-8, 110-12thin markets 83trading the FED 103-8Newton, Sir Isaac 14NFA see National Futures AssociationNFP see Non-Farms PayrollNightly Business Report 189Nikkei 4Niv, Drew 38‘no dealing desk’ policies 37‘no touch’ digital options 71Non-Farms Payroll (NFP) 84, 110,114-16, 137notes 52, 154-5notional funds 25NYMEX 15NYSE 11, 23, 27
O/B readings 123, 125-30
Oanda 46
off-balance sheet earnings, bank aims10-11
‘off-the-books’ profits 28
official actions, fightback methods 52-3
‘one touch’ digital options 71
215
‘open season’ events 111
opponents, great traders 14-15
opportunity costs 87
options 69-71
OTC see over-