Get ready, because today I’m going to clue you in on one of the biggest secrets in trading.
This is more exciting than the next big trade, more enlightening than what I think about today’s market, and more fun than what I did in Miami last week (more on that later).
This is the nuts and bolts of what this job is really like.
You might think it goes something like this…
A bunch of guys go into the office every day. There’s a sea of cubicles full of traders, and they just take calls all day.
Maybe someone calls in and says, “hey, I want to buy 10 million euros.” The sales guy puts down the phone, screams across the room, “I’ve got to get 10 million euros,” and somebody else does the deal. They might even do it electronically.
That’s kind of the stereotypical day in the currency markets.
It’s a lot of back and forth, and by 3:00 nobody wants to answer the phone because they’re going to go home and they don’t want to take a trade that sits on the books overnight.
But that’s only one example of currency trading. Fact is, there is no one standard way to do this job.
Here are just a few of the options…
Somebody took me on a tour at Wells Fargo back in 2007. I got to see the bank’s whole trading operation, talked to some of the prop traders, and just generally got to look around.
Sound glamourous? Not exactly.
What most people think is some sort of global command center was just two rooms with this really dingy gross carpeting and about 10 people sitting in cubicles managing a few hundred million dollars of Wells Fargo’s money. There was one manager type who sat there all day and managed their money management.
It was literally just like an internal fund that traded the currency market. Each trader had their different methods and systems of trading and they would sit there trying to find out what was going to happen next and then take a bunch of trades on that information.
Hedge Fund Traders
In his annual letter to Berkshire Hathaway shareholders about 10 years ago, Warren Buffett disclosed that he was long the Australian dollar and that he had a sizeable holding of long-term options on the Aussie.
Huh, that’s weird.
Buffett trades currencies?
Yeah, he does (or at least he did at that time), and I’m sure that turned out to be a great trade for him.
Generally speaking, when you see a hedge fund making money on the currency market, they’re doing it by trading options on currencies.
What Buffett, and other hedge fund traders do, is they try to make sure that if the value of one currency goes up that their businesses aren’t negatively affected. They make enough money on the options trade to compensate for the fact that stuff they buy from Australia was getting more expensive.
That’s how traders offset and hedge currency movements.
And then there’s me, and the thousands of traders like me. The retail traders at home who are sitting in front of a bunch of computers, looking at charts and then trading short-term.
Actually, I don’t sit in front of the computer all day. I’m usually just training robots that run automatically, so I can get up and do what I want.
What’s my extra computer space for?
I just use it to look at pictures of Tesla roadsters and watch sports highlights. It has nothing to do with trading, which is exactly how I like it.
What’s your trading setup like? If you have pictures, send them to firstname.lastname@example.org! I’d love to see your setup.
Also, do you guys know how to spot the best opportunities in currency markets? If so, when is the perfect time you take those opportunities?
I spent some time addressing this question for you, so take a brief second to read this.