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How do 'successful' Forex Traders deal with their home countires currency fluctuation

Discussion in 'Beginners Bootcamp' started by celestial34, Feb 11, 2011.

  1. celestial34

    celestial34 Recruit

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    Hi All,
    This is my first post, I am new to this forum, and forex trading but have a question that has been bugging me for quite some time, and it comes from a recent trade I did in a stock in the US, as I am in Australia.

    I bought the stock, it appreciated 20%, yet when I sold it, and it was converted back to AUD, it was a loss! The AUD had appreciated so much in that time.

    This got me to looking deeper into this and I realize that this is not something a successful forex trader can ignore. Well maybe a very short term trader..maybe...but someone who trades off longer term charts, i.e. hourlies to weeklies, must surely have to consider this.

    I have a few examples of movements on the EUR/USD to demonstrate my point

    If you had gone short the EUR/USD on the 12th April 2010, and then convered on the 7th June 2010, you would have netted about 1810 pips, and lets say for argument sakes you were trading $1 lots and you traded just that one lot, thats a profit of $1810 USD. But when converting back to AUD, it would have resulted in a AUD loss.

    12th Apr 2010
    EUR/USD rate 1.3690
    AUD/USD rate .9387
    therefore your one mini lot as Euros in AUD = 1.4584 (1.3690/.9387)

    7th Jun 2010
    EUR/USD rate 1.1875
    AUD/USD rate .8095
    therefore your one mini lot as Euros in AUD = 1.4670 (1.1875/.8095)

    Doing the math here, this would have resulted in a 86 pip loss in AUD!!!!!!!

    Another example

    7th June 2010

    Long EUR/USD @ 1.1875
    AUD/USD rate - .8095
    one mini lot as Euro in AUD 1.4670 (1.1875/.8095)

    Close position

    4th Nov 2010

    EUR/USD rate 1.4280
    AUD/USD rate - 1.0175
    one mini lot as Euro in AUD 1.4034 (1.4280/1.0175)

    What was a 2405 pip gain in EUR/USD ended up being a 636 pip loss in AUD!!!!!!

    Just for clarity here because some people only look at pips and not $. Using the last trade again in $ this time

    I buy one hundred Euro at 1.1875 it cost me $146.70 AUD
    Then I sell those euros at 1.428 and receive $140.34 AUD

    A loss of $6.36!

    Basically I have looked at a lot of my trades from backtesting and there is no escaping this currencey fluctuations, UNLESS it seems, you are lucky enough to have your home currency stay perfectly still or better yet, move in the opposite direction to the traded one.

    So my question to those that have succeeded at trading forex, and trade outside of the US or, or those that live in the US that trade other currency pairs such as EUR/JPY and other crosses (that do not have the USD) is

    How do you counter this?

    Thanks
     
  2. RahmanSL

    RahmanSL Major

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    Just right off the top of my head, I would say that in Forex trading, trades are carried out in volumes of tens of thousands at a time which is made possible with the large Leverages given (up to 1:1000 by some brokers).
    So profits (or loses as the case may be) are measured in percentages which makes the fraction of percentage in different currencies exchange rates not that significant....unless, of course, one of the currencies pair depreciated/appreciated by a very large percentage over a short period of time. But this would be unlikely to happen (drastic depreciation) unless something terrible happened to that country's economy (like war and military coup for instances).

    If you trade with mere AUD1 or USD1 at a time, like the son-of-Ra'a Pharaoh posted somewhere, you could possibly profit by setting up shop next to some money changers at the airport by offering better exchange rates.
     
  3. Pharaoh

    Pharaoh Colonel

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    Perhaps try to get an account denominated in AUD? There's got to be a broker or two that offers this.
     

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