Why FX Is the Best Market to Trade
02/17/2014 6:00 am EST
Seaview Capital's Chris Lori finds that the spot FX market is the best one to trade and the reason why may surprise you.
SPEAKER: My guest today is Chris Lori and we’re talking about the currency markets and why he feels that it’s the best market for traders to be in so Chris, why FX only? Why are you so into the currency markets as a way to trade?
CHRIS LORI: Well I think like anybody else, I’ve explored the other markets and particularly the equities markets during the bubbles and the crash and I just find that in the FX market, the transparency of course for one, you limit your scope on which areas to focus so I only focus really on effectively three currency pairs depending on if I’m working on a portfolio or not. I may have to venture into other currencies but I find that surprisingly from a risk perspective, the FX market is actually less volatile than any other asset class and so I find being able to contain the risk in FX is you can build a more effective risk model around that volatility.
SPEAKER: Now are you talking about futures Forex or are we talking about a spot Forex market?
CHRIS LORI: Spot FX, but currencies in general really. The volatility of currencies when you look at the macro volatility, really a currency can move okay in exceptional cases you might see a 20% move that occurs over a long period of time whereas a stock can move 10%, 20%, 30% in a matter of a couple days so I find that the risk is very, very manageable.
SPEAKER: Now I know in currency especially in the stock market, you can use a lot of leverage, 50 to 1s, 400 to 1 if you’re outside the US, how do you kind of bring the leverage and the risk there and still have a lower risk profile with Forex?
CHRIS LORI: Yeah, this is where a lot of retail traders seem to have misunderstanding is that they tend to have excessive use of leverage. Because the leverage is allowed by the party offering liquidity, they tend to use too much of it so they don’t really have, I find that I mean understanding leverage is fairly simple and margins required for positions and I think it’s important for retail traders to take the time out and really understand it and really to build a tight risk model and in fact on my website, I have a video on how to build a risk model. Of course it specifically applies to price action but I think they need to take the time of because we do a lot of just cash trading and options positioning, accumulators, accruals, and really you can keep the risk very, very tight and have quite reasonable or quite promising gains with fixed risk.
SPEAKER: How about the specific currency pairs, are there certain ones that you like better than others?
CHRIS LORI: Yes and again volatility plays a part in which currency pairs I like to trade so for example, one of my favorite pairs is the Aussie-Yen because I’ve worked with the Aussie-Yen from a cash standpoint and from a loans standpoint as well so the volatility can be quite high but you have to just adjust your risk accordingly but what we’ve found now that rate spreads have contracted on the Australian dollar and Japanese Yen, that volatility is very, very manageable but the price behavior has remained consistent. Behavior is consistent but the volatility has dropped, which is great. You just adjust your risk on that currency pair and so the other pairs that I like are the Euro dollar and the Pound dollar. They have different levels of volatility so you have to trade them slightly differently but still the same elements of price behavior apply to both currency pair fairly equally.
SPEAKER: Alright, you mentioned the model on your website. What is the website address in case some people want to learn more?
CHRIS LORI: Chrislori.com; there are some free videos on there if people want to go on there and check out. Some good education and there’s a whole video series in there on essential qualities of a successful trader. It’s about five hours of elements that traders seriously need to consider if they want to succeed in trading.
SPEAKER: Chris, thanks for your time.
CHRIS LORI: Thank you, Tim.
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