Get ready traders because I’m about to tell you something that no one…not your broker…not a Forex robot…not a systems trader…or even your know-it-all Wall Street brother…will tell you.
The fact is that Forex trading as you know it, is dying a slow miserable death. In fact, it signed its death warrant 17 years ago when the market opened their doors to the retail public and flooded the market with new FX traders.
Today, the reality is there are so many FX traders in the world – so much money trading hands on a daily basis – that currency pairs just don’t make the big leaps in price or offer the big profits they did back then.
The good news? It’s not time to close out your FX account just yet.
Today, I’ll share with you why traditional Forex trading is D.O.A. and I’ll explain how one tiny modification in your FX trading could jumpstart your profits by 71% or more, and ensure that you never have to settle for mediocre Forex returns.
Kiss FX Trading Goodbye As You Know It
As all traders know, volatility = profits in the FX market. The bigger and faster the currency moves, the more profits you make.
The problem is volatility in the major currencies has died off in the last few years. Take a look at the EUR/USD chart below.
Euro Volatility Evaporates!
The euro/U.S. dollar pair used to trade about 300 pips per day. Today, the pair trades 132 pips a day (56% less!).
The euro isn’t alone. Several other pairs are also moving slower these days. Take a look at another very popular “major” currency pair – the British pound/U.S. dollar (GBP/USD).
Even the Euro’s More Volatile Brother Can’t Keep Up!
The British pound/U.S. dollar (GBP/USD) is traditionally a more volatile pair. Traders have loved this pair for years because it would trade up to 450 pips in a day. That led to some serious profit taking.
One problem. Today this pair only trades around 169 pips a day.
You Won’t Find “Crisis Volatility” Anymore
Even worse, it would take another major market crisis like we saw in 2008 to increase the volatility in pairs like the pound and euro once again.
You see stocks and currencies’ performance have been tied together for a couple years now. The reason? Both are considered “riskier” assets. So as stocks started to plummet, currency traders also rushed out of a few riskier currency pairs. Therefore, we had fewer traders buying and selling, and volatility shot up as stocks fell.
It was great at the time. This “crisis volatility” created lots of opportunities in currencies. After all, if a pair traded 450 pips a day vs. 169 pips a day, you’re much more likely to grab a 100 pip winner in a day.
But now that it seems the “coast is clear” (at least for now)…the volatility slowly evaporated, like a balloon slowly leaking air.
So basically, it took a credit crisis and global recession to stoke up the volatility as it did in these major currency pairs. Long-term, you can’t count on markets being in “crisis mode” to provide you continual volatility all the time.
So what’s the solution? What can a trader do? Markets will obviously return to normal eventually. So we need a fix…
Time to Swim in a Smaller, More Volatile Pond
You see, up until recently all traders swam in essentially the same Forex pond. Everyone made the bulk of their Forex trades versus the U.S. dollar. Why did they do this? Because for years, the U.S. dollar was the only real, viable trading vehicle in the Forex world.
It was also more cost effective to trade just dollar pairs. Many years ago, you could NOT find decent spreads on any pairs outside of the U.S. dollar. As you probably know, you pay the spread for each FX trade, so larger spreads meant higher fees.
So in plain English, it took too long to break even on each non-dollar trade, so traders didn’t bother.
Fortunately, times have changed. The increased volume in the overall market has caused a ton of volume to spill over into non-dollar pairs, or “currency crosses.”. As a result it’s narrowed their spreads.
In other words, it’s affordable to trade currency crosses today.
In fact, many of these crosses now have spreads that the majors did just a few short years ago. I remember one of these pairs going from a 30-pip spread down to a 6 pip spread…major difference! Now that’s tradable!