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WWW.COMPLETECURRENCYTRADER.COM | December 2013

Forex Pri ce
Mani pulati on
Are the major banks colluding to
manipulate price against their clients?
COMPLETE CURRENCY TRADER MAGAZINE | December 2013 1


Attitude: Practice Makes
Permanent
We all know practice is supposed to make
perfect, but is that really what we should
be aiming for? Should practice really be
about forming habits and making our skills
become permanent?
Trading Psychology:
Cognitive Dissonance
When our beliefs and expectations clash
with the reality we experience when
trading, our minds are faced with a
decision that will make or break our
trading forever. What choice will you
make?
Inside-Out: The Interbank FX
Price Fixing Scandal
Price manipulation, interbank collusion,
front running, and price spikes. The banks
are under investigation and top traders
have been suspended. Is this the next
scandal to hit the financial community?
Analysis: The Mechanics of
the Trend
Why is the trend your friend, and how do
you know you can trust it and have
confidence in it? We examine the behind
the scenes mechanics that create trends
and keep them running.
Profile: Bill Lipschutz

The Sultan of Currencies. The stay at home
trader ranked in the top 5 best forex
speculators on the planet.
December is here and the
festivities are about to start. The
team at Complete Currency
Trader wish you a very Merry
Christmas.


As always, weve got a varied
selection of articles for you this
month that we hope will give you
a wide range of topics to delve in
to before you end the year.
Our trader psychology spread
investigates one of the most
prevalent issues affecting
traders, yet one which is almost
never discussed. This is the
perhaps the most inherent
obstacle in front of each of us
and an aspect we must all face
up to if we wish to finally
succeed.
We of course also have our usual
feature profiling a top currency
trader, and this month we look
at Bill Lipschutz.
Our main feature and the topic
of our front cover, is the recent
and ongoing scandal regarding
price manipulation on a massive
scale and collusion between the
top banks to fix prices in the FX
market. We investigate what the
alleged offences are, and more
importantly what the
consequences are for retail
traders like you.
Its another packed edition of
our magazine and we sincerely
hope you find it an informative
and educational read.






CONTENTS

Trading
reality, not
the fantasy.
From the Editor

COMPLETE CURRENCY TRADER MAGAZINE | December 2013 2


Forget about perfection! Practice is all
about permanence. Successful traders
who survive over the long term, have
developed good skills and habits that help
them perform and profit in the market,
under all conditions, day after day and year
after year.

The term successful can only be applied
to traders who have longevity - a track
record of success. Any fool can have a
winning trade, or a winning week, or even
a winning month. There is absolutely no
skill involved in any short term results.

If you took 1000 chimpanzees, and let each
of them randomly take 10 trades,
statistically one of them would have 10
wins, one of them would have 10 losses,
and the others would be somewhere on a
sliding scale in between.

Can we say the chimp with 10 wins was a
good trader, and the one with 10 losses a
bad trader?

Of course not! Both chimps were clueless
and without skill. The wins & losses were
merely the result of short term
mathematical probabilities like that of a
coin flip, and statistically at least one
chimp was going to get 100% winners
not from skill but from chance (luck).

Over the long term however, its a very
different story.

Bad traders cannot survive for long on
luck. As time goes on, random results such
as a coin flip or those trades executed by
bad or inexperienced traders, would fall
back to the mean (the half-way point). Any
trader who performs better than the mean
and the accepted standard deviation
either side of it, is clearly demonstrating a
real skill and talent.

Traders who have consistently generated
profits from the markets over decades,
have certainly performed beyond the
mean. Statistically theyve proven they
have genuine skill rather than luck.

How have they achieved this? How did
they acquire such high level skills?

Practice! Practice! Practice!

As Aristotle said:

We are what we repeatedly do. Excellence
then, is not an act, but a habit.

Successful traders achieve success by
repeatedly doing the same thing over and
over again. They have an edge, they have
a system, and they repeatedly execute
that system day after day, month after
month, year after year. They practice the
same action until it becomes a habit, and
that habit becomes permanent.

There is research made popular by
Malcolm Gladwell in his book Outliers,
which supports the 10,000 hour rule. This
rule claims that the key to success in any
field is, to a large extent, a matter of
practicing a specific task for a total of
around 10,000 hours.

And so this may be considered the secret
to success. It is not innate talent, and it is
not above average intelligence. It is in fact
merely the determined pursuit of practice.
Practice of a specific task until that task
becomes a permanent skill.

This is good news, as anyone with the
commitment to practice, can ultimately
achieve success!
Attitude: Practice Makes Permanent

A festive cartoon for December

COMPLETE CURRENCY TRADER MAGAZINE | December 2013 3


Cognitive dissonance is a psychological
term used to describe the discomfort a
person feels when they simultaneously
have two conflicting beliefs (cognitions).
The theory states that humans like to hold
all their beliefs and experiences in
harmony and avoid disharmony
(dissonance).

An extreme example would be when a
person believes the world will end on a
certain date, but is then presented with the
conflicting reality of the world still being
here the day after. Reality doesnt match
their beliefs and so they naturally
experience emotional discomfort.



When we experience this conflict and
discomfort, our minds will immediately try
to re-establish harmony by altering our
beliefs and attitudes and by justifying our
actions and behaviour.

Ultimately we all want our expectations to
meet reality so as to give us a sense of
control.

We all experience cognitive dissonance on
an almost daily basis. In everyday life it can
be fairly harmless and even amusing when
you recognize it in yourself, but for traders
it can be disastrous.

To lay the foundations of how this
manifests itself, here are a few every day
examples:

Sandra is on a diet to lose weight. She
knows fast food burgers are unhealthy and
fattening (belief) but she eats one anyway
(reality). Her actions conflict with her
beliefs so she justifies the action by saying
she will do more exercise to burn off the
excess calories, or that she only had a small
breakfast anyway so it all balances out, or
that shes been so good at sticking to the
diet to date that she deserves a treat.

Michael just bought a new car but paid
more than he should have. He knows he
cant really afford this (belief) but he
bought it anyway (reality). To re-establish
mental harmony, he justifies his action by
telling himself this car is less likely to break
down than a cheaper one and will save him
money in the long run.

Does that kind of behaviour sound
familiar? You can no doubt think of many
other situations where people display this
kind of thought process and you may even
be able to see it in yourself from now on.

Understandably this is a complex topic
with many angles to explore, but for ease
of application to the trader mind set it is
worth remembering it in basic terms of:
when reality doesnt meet expectations.



Trading Psychology: Cognitive Dissonance

When reality contradicts our beliefs and expectations, traders face the ultimate psychological challenge

COMPLETE CURRENCY TRADER MAGAZINE | December 2013 4

How does this apply to traders?

The overwhelming majority of aspiring
amateur traders come in to this profession
with grossly unrealistic expectations.

To list but a few:

Trading can be learned quickly.
Returns are large, fast & regular.
Short cut to wealth and riches.
Steady reliable results every day.
Can quickly quit my job & work from home.

Anyone who has ever attempted trading
has quickly experienced first-hand that
none of the above are true. This instantly
creates a conflict between what you
believed and what you experienced, and so
your mind quickly attempts to erase the
discomfort and restore harmony.

The sensible and logical thing to do would
be to admit and accept that your original
beliefs were wrong, and then re-align your
beliefs to accurately reflect reality.

However, admitting you were wrong, or
that you made a mistake, is in itself an
emotionally painful thing to do. No one
likes to admit they were wrong, so the
easier and faster solution is to simply try to
rationalize and justify your initial belief. To
basically make excuses for own mistake in
order to make you feel better about it. It
doesnt matter that your belief was wrong
and continues to be wrong, so long as you
feel ok about it.

Needless to say, this is entirely irrational
and can be hugely destructive for traders.

A typical situation would be the belief that
trading can be mastered quickly, we can
earn X amount per day, every day, and quit
our job within a month or two.

When reality conflicts with that belief or
expectation, the trader will make excuses
to justify why they were correct, by telling
themselves something along the lines of I
just havent found the right system yet.

Rather than accept they were wrong in
their original belief and then take actions
to adjust their behaviour to match reality
which would ultimately lead to success,
they prefer to make excuses that justify
their beliefs.

The above situation is what leads so many
traders to constantly jump from one
system to another.
One of the really destructive traits in this
situation is the fact that as a result of the
cognitive dissonance, the original false
belief actually becomes even more
reinforced.the exact opposite of what
would be most beneficial.

To regain the emotional harmony of a
situation like this, something has to
change. We either change our beliefs or we
reduce the importance of one of the
conflicting issues.

What most people do is keep their existing
belief (rather than admit a mistake),
introduce new beliefs to justify the first
one (make excuses), and then reduce the
importance of the reality (pay no attention
to the evidence in front of them).

The net result is they continue even more
passionately down the wrong path.

It is perhaps easy to summarise the
unrealistic beliefs and expectations of
traders with this:

They expect to make large returns quickly.

When reality shows them that expectation
is false, they ignore the evidence and look
for anything that will help to prove their
belief is correct.

It is common to see traders jump from one
system to another every couple of months.
They add indicators, they add rules, they
change chart time frames, they try
different techniques, study different
theories, follow different mentors, trade
different instruments, alter their money
management, change risk profiles, buy
different tools, etc, etc, etc.

They may even find a profitable system
but dismiss it because it doesnt give them
the large returns they believe they can
make.

These people will spend the rest of their
life in a futile search to find something that
reality is telling them doesnt exist. The
evidence is clear, not only from their own
personal first-hand experience, but also
from the documented experience of every
other trader who has gone before them.

And yet they ignore the evidence. They
ignore reality. Their beliefs and reality
have clashed and caused emotional
discomfort. To admit they were wrong
would cause even more discomfort, so
they simply ignore reality, find excuses to
justify their initial belief, and find harmony
again by convincing themselves they were
right but just havent found the solution
yet. Best to keep looking!

You find this same behaviour in doomsday
cults. They believe the world will end on a
certain date, and when that date passes
without their prophecy coming true,
rather than the members of the group
admit they were taken in by a con and that
they made a mistake in their judgement,
you normally find they are even more
fervent in their belief. Their commitment
to the cult is even stronger and they find all
sorts of excuses to justify their initial belief
(God was just testing us, hes given us a
second chance, hes given us the
responsibility to save even more people by
recruiting them to our group). Anything
rather than face the embarrassment and
discomfort of admitting they were wrong.

Traders have a stark choice to make. We
will all at some point face the discomfort of
cognitive dissonance when our beliefs are
proven wrong by reality. We can either
restore our emotional harmony by
ignoring the evidence of reality, and make
excuses as to why our belief is right. Or we
can accept that our beliefs were wrong and
then realign them and change our actions
and behaviour to work in parallel with
reality.

The former is the easy and most
comfortable option, but of course it is also
the option that leads to guaranteed and
prolonged failure. The latter is the harder
and less comfortable option, but of course
if the option that will ultimately lead to
success as a trader.

The question all traders need to ask
themselves, and answer honestly, is;

What is more important to me? Being
right, or being successful?


COMPLETE CURRENCY TRADER MAGAZINE | December 2013 5


Throughout November, regulators in the
UK, Switzerland, and USA launched
investigations in to 15 major banks
including Barclays, Deutsche Bank, UBS,
Citigroup, Goldman Sachs, and JPMorgan
for alleged price manipulation in the forex
market.

At least 12 top bank traders have been
suspended pending further inquiries,
which is staggering when you consider
that the $2 trillion a day Spot FX segment
of the market is controlled by a group of
fewer than 100 traders at a handful of the
largest banks.

Spot foreign exchange trading desks, even
at the largest banks, are now typically
staffed by only 8-10 traders, most of whom
have previously worked with their
counterparts at other banks. Despite the
enormous size of the market by volume,
the group of traders managing it is
incredibly small and close knit. This makes
it a market where price fixing and collusion

could realistically happen, and that is
exactly the allegation that regulators are
currently looking at.

The issue focuses primarily on the
WM/Reuters 4pm fix rate (London time).
This is as close as we can get to a daily
closing price in the 24 hour FX market.

What is the WM/Reuters Fix price?

The fix is a benchmark exchange rate
published for each currency pair. This is a
massively important rate. They have been
adopted by major stock market indices,
the Financial Times and investment clients
as a standard for the valuation of global
portfolios.

They are the foundation upon which
numerous banks and investment houses
base the values of many of their indices
and funds. Benchmark providers such as
FTSE Group and MSCI Inc base daily
valuations of indexes spanning different

currencies on the 4 p.m. WM/Reuters
rates. Index funds, which track global
indexes such as the MSCI World Index, also
trade at the rates to reduce tracking error.
They even determine what many pension
funds and money managers pay for their
foreign exchange.

In other words, investments and funds all
over the globe are valued according to the
exchange rates set at the 4pm fix.

Its also the rate that banks guarantee to
their clients. Its calculated by taking the
average price between the bid and ask
prices during a 1 minute period at the top
of the hour. If for example the price ranged
from 100 110 during the minute at 4pm,
the fix rate would be set at 105 and this is
the price the banks give to their clients
such as pension funds and other
institutional investors.



Inside-Out: The Interbank FX Price Fixing Scandal

We take a look at what currency price manipulation by the major banks could mean for Forex traders

COMPLETE CURRENCY TRADER MAGAZINE | December 2013 6

Now this may seem like an alien notion to
the average retail trader who is used to
seeing prices change on a tick by tick basis
on their trading platform where they can
trade at the exact rate displayed on their
screen at any given second throughout the
day. But most Spot forex participants are
not speculatively trading in this manner.
Most participants are not looking at charts,
and do not have instant access to prices
and execution.

Most spot market participants are
international businesses and institutions,
and they submit their orders via brokers to
the trading desks at the major banks.
Those bank traders guarantee their client
a set price the WM/Reuters fix rate. This
is much the same as when you exchange
vacation money at your local bank. They
tell you a set price and that price is good for
a specified period of time regardless of any
minor real time fluctuations in the market
that you would be used to seeing as day
trader.

So while youre trading the constantly
changing prices in the market, the
majority of people are using the
WM/Reuters fixed price.



Of course the bank traders are also trading
the real prices just like you, and this gives
them an opportunity to make profits.

While they agree the fixed price with their
client, they are free to execute the trade
themselves ahead of the 4pm fix at a
different (better) price and thus pocket the
difference for themselves. This is a
perfectly legitimate activity and
effectively allows the bank to hedge their
risk. Its little more than an extension to
the bid/ask spread that we are all used to.
The problem arises because the system is
open to manipulation.

Individual banks obviously know their own
order books and thus can see what trades
they have to execute that day for their
clients. The difference between the 4pm
fix rate and the price they executed their
clients trades, determines how much
profit the bank pockets.

Remember that the 4pm fix rate is
calculated from the average price over a 1
minute period. If there is sufficient change
in price during that 1 minute, it can have a
large impact on the profit margin gained
from trades taken earlier in the hours or
minutes running up to that time.

The concern is that traders have been
deliberately executing a large number of
trades during that 1 minute benchmarking
period in order to artificially raise the
average price.

These allegations have come to light after
analysis identified a repeating pattern.
There has been a recognized surge in
trading activity in the minutes
immediately prior to the 4pm fix, followed
by a quick reversal back to what would
have been the correct market price
immediately afterwards. Price spikes!

These spikes have been occurring with
such regularity from 31% to 50% of the
time over the past two years that they
almost certainly cannot be attributed to
normal trading activity. Hence the
investigations.

The issue here is not that individual banks
were doing this in isolation. That activity is
legitimate and indeed high risk to the bank
to try and manipulate the market. The
issue is that banks colluded with each
other in a concerted and coordinated
action.

It is alleged that traders on the dealing
desks of several banks were active in
private interbank chat rooms and
discussed and shared information about
order flows so as to build up positions
ahead of and during the 4pm fix. When
they get this right, the bank traders make
bigger profits, and some of their clients
would be worse off.

Thats the crux of the entire matter. It is
now up to regulators to establish if any
wrongdoing took place, and to determine
if this amounts to front running, pre-
hedging, collusion, or price manipulation.

What does it mean for day traders?

Not really very much, and it certainly isnt
something to be worried about. Traders
using retail brokers and executing
transactions from real time price charts are
not affected by this in the least.

Traders employing a reactionary trend
following strategy such as the Complete
Currency Trading system are merely
following the price anyway. So whether it
is manipulated higher or lower is largely
irrelevant to us. We go where the price
goes.

Retail speculators trading their own
accounts at the time and price of their
choosing (which is what we do) are not
directly harmed by this manipulation. Its
everyone else in the world who suffers!

Thats not to say this activity is to be
condoned simply because we dont lose
out; we are only attempting to alleviate
any fears retail traders may have about
this issue. By and large this scandal is not
a major concern for the average day
trader.

Of course for any trader who does have
concerns about how this may affect their
trading, please consider the following:

Do not trade immediately around the
4pm fix. This is 4pm London time.

Avoid less liquid pairs at that time. It is
far easier for bank traders to manipulate
the price of low liquidity, less actively
traded pairs, than it is to manipulate active
pairs.

If this does turn out to be true, it has
almost certainly already stopped, but if
not, it will stop asap when the banks are
fined in line with the record fines from the
recent LIBOR price fixing scandal.




COMPLETE CURRENCY TRADER MAGAZINE | December 2013 7


No doubt youve heard the age old adage
of the Trend is your Friend. Have you
ever wondered why trend following
strategies are so profitable and why
trading with the trend is such an
established and accepted method?

The reason is simple. A trend is more likely
to continue than to end. Once a move is
underway, it is easier for it to keep going
than it is for it to stop or reverse.

We assign all sorts of phrases and
terminology to this phenomenon, such as
momentum for example, but what is the
real reason? Whats actually going on
behind the scenes that makes this
situation with trends real?

To answer this we first of all need to look
at what moves prices in the first place.
Once we understand why prices move,


well be able to understand why trends
develop.

The forex market is the quintessential
auction market. Think of a normal auction
where you may be trying to buy a painting.
The price starts low and gradually goes
higher and higher as people bid more and
more. The prices you see are the prices
someone is willing to buy or sell at, and
those prices change without any
transaction or any buying and selling
taking place.

The prices we see on our charts are the
BIDS and OFFERS. These prices are the
liquidity and they are provided by the
market makers; the banks.
So for the prices to change (move), those
bids and offers need to be altered, and this
can happen in two ways.



First off all the bank, the liquidity provider,
can simply change their bid or offer.
Imagine they initially say they are willing
to sell to us at 1.32400 (the offer) and then
30 seconds later they change their mind
and say that they will actually be prepared
to sell to us at 1.32450. In that case the
price just jumped up 5 pips. There was no
transaction; no one bought or sold. It was
merely the market maker altering his bid
price.

The second way for price to move is for
someone to consume the liquidity in the
market. On our charts we only see the best
bid and offer in the market, but in reality
there is a whole depth of other bids and
offers either side of the market for
amounts that other banks and market
makers are prepared to buy or sell to us at.

See the image overleaf.
Analysis: The Mechanics of the Trend

When the market starts moving, it is more likely to continue in the same direction rather than reverse

COMPLETE CURRENCY TRADER MAGAZINE | December 2013 8













If we assume that best offer at 1.33373 is
for $1,000,000, if a trader comes in and
buys $1,000,000 at that price, he has
consumed all of the available liquidity at
that price, so that offer is removed. When
that is removed (consumed by the buy
order) the next best offer in the market is
the one above it at 1.33377. So in this
example the price jumps up 0.4 pips.

So in this second way for prices to move,
the liquidity has been consumed by the
demand for it from the buyer.
Now that we know how prices change, we
can establish why trends develop.

Lets suppose you and I are both
speculators, and I want to buy 100,000 or 1
lot worth of EURUSD, and you want to sell
100,000 or 1 lot on the same pair.

My market buy order consumes the
liquidity in the OFFER price and your
market sell order consumes the liquidity in
the BID price. In that situation, if the
liquidity was equal on both sides of the
market, we would have caused the spread
to widen. But which way the price really
ends up moving is dependent on the
differing amounts of liquidity on either
side.

Assume a bank is bidding 500,000 on the
best BID on your side of the market (the
side you sold on), and another bank is
bidding 500,000 at the level below that
and so on down. On the offer side (the side
I buy from) the bank is only offering to sell
10,000 at the best offer, and another bank
is offering 10,000 at the level above that
and so on.

Imagine you and I both come in with our
market orders. You sell $100,000 and I buy
the same amount, $100,000. Your sell is
taken by the banks bid. But the bid is for
500,000 and your order was only for
100,000, so your trade has only taken or
consumed 1/5th of the total amount
available. Theres still 400,000 available at
that level and so the price doesnt actually
move. So the high level of liquidity to the
down side prevented the price changing
even after you sold.

However, my buy trade was 10 times
bigger than the liquidity on offer. So when
I submitted my order to buy 100,000, I
bought the 10,000 on offer from the first
bank, and then another 10,000 in the offer
above it, and the next 10,000 above that
and so on. My trade, which was exactly the
same size as yours, caused the price to
move up 10 levels because there wasnt
enough liquidity to absorb it. My trade
consumed all the liquidity that was on
offer at the first level and each higher level.
So two equal size trades in both directions,
yet the price didnt move at all after yours
because of the high amount of liquidity on
your side, but it moved up 10 price levels
after mine because of the reduced liquidity
on the upside.

So thats where price will move. If two
equal size trades are made in the market,
the price will move in the direction of least
liquidity.

And this is how trends can develop.
Dealers profit from the spread, so in order
to make that profit, they have to buy and
sell quickly before the price changes. They
want to buy from you and turn around
instantly and sell the exact same amount
to me so they pocket the difference.
Everything the dealer is geared up to do is
buy and sell almost simultaneously so they
can profit that spread. If they dont
manage to do that fast enough, they can
caught out on the wrong side of a trade
and end up suffering losses.

As the price starts moving up as in the
example we just gave you where they sold
to me when there was limited liquidity on
one side of the market, the dealer who
traded with me is now on the wrong side of
the market and suffering a loss. If another
trader came in and also bought from this
dealer, their loss could get bigger because
they are again selling in to a fast moving
rising market and could get caught out
again.

They try to reduce any further risk by
reducing the amount they are offering to
sell to anyone else after me. They sold to
me, and to balance their books they need
to buy the same quantity from someone
else at a better price. They certainly dont
want to keep selling in to a rising market
because that would increase their loss.
Their efforts now are on buying to cancel
out their trade with me. So to limit the
amount they may have to sell to anyone
else, they reduce the volume of their
offers. This in turn reduces the liquidity to
the up side even more, and therefore
prices are even more likely to continue
moving up when any other traders come in
to the market trying to buy.

Its a self-perpetuating force that feeds on
itself and gathers more and more
momentum. This is what causes
momentum. This is precisely why intra-
day trends happen. This is the behind the
scenes mechanics of a trend.

It is an imbalance between supply and
demand. And supply and demand has
nothing to do with buying and selling the
way most amateurs think of it. An upward
trend does not necessarily happen
because there are more people trying to
buy compared to people trying to sell
(although that can of course happen).

There could be a perfectly balanced
number of traders split between buying
and selling exactly like in the example we
just gave you when you and I were trading
the same amount. The trend occurs
because there is less liquidity being
supplied on one side of the market
compared to the demand for it from
market orders like ours.

So there can be an equal number of buyers
and sellers, people like you and I on both
sides of the market, but the demand from
me as the buyer is greater than the supply
of liquidity being offered on my side of the
market, whereas on your side you are
asking for less than is available. Thats
what causes a trend on my side, and when
that happens, the price will keep going for
longer and further in the same direction.

That explains the mechanics behind a
trend and demonstrates why trends
happen and why they last.


COMPLETE CURRENCY TRADER MAGAZINE | December 2013 9




Bill Lipschutz started trading when he was
studying as an architectural student. He
had just $12,000 that he had received from
an inheritance from his grandmother.
Over a period of nearly 4 years he built that
account up to a value of approximately
$250,000. This was achieved in the stock
market, and was done on a part time basis
to fit around his school commitments.

That is an impressive accomplishment by
itself, but was only the start of his career.

Clearly Lipschutz had a talent, and the
hours he spent each day in the library
studying financial markets had helped him
develop a profitable strategy to stock
investment. Unfortunately, 4 years of hard
work, and an account growth of
approximately 2000%, was not enough to
qualify him as a seasoned trader.

Over a 3 day period from Monday to
Wednesday, his account was wiped out.
He was in a short position and had a very
bearish outlook for the market, and as it
reversed on him, he first of all didnt exit
the position, and secondly he kept adding
to his loss. This mistake cost him dearly,
but exhibiting all the signs of a true
professional, he put the incident down as
the most valuable lesson he could learn
and was determined to recover and move
forward.

From that point on he became very risk
aware and determined to trade better (the
loss of money never bothered him; it was the
fundamental trading mistake which upset
him).

Hooked on trading, Lipschutz went to
work for Saloman Brothers after gaining
his degree rather than pursue a career in
architecture, and it was here that he was
introduced to currency trading in the FX
market.

There was an element of good fortune
here because Forex speculative trading
was literally just opening up, and Lipschutz
was in fact recruited to join the newly
formed FX department at Saloman
Brothers. This was literally the birth of
Forex trading as you and I know it.
Nevertheless he displayed real talent and
was at one stage earning $300 million in
profit for the bank and was considered in
the top 5 of all currency traders. Over a 6
year period he rose to the position of
managing director and global head of
foreign exchange for the bank.

And this is where it gets interesting.

Lipschutz was a man who dominated the
forex market. At the peak of his bank
trading career it is estimated he controlled
80% of the open interest in the market. To
say this is a man who was at the top of the
industry and knew it inside out would be an
understatement. Not only did he know
how the market really worked, he basically
made it work for many years.

So how did he choose to trade it when he
left Saloman Brother to set up his own
fund? Did he set up a proprietary firm with
hundreds of the most talented and
educated traders? Has he got a high tech
office solution situated next to the major
financial centers?

No. He trades a fund from home. He has 7
employees in total (his wife and some
friends) and they all work from their own
homes as well.

It is this that helps make Bill Lipschutz so
inspirational to many aspiring traders.
There are few people on the planet who
know forex as well as Lipschutz. He was
there at the start and at one stage
dominated it entirely.

This is a man who was nick named The
Sultan of Currencies, and yet he has
chosen to trade from home with minimal
bells and whistles.

Lipschutz has $650 million under
management and a successful track record
stretching back to 1991 when he first went
it alone. On average he has made a return
of 16% per year.

A theme emerges that is common for all
the traders weve examined in this profile
section of the magazine. Lipshutzs
returns are staggeringly small compared
to what most amateurs expect. Most new
traders would scoff at 16% gain on their
account per month, never mind per year.
Furthermore Lipschutz has taken that 16%
per annum return, and built a fund of $650
million by attracting investment from only
14 private investors, and is realistically
estimated to pay himself several million
dollars each year in salary. All of this from
small consistent gains. Referring to this
months article on cognitive dissonance,
Lipschutz has clearly aligned his beliefs to
match reality and has become wildly
successful and rich as a result.

Bill Lipschutz is a trader to learn from. He
has made the same mistakes that all
traders make, and done so on a grand scale
to the tune of a $250,000 loss in a single
trade. Yet he picked himself up, learned
from his mistake, and has gone on to be
one of the greatest currency market
specialist traders in the world. And he now
does all this from a home office.

Currency trading speculatively is difficult,
but Bill Lipschutz displays the vital
characteristics that all successful traders
have, and he sets the example of what new
traders should follow.

Profile: Bill Lipschutz

A titan Forex trader who has specialized in currencies since they first took off as a speculative market.



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