The SECRET Inner Workings Of FOREX, That "Gurus" Don't Teach

Everything you've been told about Forex is a lie. The signals you followed, the courses you've bought, the indicators you use and the strategies you've copied, and the charts you use for technical analysis. Yep, you might as well be reading to use. Forex is not designed for speculation. It exists for practical, utilitarian reasons. If a company in England wants to do business with a company in the us, pounds and dollars need to be exchanged. Sounds obvious, right? Well, that makes it the most random market in the world. And it's imposs to profit from a random market. But there's a flip side. Forex is also the most predictable market in the world, making it the easiest to profit from. It's confusing. Right, well, stick with me. My name's James. I'm a former bank trader. And in this video you are going to find out exactly how the Forex market really works from the inside. So you can use this knowledge to improve your results. Let's start by looking at the random side of the market. If my company sells British pounds and buys US dollars, the the pound US dollar exchange rate will fall fairly straightforward. Meanwhile, a company in San Francisco needs to buy some pounds and pay a supply in Liverpool. So they exchange their US dollars and they buy British pounds. And now the pound US dollar exchange rate goes up. And all day long companies on both sides of the Atlantic are doing this kind of transaction and none of them are looking at charts or paying attention to trends. 82% of all transactions are of this utilitarian nature. It's why Forex exists. If a company in London has just sold $4 million worth of steel to California, it needs to change their dollars into pounds to pay their factory workers or else they're going to go on strike. But Forex isn't just two currencies. It's multiple currencies interconnected into one supermarket. Think of two big buckets, one of British pounds, the other of US dollars. This is all of the available money for these currencies. If I put my pangs into the pang bucket, there are now more pounds for other people to get hold of. I've increased the supply. If I take some dollars out of the dollar bucket, there are now fewer dollars for other people to get hold of. I've reduced the supply, there's an abundance of British pounds and a scarcity of US dollars. And VAR is fundamentally what alters the value and the price of each currency. But now let's add the Euro as a third currency into that equation. When I added more pounds to the pound bucket and removed dollars from the dollar bucket. The Euro has also changed value relative to both. It's more valuable than it was a moment ago compared to the pound because there are fewer of them relative to the pounds. And it is now less valuable than it was a moment ago compared to the US dollar because there are more of them relative to dollars. What that means is the exchange rate of the EURGBP changes, as does the euro US dollar it even though the only real money that changed hands was between the pound and the US dollar, not the euro at all. This is called triangular equilibrium and using chart prices, it looks like this. If the pound US dollar bid price was 1.34524 and the EUR is 0.87864, the EUR US dollar price would have to mathematically be 1.18198. I'll show you. If you multiply the pound US dollar price by the EURGBP price, it gives you the EUR US dollar price. Or if you divide the EUR US dollar price by the EURP price, you get the pound US dollar. And lastly, if you divide the euro US dollar by the pound US dollar price, you get the price for the euro pound. If you know the price of two pairs, you know the price of the third pair without even seeing a chart. And go away and prove this for yourself using any three related pairs like this. Alarm bells should now be ringing in your head as you realize that prices will change without any buying or selling taking place whatsoever. In fact, 96% of all price fluctuations are because of this. An exchange happens between two currencies on one pair and all of the other pairs are immediately updated and altered to come back into alignment. This is a mathematical adjustment controlled by algorithms. Every currency and every pair are interconnected. A trade on the US dollar changes that price, which changes the value of the EUR US dollar price, which in turn alters the value of the yen. So the euro yen is adjusted which affects it relative to the Australian dollar and the Aussie dollar yen chart is adjusted which changes the Australian dollar value compared to the Swiss franc and so on. We call it triangular equilibrium, but actually it's a polygon it equilibrium with literally hundreds of sides or angles. And this is what it looks like with all of those connected triangle formulas with each pair at an apex connected to another triangle. You can see how random the Forex market is. Not only are most exchanges that take place down to utilitarian reasons as businesses buy and sell internationally with each other across borders, but on top of that, most price changes are the result of mathematical correlations with not actual buying or selling. And that should change the way you trade. From now on, the candlestick patterns on your charts are not patterns at all. They are meaningless shapes with absolutely no predictive power at all. But there is good news. I said at the start of the video that Forex was the most predictable market and the easiest to profit from. So now let's look at who makes the real orders and why. Most Forex volume is generated by the big banks and they do three things. One department will be market making, another division will be speculating, and then somewhere else they will be the main dealing desk. It's their dealing desk which is the most important. These are the big trading flaws that you see in a films and they execute trades on behalf of their clients. As a customer, I call my bank and I tell them I want to change £50,000 into US dollars. I speak to a sales rep. The sales rep calls across the room to one of the traders to ask what the price is that they'll give me. The trader looks at the screen and sees the price of the pound US dollar. And they know that my 50,000 pound will easily get filled without slipping the market. And the price is unlikely to change when more than maybe 10 or 20 pips maximum in the next minute. So they give themselves a nice big margin of error around about 200 pips and they shank back to the sales that that they will exchange for me at this price. I agree. And the trader pockets the difference between the price I paid them and and what he got in the actual market. Now in that example, they made $1,000. It's pretty easy work. The bank takes most of that, but they also pay the trader some percentage as a commission. Now, in reality, there isn't much yelling back and forth for smaller amounts. It's all automated via a computer, but the process is the same. But when a big corporation wants to exchange $100 million, the bank needs to be more careful. The bank effectively does a risk assessment and may conclude that $100 million order will take four hours to execute completely in small chunks, by the end of which the market may have moved anywhere between 50 and 200 pips. Based on that, they give themselves a nice cushion of safety and they quote their client an exchange rate of maybe 5 or 600 pips further away, which remember, is the difference of 5 or 6 cents. Once that price is agreed, the traders on the dealing desk floor set about executing that order and the bank pockets the difference between what they agreed with their CL client and the price they manage to get themselves in at the market. The dealing desk is the bank's main activity in terms of volume and the number of people that they employ. And it's what gives us some degree of predictability and non randomness. Almost all real order volume goes through the banks and it is largely random. The dealing desk floor can have hundreds of traders, maybe thousands, each working independently without knowing or caring what the trader next to them is doing. Some will be buying, some will be selling on the same pair. But it isn't always random. Let's say the big client puts in a request to exchange 500 million. Once the price is agreed, the dealing floor managers break that order apart and distribute it out in smaller packets among the individual traders. Now you have a large section of the dealing desk working in unison with a common objective. And it may take several hours to finish filling that entire order. And in that situation you have a trend that is not random. Think about those buckets of individual currencies. The normal day to day orders are adding to and subtracting from those buckets in small quantities with a small shovel, and they tend to cancel each other out equally. But then you have a much bigger order, which is like using a JCB and that is fundamentally shifting the values of those currencies. This is predominantly what causes trends in the Forex market. So where does the predictability come from? Well, bank traders are people with nine to five jobs. They go to work and they start at a set time for financial centers. That's 8am and literally thousands of traders in dozens of tier one banks sit down at their desks, open their packets and start working. The mere fact that thousands of traders all begin to execute orders at the same time means the price will very often quickly move away from its opening price. This is the basis for the classic market open breakout strategies that you hear of. When a bank has a $500 million order that they agreed with a client at a set price. The client gets the full 500 million at that single price. But the bank is filled at multiple levels. The price is currently down here. The sooner they fill that entire order, the more profit they will make. So there is a sense of urgency to get the order completed and as far below the deal price as possible. They're at their desks at 8am and when the whistle blows, they're off to the races. And there's a flurry of new orders activity as the market opens and thousands of traders simultaneously begin their day. You can see this pattern on any chart. The Asian market sessions are the quietest, followed by much bigger swings and trends in London and New York, followed by more sideways flat ranges in the quiet Asian session, followed by more increases in ranges in London and New York. We can predict accurately which sessions are going to have bigger trains even within a session. The biggest and the fastest moves happen near the start and it gets quieter later in the session. By trading at specific times of day you increase your profitability. If I sit down to trade at 10am and I know the dealing decks have already been open for two hours, if they had a large prearranged order that they were executing as a team, so a non random trend, they were most frantic in the first two hours trying to get the best price and earn the best conditions, I would be reluctant to enter now in what is a low probability trade that is likely to be at the latter stage of the trend. An inexperienced trader would simply jump into the trend and then complain that they always seem to get in right at the end before it turns. But likewise, if it was 10am and there haven't been any significant trends, it's unlikely one is going to start now. Today's price action is random. It's being driven by small client orders so I can walk away and avoid the unnecessary losses. An inexperienced trader would get whipsawed all day long as fear of missing out makes them think every move is going to be the next big one. And lastly, if I see a significant change in price very soon after the open, I'll get in quickly without waiting for too much confirmation because I know that if a non random trend is going to happen as a result of a prearranged large order, it is likely to start straight away or at least very soon after the open and I can make bigger profits by capturing a larger portion of the new trend. An unknowledgeable trader may be more inclined to wait for more confirmation. Let the market get started to be sure the trend really has started and they miss out on the biggest profits. With the right knowledge and a professional understanding the paying the forex market really works, you can make better decisions and you can be more profitable. And these are the key points I want you to take away from this figure. Now don't worry, the next few videos are going to expound on this until ultimately we conclude with a step by step customer customizable system that you can trade for yourself. This video is just showing you how forex prices really work from the inside. I'll show you how to practically trade this knowledge leads and put all the videos into a simple playlist for you. What I want you to understand is that Forex is far more complex than you've previously been told, and the common strategies that most retail traders use are useless. But Forex is also incredibly simple to profit from. It's far simpler than than most people actually believe. It just takes a different approach with a more effective strategy, and my aim is to give you that approach and the strategy, so stick with me. If you've enjoyed this and you find it interesting, please like it, leave a comment, and subscribe. Your support will help me be able to keep creating content like this, and if you're subscribed, you'll get a notification when I post a new video showing you how to take advantage of this knowledge. So thank you and I'll see you next time.