Learn Forex Trading for Professional Traders

Trading for a Living
Lectures 20 Lessons
Duration 20 Hours

The Art of Speculation: Understanding the Money Game

Forex trading is nothing but speculation. Not gambling, but speculation.

As a zero-sum game, gambling still attracts many people. For instance, despite knowing that the casino always wins, people like to take their chances.

Trading differs from all points of view but one. Both traders and gamblers are after the same thing: a profit.

But this is pretty much the single common point between the two. The online industry is full of gambling and trading temptations, but the main difference between the two comes from the people involved in these activities.

Anyone can gamble, but only some can trade. Trading or speculating on a financial product’s move has nothing to do with gambling.

Instead, it has to do with psychology, both of the trader and the other market participants. Moreover, knowledge and the ability to think outside of the box differentiate trading from gambling. And finally, the art of speculation refers to the ability of trading alongside major players.

The Art of Speculation

We’ve built this Trading Academy writing all these articles from a retail trader’s perspective. The other market participants have different needs, targets, and even other resources to use when approaching Forex trading.

The retail trader, however, is isolated. From the five-plus trillion dollars that change hands every day, less than six percent or so represents the volume corresponding to retail traders.

The easiest way to check the impact of retail traders on Forex trading volume is to check the volatility during a trading day when banks are on holiday. You’ll see that the market is extremely quiet, making slow moves as Forex trading is dominated mostly by ranges.

Hence, for the retail Forex trader, the art of speculation starts and ends with understanding the money game. Though obviously, this is not a game, like many like to call it.

Instead, trading is a serious business, with people of all kind of backgrounds coming to try their hand on the same trading arena. The business of making money sounds fancy and intellectual, and, in fact, it is.

Just mention to your group of friends that you are a professional gambler or a professional investor and see which of the two ends up being seen as a more exciting and serious profession.

The Money Game

Since the Internet and online trading made it possible for retail traders to access the interbank market, regular people suddenly had access to a market only known from books and movies.

The interbank market is the most liquid and large market in the world. It is here, where commercial banks exchange their liquidities from one currency to another, where central banks take inter-banks operations, and even where monetary policy decisions are implemented.

But all these entities do not trade for a living. They do not speculate to make a profit.

Instead, they cause the market moves. Hence, profitable speculation means understanding the Forex trading money game. And this means understanding the basic macroeconomic implications of the central banks activities.

We’ve covered so far, the most critical aspects of Forex trading, both from a technical and fundamental perspective. There is plenty of material in this Trading Academy to refer to when interested in more detail about the technical and fundamental aspects of trading.

However, as we approach the end of this beautiful project, we must re-iterate once more the central banking influence in today’s Forex trading as the number one factor that moves the currency market. The rest is just dust in the wind.

Understanding Central Banking

Every country or region in the world has a central bank. It conducts monetary policy in the region and safeguards price stability accordingly.

Few traders know that the central banks in the world act under the umbrella of the Bank of International Settlements (BIS). Based in Basel, Switzerland, and born initially to assist in the reparation payments after the World War One, the BIS acts in today’s financial world by smoothly providing liquidity and coordinating the international financial system.

The key central banks in the world meet regularly in Basel at the BIS headquarter and discuss international monetary policies, challenges in different regions, convertibility and financing issues, and so on.

Curious enough, the meetings don’t get too much coverage from the international financial press. But it is there where the most respected central bankers in the world set the major shifts in the world’s monetary policy.

Make no mistake, the Fed knows what the ECB will do way before the market will find out. Or, the Bank of Japan (BOJ) is well aware what the Fed will do with the rates and the monetary policy cycles way before the process even starts.

Monetary Policy Implementation

The problem with the above is that all the information is public, but traders don’t know it exists. Hence, a bit of research about the last BIS reports reveal the recent central banking plans and the potential implications for the world’s currencies.

Another thing that will help retail traders in the process of understanding central banking relates to their monetary policy implementation. For instance, when the Fed in the United States announced the Quantitative Easing (QE) program, it said that it’ll buy bonds every month for a specific amount.

The market, apparently, reacted in a second, sending the USD tumbling. While in a few days as traders forgot what the actual announcement meant, someone at the Fed was implementing the policy.

Namely, for the next months, someone was responsible for the actual buying of those bonds. Thus, the implications on the USD would not abate that easy, but they’ll remain until the program ends.

Another example comes still from the United States, as the Fed is currently engaged in the process of so-called Quantitative Tightening (QT). Effectively, it sells the bonds bought under the QE with the intention of shrinking its balance sheet.

The immediate effect? Every month billions and billions of USD disappear from the financial system, in a move known as liquidity draining.

Coming back to Forex trading, all this time, the market may sell some dollars, but the general trend is difficult to be other than a higher USD due to the shortages in the system. Fewer dollars mean more expensive dollars, as people will have to pay more to get their hands of a currency that isn’t available in large quantities anymore.

Commitment of Traders (COT)

Because retail traders have poor performances in Forex trading, there’s even an indicator telling the positioning of the retail market. When extreme levels form, almost always the market moves in the opposite direction.

Hence, the retail part of Forex trading acts as a counter-indicator as where the market will actually go. Sad, but true, and it is like this because traders don’t understand what the market participants do and how to interpret the money game.


Speculation is an art that balances experience, knowledge, and strategy and combines the result with guts, instinct and courage. Add a bit of money management, and in the end, the path to success in Forex trading is revealed.