INTERVIEW
Trade The World's Biggest Market
Understanding The Forex Market With Philip Gotthelf
by Jayanthi Gopalakrishnan
Philip Gotthelf, the publisher of the Commodex System, the oldest
daily futures trading system published, and Commodity Futures Forecast
Service, which has been in existence since 1956, is also the president
of Equidex Inc., a registered commodity trading advisor, and Equidex Brokerage
Group, a registered Introducing Broker. He is known for his extensive work
in the futures industry and is the son of Edward B. Gotthelf, developer
of the Commodex trading methods.
Philip Gotthelf has earned a reputation for uncanny accuracy through
the years concerning the markets. Among his notable forecasts have been
the October 1987 market correction, currency predictions since such futures
opened for trading in 1972, and exact calls on tops and bottoms in meats,
grains, sugar, precious metals, and coffee.
Gotthelf's computer applications have been used by major firms for
developing proprietary trading models and hedging programs. Both the Commodex
System and the Commodity Futures Forecast Service are known for being among
the first to successfully track financial futures, stock indices, and energy
markets.
Gotthelf is the author of Currency Trading: How To Access And
Trade The World's Biggest Market, published by John Wiley & Sons,
in which he provides the background and techniques for trading foreign
exchange through the Interbank or using futures and related options. STOCKS
& COMMODITIES Editor Jayanthi Gopalakrishnan spoke with Gotthelf in
a telephone interview on October 7, 2003.
If prices are moving up and there is a tremendous amount
of accumulation taking place, I know the world favors that currency and I am going to ride the
world's coattails.
Given that trading the currency market is not well
understood, could you give us an introduction to the subject?
The cash markets are conducted by a group of banks, internationally
situated, that posts bids and asks for various currencies on a system.
The group is collectively known as the Interbank. Many people mistakenly
believe the Interbank is an actual bank, but it is really a very large
electronic billboard for posting bids and asks on all the world's currencies.
When people go to the Interbank, the size of the transactions are in the
tens of millions and hundreds of millions of dollars. Until very recently,
Interbank transactions were limited to intrabank and interbank transactions,
meaning transactions between banks, or within departments of banks, and
huge customers.
What kind of customers?
Corporate customers, and very large speculators -- along the lines of
George Soros, or other well-known names in the world of speculation. With
the development of particular kinds of computer platforms, the dealers
have been able to parcel out portions of these very large transactions,
and bring them together as a single transaction on one end of the line.
Then the dealers have split them up into multiple small transactions on
the other end, which would be individual speculators like you and me and
whoever else might want to get involved. With the advent of this facility,
the cash currency market has become available to the average trader.
What is the difference between trading cash and futures?
The difference between trading cash currencies and trading the futures
markets is that, first of all, you carry a counterparty risk that is not
guaranteed by a clearing member. And if you are dealing in the spot market,
you have to complete your transaction within a day or two after the transaction
is completed. The settlement has to be within 48 hours. So it is not really
a futures market. It is an instantaneous market and you are speculating
on daily fluctuations that have to be marked and paid for within a very
short period of time.
...Continued in the December 2003 issue of Technical Analysis of
STOCKS & COMMODITIES
Excerpted from an article originally published in the December 2003
issue of Technical Analysis of STOCKS & COMMODITIES magazine. All rights
reserved. © Copyright 2003, Technical Analysis, Inc.
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