Chris’ note: Everyone hates when central banks jack up rates. At least that’s what you’ve been led to believe…
It’s true that rising rates hurt stocks and crush bond prices. That’s why 2022 was so miserable for most investors. But our mission at Legacy Research is to help you move the needle on your wealth… no matter what kind of market we’re in. And that search has led us to the currency market.
It’s given many of our readers the chance to score a string of gains, even as stocks and bonds have tumbled. And it should be a core strategy for anyone who wants to make money in 2023.
Trading legend Larry Benedict will be going into detail on this opportunity next Wednesday at his first currency trading event of his career. So, if you haven’t already, RSVP with one click here.
Below, Larry shows why it’s boom time in the currency market right now. And he passes on two risk management tools every currency trader should use.
A rare window is opening in the market…
And folks who advantage of it stand to do very well in 2023, despite the turbulence in stocks… and negative economic news.
It has to do with what’s happening with interest rates.
Over the past year, the Fed raised interest rates at the fastest pace since the 1980s.
That’s helped crush the stock market. And bond prices (which fall as interest rates rise) have sunk.
But it’s not all bad news…
That’s because when interest rate narratives take hold – like they have over the past year – the currency market lights up.
And the opportunities to profit are immense.
Largest Market in the World
The currency market – also known as forex (for foreign exchange) – is largest market in the world.
And changes in interest rates have a potent effect on this market.
That’s because capital goes where it’s treated best. If you can earn a 5% interest rate in the U.S. dollar… but only a 3% rate in the euro… where are you going to go?
So, when one country’s central bank raises rates faster than another’s, it causes big exchange-rate moves.
The currency issued by the more hawkish central bank will go up relative to the currency issued by the more dovish one.
That is why we saw the dollar skyrocket in 2022, as the Fed raised rates more aggressively than other central banks.
You can see that in the chart below of how many euros one dollar buys.
The dollar climbed as much 17% versus the euro, as the Fed raised rates more aggressively than he European Central Bank (“ECB”).
Then, as the ECB played catch-up, the dollar fell as much as 12% versus the euro.
Those are massive moves you can harness for trading profits.
And it’s not just the dollar and the euro that are making dramatic moves.
The British pound fell by almost 12% against the dollar from August to September of 2022. And the Canadian dollar fell by more than 6% against the dollar in just two weeks during September of 2022.
So, now is the time to have the currency market on your radar. We have a new “currency window” opening right in front of us…
Most people focus solely on stocks and bonds. But I don’t want my readers to be among them.
That’s why I’m writing to you today. There are a lot of myths about currency trading that stops regular folks from getting involved.
And the biggest myth is that forex trading is too risky.
How to Handle Leverage
Like all myths, there’s a grain of truth to it…
If you don’t know what you’re doing as a forex trader, it’s all too easy to blow up your entire account.
That’s because forex accounts allow you to easily apply leverage to your trades. That amplifies your profits on winning trades. But it also amplifies your losses.
So, I want to explain what the dangers of forex are… and show you how you can turn them in your favor.
Most currency brokers make you keep a percentage of a trade in your account as “margin.” If your broker requires 1% margin, say, you can use $1,000 to control as much as $100,000.
In this example, if your trade value grows from $101,000, you’ve just made $1,000 off a small 1% move. You’ve just doubled your starting capital. That sounds great…
But that’s 100:1 leverage. And as quickly as it can bring you profits… it can also wipe out your account.
In this same scenario, if your trade drops 1% to $99,000… you’ve lost your starting $1,000. That’s a 100% loss. And you’re out of the game.
And some brokers will allow you to use leverage as high as 400:1.
With that kind of leverage, a 0.25% loss on the trade above would be enough to wipe you out entirely.
You’ll no doubt hear stories where people claim these kinds of leverage are how they made their fortune in forex. But far more traders have blown themselves up this way than become millionaires.
That’s why the first step of risk management with forex is to choose how much leverage you can handle.
And risk management is something I know a lot about.
As regular readers will know, I rose to fame as a trader when I went without a single losing year from 1990 to 2010.
That feat got me featured in the 2012 book on the world’s greatest hedge fund managers, Hedge Fund Market Wizards.
And last year, as the market tipped over, I gave readers of my One Ticker Trader advisory the chance to close out 11 out of 11 winning trades for a cumulative gain of 240%.
In general, the highest level of leverage I recommend you use as a currency trader is 7:1. For more conservative traders, leverage of 5:1 is plenty.
That will still amplify your gains. But you won’t get obliterated when trades go against you.
Another quirk of the forex market is it trades 24 hours a day – from Sunday at 5 p.m. ET through Friday at 5 p.m. ET.
So, unlike in the stock market, you can open and close currency trades at any time you choose during the week – even after 4 p.m. or before 9:30 a.m.
And that poses another risk.
If a forex trade you’ve placed brings you a tidy profit at 3 a.m. while you’re asleep in bed, you don’t want to miss out.
Similarly, if a trade starts to go against you, you don’t want to suffer a big loss because you were busy dropping your kids off at school.
So with each trade, I recommend you set price levels with your broker where you want to take profits or cut a losing trade. That way, your broker knows to close out your trade for you automatically when it hits those levels.
These “take profit” and “stop loss” levels are a vital part of successful trading. It’s essential that you enter them with your broker for every trade.
That way, you can sleep well at night… and enjoy your day without obsessively checking to see how your trades are performing.
Window of Opportunity
These are the two main risks to be aware of when you’re trading forex…
But as I hope I’ve shown you, there are ways to manage those risks. You want to keep your leverage low… and stick to “take profit” and “stop loss” levels.
If you’re interested in getting started with currency trading, that’s the kind of guidance I want to offer to you,
As I mentioned, I’ve traded currencies for decades. It’s one of the reasons I consistently generated profits for my $800 million hedge fund – even during the dot-com bust and the 2008 financial crisis.
And the opportunities with forex have gotten even better over the past year. That’s thanks to the moves in interest rates around the world. After going quiet for the better part of a decade, a new “currency window” opening…
That’s why I’m holding a special meeting to go over this unique market… and show you how you can use it to really move the needle on your wealth in 2023.
It’s happening, next Wednesday, April 19, at 8 p.m. ET. And I’d love to have you join me.
To sign up with one click, RSVP here.
I hope you’ll come and see what forex trading is all about.
Editor, Trading With Larry Benedict
P.S. Make sure to tune in for my Currencies in Crisis Summit next Wednesday, April 19, at 8 p.m. ET. I’ll be revealing my top pick to trade in today’s currency markets.
And if you want to make sure you don’t miss anything, upgrade to become a VIP. You’ll get free text message updates when you sign up.
You’ll get access to a series of videos I’ve recorded to help train you to trade currencies. I’ll show you how to open a forex account… place a trade… manage your risk… and more.
Go here to sign up and upgrade to VIP.