BIO: This forex trader prefers to go by his OANDA forum moniker, DGCFX. He has a varied work history, including stints at the United States National Security Agency and a technology consulting company, as well as experience as the owner of a barcode technology company. He holds both a BS degree in Electrical Engineering and Computer Science from Princeton University and an MS degree in Electrical Engineering from Johns Hopkins University, but started his transition away from engineering and into forex trading in 2002 while preparing for an overseas move. Born in New York, in 2005 he moved to New Zealand where he lives with his wife and three children.
Name: DGCFX Location: New Zealand Trading Since: 2002

Is currency trading your life? DGCFX: I certainly wouldn't say it's my life, but it's pretty much my sole active income. My wife has a real job. I do this to make extra money.

What is your background? DGCFX: My background is in electrical engineering and computer science, and I still use it by programming APIs. I owned a software business for about 15 years before I sold it. I am very sympathetic to OANDA, which I see as essentially a software business in addition to being in the forex business. I know how hard it is to run a software business, keeping the customers happy, providing the upgrades. You have to be reliable.

Why did you get into forex? DGCFX: In 2002, we were planning to move to New Zealand and I had accumulated a good amount of cash in the US. The question was how to get it to New Zealand cost effectively. I started looking at banks and their retail exchange practices, which I found quite atrocious. I also wanted to do some hedging, which turned out to be an enormous mistake. I ultimately started forex trading as a way to short the NZD, because I was exchanging my real USD into NZD and figured NZD/USD couldn't possibly get any higher than 0.48. I put a major short on the NZD, but it kept going up. This was possibly my worst trading decision. You learn as you go along.

I started trading with REFCO at the time. But at a certain point I got annoyed when they started to re-quote me all the time and didn't have an API I could use. So I started to switch gears over to OANDA. Luckily I took my money over before REFCO went into the dump. That was a lucky break for me, compared to that NZD short.

Do you remember some of your best trading days since that first bad short? DGCFX: I don't really remember my best days. It's not the way I trade. I can certainly remember good runs of a month. A number of times when a diversified carry basket was an amazingly wonderful place to be. But daily I don't get myself too excited. I don't get too excited whether I am up or down.

Why did you decide to use the API? DGCFX: I talked to my business partner from my old business, which had nothing to do with forex. We were looking for an instrument that did nothing but go up and down. We were thinking we could buy low, sell high, and repeat that again and again. At the time, the AUD/NZD cross pretty much fit the description. We used manual trades, but based them on a very mechanistic grid trade of the pair. And we made a good bit of money. As software people and motivated to do other things in our life than sit in front of a computer screen and enter grid trades, we just gravitated toward using the API. The grid trading program was one of the earliest programs I wrote, and it was very easy to test. It had a half dozen lines of code, plus a whole bunch of stuff around it to keep it from crashing.

We tested our APIs on FXTrade probably over a period of a year or a year and a half. I got to the point at the end where I was comfortable going over to API trading. I looked at a number of other schemes at the time. I guess you would call them multi-instrument statistical arbitrage programs. They did quite well at certain times and terribly at others.

Automated systems eliminate tedious work, but there is still a significant amount of work for me to figure out which automated systems I want to run and how I want to run them. I don't yet have a system that can tell me if this is a good year to be in an AUD/NZD trade or not. I have to figure that out myself.

Do you still focus on the AUD/NZD cross in your grid trading? DGCFX: That was our bread and butter for a long time. But things don't last forever. I would say that grid-trading the AUD/NZD cross has not been a great thing to do for the last two years. It might be coming back, and I have started it up again.

How has the carry trade been for you lately? DGCFX: It was great up until about mid-July or mid-August and then it had a fall. I did unwind many of my trades in the last few months. Otherwise, I would have been wiped out in an hour a couple of weeks ago. I thought I did terribly, but I recently looked at all my numbers and added together all my different subaccounts and I was surprised to see I have been pleasantly flat for the past few months. This is good, considering what a lot of people have gone through.

For this last run on the carry trade, part of my strategy was to pare back slowly. There was a thread in one of the forums where someone coined the term, "the never-ending carry trade," which essentially means that the interest I generate sustains the next investment and builds into that investment over a period of close to a year. Luckily or otherwise, I bought a third of my carry positions at a high price, and the other two thirds at a lower price. It all kind of averages out and hasn't been too bad for me so far. Also, I'm not exclusively in a single currency. I am in probably close to 20 different currencies, between the carry currencies and the funding currencies. It sort of spreads out. I won't go down just because the yen goes up.

What is a typical day in your life? DGCFX: I have a five year old, a three year old and a zero year old. Fortunately, the API does most of the work, because I never could. I look at my trades quite a bit, 5 to 10 times a day, and I think about them quite a bit. But I don't go in and click buy and sell very often. I only do manual trading when I am gearing into a new strategy and automating it. There is no substitute to being there and playing with things for a while before I write the code. Sometimes I'll manually do what the program would do. Just to get a feel for how it's done for a couple of weeks or a month.

Do you consider yourself a disciplined trader? DGCFX: All I can say is, thank God for computers. I don't know if I would have the discipline to trade manually. The beauty of computer programming is that it does exactly what the program says. It doesn't go to sleep, it doesn't change its mind and panic.

As long as I set a strategy, I can create a program. If there's a fault with this method, it's that sometimes I let the program run too long when the strategy isn't working anymore and my positions are going downhill. Mind you, at those times I try not to bail out. Getting out at the bottom, waiting for it to come back again, and then getting back in again is not a good strategy as far as I am concerned.

Do you consider yourself a technical or a fundamental trader? DGCFX: I worked for the NSA for about 5 years doing code breaking and I regard forex, at least the API trading I do, as nothing more than a series of numbers that are telling me something I need to figure out. For anybody who has ever done modern cryptology, it is basically the same problem. There is a bunch of encrypted stuff coming across, and you need to figure out the information hidden underneath.

I am kind of an information theorist or statistician, and use that kind of mathematical approach to currency trading, more than reading the newspaper. I look at market commentaries but they don't do anything for me. I don't even look at charts very much. Instead, I look across currencies. I am more interested in what GBP, AUD, gold and NOK are doing together, than what they are doing individually.

I ask myself (hopefully I am not giving too much away), "Is it possible that the price of AUD is nothing more than a noisy version of the average of GBP, CHF and CAD?" I figure out what the noise is in AUD by looking at all the other currencies. When the noise has pushed AUD a little too high, I short it. When the noise has pushed AUD a little too low, I long it. In some cases, for some very short time frames, I see a liquidity spike and it becomes a good time to place an order. It's a little more complex than that, but it's that sort of thing.

Do your programs open trades every day? DGCFX: One of my strategies probably trades on average a dozen or two dozen times a day. There's another one, I would call it a carry grid, that probably generates 10 trades an hour. Particularly when the markets are volatile.

Do you ever trade on a hunch or do anything irrational? DGCFX: Not very often, but every once in a while. Recently I told myself that the USD stinks. I thought it can't be looking good for the USD in the next six months, so I set up a basket of USD shorts. Is that irrational? It was certainly based on a hunch. Whether it's an irrational hunch or not, I am not sure. I suppose anytime you think that you know better that the rest of the world what the value of something is, you can call that irrationality.

Do you ever try to just shoot for growth? DGCFX: I keep a monthly cumulative NAV across all my subaccounts. It has been disappointing for about a year, but it was pretty darn good the year before, and the year before that. So I just tell myself this is a flat year. It hasn't really been down. It has been disappointingly nowhere.

How do you decide when to exit trades? DGCFX: Exit is identical to entry as far as I am concerned. My programs are always adjusting for exposures. I don't look at individual trades when I am opening and closing; I only track exposures that are moving up or down. With manual trading, there are only so many trades you can keep track of and think about. With my program, I have thousands of open trades, all of which add up to positions and exposures. It probably drives your computers nuts.

When do you decide to switch your trading strategy? DGCFX: I said that I don't really read the newspapers. For the purpose of daily trading, I don't. But for the purpose of figuring out when to bring strategies on or when to take them off, I do.

I don't have an automated method of deciding when to start something new or when to give up on something old. So it's largely a matter of considering why I'm in that strategy and why it's working. And what's changed when it is no longer working. So it's really a judgment call.

For example, the NZD was treated as an extension of the AUD for years, but then people started to treat it differently. And that's when I got out. There were good reasons why AUD/NZD came uncoupled to a greater degree this past year. I think it might be coming back and I've dipped my toes back in. I'll start again slowly and if it seems to be working and seems to be making sense in a global way, I'll build it up again.

How long do your strategies typically work? DGCFX: A couple of months would be pretty much a failure as far as I am concerned, certainly because of the investment in writing the software. If something only works for a couple of months, it probably was just luck. If something works for a couple of years it probably is more than luck. If it works all that time, then stops working, it's a clue that something has really changed.

If your whole trading strategy misses, how do you handle that personally? DGCFX: Well, that is the nature of currency trading. Anybody who doesn't expect it to go up and down is kidding themselves. I try not to keep too much of my net worth in currency trading. It's probably in the order of 5 to 10% at any given time. So I can trade very aggressively in currencies because the rest of my money is safe in things that are incredibly boring and conservative, like term deposits at major banks. So even if I have, say, a 30% draw down on my account, I can tell myself it's only a 3% draw down on my total worth.

Have you ever thought about writing an API program for equities or fixed income? DGCFX: I would love to, and I would love to use the OANDA API to do it. My dream would be for the OANDA platform and its API to offer 50 more things than it does now. Not just currencies, but commodities, stock indexes, individual big stocks, and so on. I love the platform, and I love the API.

If there were more choices, my arbitrage program could not only look at GBP, AUD, NZD and NOK, it could also look at oil, the Dow Jones, and so on. The more inputs there are, the more there is to be mined from them. Right now I use the NOK as a proxy for oil, which is convenient enough, but if I actually could track the real price of oil with my APIs I would get a little more out of it.

What leverage do you use? DGCFX: I always trade 50 to 1. Well I have my margin set to 50 to 1, but I don't always use every drop of margin I have. I use all my margin only on certain occasions.

Do you have any comments on the FXTrade platform? DGCFX: I think it is great. I am basically a big fan, with a few little negatives here and there. I certainly hope to be in it for the long term, unless I trash my account.

FXTrade has had some connectivity issues, but the API, with maybe a few exceptions a year, is awfully reliable. I get pretty darn good results in terms of when the trades are placed, and I just don't have an issue with it.

Have you tested the APIs from other providers? DGCFX: Only one other, only briefly and only in demo. It had more to do with not wanting to trade with them than not liking their API.

What have you learned about yourself trading FX? DGCFX: I am a very number-oriented, coldly logical person when it comes to forex. However, I would say that I am quite a bit more interested now in what is going on around the globe. Part of that interest is from moving overseas. I grew up in the United States, in New Jersey. So I read the New York Times to get their take on international affairs. Living overseas and trading forex really does expand your view of what the world is all about.

New knowledge is valuable, from my point of view, so I try to learn what other people are talking about, the stuff like the charting and the technicals, the heads and shoulders, the trends. I don't get very excited about that stuff to be honest. But I try to learn what is hiding in these numbers. In the high frequency quant side of things, I try to figure out the future course of the world and how that might affect individual currencies. I read the global newspapers to think about the future side of world business.

What are the characteristics of a good trader, in your opinion? DGCFX: Common things to avoid would be excessive greed and impatience. If you asked me to name just one trait of a successful trader, it would have to be patience. You cannot be in a hurry.

Do you believe traders are born, or can they be trained? DGCFX: I think it's a combination. There are people who are more emotionally stable, patient and disciplined by nature—that is sort of the innate part of trading. But there is also a ton to learn about forex, so training is required. It probably takes years if not decades to know your way around. I don't think I know it all yet.

What advice would you give to people wishing to enter this market? DGCFX: My nephew just emailed me that very question. At the risk of throwing a wet blanket on the newbies, the honest answer is that I would tell them not to do it unless they are dead set on it. The next best advice would be to start small, have low expectations and keep a cool head.

Where do you see the forex market going in the next couple of years? DGCFX: I think the forex market has several more years of growth in it. I don't think there will be growth forever, but that is true of anything in the universe. When the growth slows, that is when you will see a consolidation of platforms and market makers. There will be a maturity to the markets, and then you will start to have fewer flavors. Customer preferences will become more pronounced, so the platforms will all start to look the same, just as we've seen with computer operating systems.

What does the future look like for the algorithmic trader? DGCFX: I think it will get harder for amateurs. People or institutions with more resources than I have will be the better cryptologists to find out more of what's hidden in those numbers. There will be less to extract for people like me. But it won't swing back completely to the financial institutions, which have a lot of constraints on what they can do compared to the individual. I think there will probably still be room for smart individuals to trade.