Four tips from Bill Lipschutz, one of the most successful forex traders in the world

Bill Lipschutz is one of the best forex traders in the world. He was born in 1956 and grew up in New York. He was a good student who was very interested in math and tennis. Later, he was admitted to Cornell University and graduated in Architectural Design. He then enrolled and graduated from the MBA at Johnson School of Management, France.

While at Cornell University, Lipschutz inherited $12,000 worth of stock after his grandmother’s death. While attending school, he began investing the risk capital in his free time. He would spend hours in the library, researching and reading about the market. This research increased his interest in financial trading, and his portfolio was eventually worth close to $250,000.

During a Salomon Brothers training program Lipschutz was asked to be a part of the newly formed Foreign Exchange (or forex trading or FX for short) Department. Salomon Brothers created a team from their traders and came up with a plan for learning currency trading.

The foreign exchange markets took off about the same time Salomon Brothers were starting in the market. He was considered to be among the top five of all forex traders worldwide. By 1985, Lipschutz was making $300 million per year for Salomon Brothers.

In 1995 Lipschutz formed Hathersage Capital Management with classmates from Cornell. Hathersage Capital Management is a Global Macro manager that specializes in G10 currencies. Lipschutz has been the Principal and Director of Portfolio Management at Hathersage since the firm's founding. Undeterred, he decided to learn from the experience and built a $200 million forex trading company.

Here are the four most important tips from Lipschutz, for successful forex trading.

Pay attention to multiples
One of Lipschutz’s key messages is that you need to pay attention to risk-to-reward ratio. For short-term trades, Lipschutz looks for a 3-to-1 multiple of upside to downside. In other words, you should be looking at positions where the potential profit is at least three times the amount that you are risking on the trade. For more complicated trades where you are risking significant capital, Lipschutz says that ratio should be closer to 5 to 1 as a minimum.

The details are important
Lipschutz stresses the importance of structuring each trade to maximize your chances of success. Even if you have a winning prospect, it’s easy to lose money if you don’t get the details right. For example, getting your timing slightly wrong can lose you huge amounts of money, so it’s important to get the deal execution perfect. Do everything you can to increase your chance of winning, while limiting the risk in each trade.

Understand what the market is thinking
Lipschutz places a lot of emphasis on sentiment. Whether you are a pure technical trader or have a different approach, it is a mistake to ignore market perception. It doesn’t matter if that perception is based on the Aztec calendar – if traders think that something is going to happen based on their charts, then something is going to happen just because of the momentum in the market. Unless you understand this, you’re going to end up compromising your trading positions.

Work hard and the money will follow
According to Lipschutz, the best traders are both highly intelligent and willing to put in what it takes to be successful. It’s not enough to be a genius – successful forex trading takes hard work. It’s also a mistake to focus only on making money – truly successful traders look at money as simply a way of keeping score and get deep satisfaction out of the trading itself.

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