November 3, 2008
Insider’s Guide to Forex Trading
This is the first in a series of insights into trading the forex markets successfully. We have ten keys to trading success that all new forex traders and certainly many experienced forex traders need to learn and need to know. We’ll start with the top three with the rest detailed in the rest of this series.
11. Commission Free Trading
This was the initial sales pitch most brokers used and many still do. “You’ll trade for free – no commissions!” Well, any of us who trade actively know commissions add up to some ungodly amounts – many times you look at your annual statements if you trade actively and it’s not uncommon that your broker makes more, maybe much more, than you do in your trading profits. Forex trading is not commission free. Sure, there is usually not an “add-on” commission. However, they force you to pay a spread on every trade. You have to always buy at the ask and always sell at the bid. This is not the case in stocks, or futures or really any other market.
This forced spread on every trade is a commission. That’s what it is. Despite what the broker might claim. And that forced spread is not cheap. 3 pips is $30 on a just one full sized pair. Try $50 on a 5 pip spread you still see as commonplace.
Now, compare that to your average futures or stock trade. Which is more? Forex usually by far.
Now, let’s not leave it at that. Remember, you get some amazing leverage opportunities with Forex so the actual commission compared to the dollar volume you are able to trade is actually reasonable in some cases – assuming you trade at the right places and follow the right strategies. We’ll cover that below.
12. 100:1 Leverage…No, Wait! How about 200:1….or 400:1?
You’re going to be rich! With that kind of leverage you make just a few pips per days and you’ll spend as much time with your banker as you do with your significant other, right? You look at the end of month totals from your strategy, run it through your state of the art Leverage Calculator and instantly you are making 100%, 300% or 500% per month. Do that a few months, a bit of compounding and you’ll be buying that private island after all.
This is another one of those broker come-ons. It just doesn’t work this way. Yes, you can get this leverage. The brokers are going to allow it so I’m not saying it isn’t as advertised. However, you are guaranteed to wipe out using it. Guaranteed. There simply is no way you can trade at these leverage levels and make it. Not unless you are some trading genius who can take a trade and never lose. If you are – please contact me at once!
For the rest of us, you are going to lose. You are going to lose more than once. You are going to have some losing streaks. It’s the nature of trading. It’s not a big deal, especially if you can win more than you lose, and if your average win is greater than your average loss. You do that and who cares about some losses. Don’t get hung up on it.
However, you will care very much if you over-leverage. Do not over-leverage! This is the single, greatest mistake most new Forex traders make. Your state of the art trading calculator spits out numbers that are too great to pass up and you let greed get in the way of logic.
Think about it this way. 200:1 leverage.
You have a trade where you are targeting 25 pips and risking 25 pips. As you’ll learn below, that trade actually has to go 28 pips or more to hit your target of 25 pips and you’ll actually be risking 28 pips or more – but for this example we won’t get hung up on that. We’ll solve that later.
You have a $5,000 account and trade it with 200:1 leverage. That means you can trade 1,000,000 worth of currency (you can see why we said spreads above are a significant cost but with leverage can end up being a small percentage of cost) – and that means 10 full sized pairs.
Oh, and you lose on this trade. Let’s do the math. 10 pairs x 25 pips = 250 pip loss. Make that with spread 10 pairs x 28 pips = 280 pips loss x $10/pip = $2800 loss.
Oops. You’ve just lost over 50% of your account. Don’t even think about what would have happened if you were risking more – and these days on the Forex, good luck risking much less.
If you lose twice in a row – which happens all the time - you’ve just wiped out. Sure, if you win you make a great return, but you are completely counting on virtually never losing. Even if you get a few wins immediately, you’ll eventually wipe out.
It’s what happens to the new gambler in Las Vegas. They try a few hands, they win, they get sucked in, and then before they know it they are at their ATM machine looking for their mortgage money to try and get back that winning feeling.
You’ll have success trading with huge leverage. Some of the time. It will be great and you’ll brag to your friends how you made 50% that afternoon. Then, a few days later you’ll be asking them to pick up the lunch tab.
Do not use crazy leverage. Do not use crazy leverage. Do not use…ok, you get the idea.
Decide on a fixed percentage you are going to risk on your account on any one trade. 5%? 10%? And calculate that amount to determine what size you can trade based upon the risk per trade. It will still be great leverage – Forex provides that. What’s wrong with 5:1 leverage or 10:1 leverage? It blows away the stock market but it’s not going to wipe you out in a couple of trades.
13. Spreads
Find a broker that does not charge high spreads. Sure, you need a broker who provides a stable platform, which provides good customer service, which is regulated (important!), that has account insurance/guarantees, and so on. But realize these brokers make money many different ways. They make spread money, they make money by laying off orders on other banks, they make money on stop running. Did I say that? Guess it’s too late to take it back.
There is simply no reason to pay more than 3 pips on the EURUSD. And really, you should be paying 2 pips. On the GBPUSD and USDCHF why are you paying 5 pips? Sorry, it’s not going to a charitable cause – your broker’s bank account isn’t a non-profit. Those spreads are crazy. You should pay 3, maybe 4 at most on the other majors.
There are new trading platforms coming out in recent months, some based upon the “Currenex” platform that basically takes your orders direct to the “real” trading market and your broker only takes a small commission on the trade, closer to the model we see in stocks and futures. Or they are mimicking the Currenex platform and developing on that works similar. Look for this; it is important to have liquidity and low costs.
And forget about all the “exotics” – avoid trading anything that is not amongst the main pairs – EURUSD, USDCHF, GBPUSD, USDCAD, AUDUSD, USDJPY, EURJPY and maybe EURGBP. And stay away unless spread is 2 or 3 pips, maybe 4. That’s already more than enough to trade so why do you need to trade the GBPCHF for 15 pips spread? Unless you really like to make car payments and pay for rounds of golf for your broker. If you do see a compelling reason to trade, for example, the GBPJPY - and there are some great moves there - just be sure you are building the spread costs into your trading outcomes – you might need it to go 7 to 10 pips just to get break-even, let alone to start making a profit.
The rest of this important top 10 with critical insight into ensuring your forex trading success can be found here: http://www.netpicks.com/BetterTrading.html
By: mark
About the Author:
11. Commission Free Trading
This was the initial sales pitch most brokers used and many still do. “You’ll trade for free – no commissions!” Well, any of us who trade actively know commissions add up to some ungodly amounts – many times you look at your annual statements if you trade actively and it’s not uncommon that your broker makes more, maybe much more, than you do in your trading profits. Forex trading is not commission free. Sure, there is usually not an “add-on” commission. However, they force you to pay a spread on every trade. You have to always buy at the ask and always sell at the bid. This is not the case in stocks, or futures or really any other market.
This forced spread on every trade is a commission. That’s what it is. Despite what the broker might claim. And that forced spread is not cheap. 3 pips is $30 on a just one full sized pair. Try $50 on a 5 pip spread you still see as commonplace.
Now, compare that to your average futures or stock trade. Which is more? Forex usually by far.
Now, let’s not leave it at that. Remember, you get some amazing leverage opportunities with Forex so the actual commission compared to the dollar volume you are able to trade is actually reasonable in some cases – assuming you trade at the right places and follow the right strategies. We’ll cover that below.
12. 100:1 Leverage…No, Wait! How about 200:1….or 400:1?
You’re going to be rich! With that kind of leverage you make just a few pips per days and you’ll spend as much time with your banker as you do with your significant other, right? You look at the end of month totals from your strategy, run it through your state of the art Leverage Calculator and instantly you are making 100%, 300% or 500% per month. Do that a few months, a bit of compounding and you’ll be buying that private island after all.
This is another one of those broker come-ons. It just doesn’t work this way. Yes, you can get this leverage. The brokers are going to allow it so I’m not saying it isn’t as advertised. However, you are guaranteed to wipe out using it. Guaranteed. There simply is no way you can trade at these leverage levels and make it. Not unless you are some trading genius who can take a trade and never lose. If you are – please contact me at once!
For the rest of us, you are going to lose. You are going to lose more than once. You are going to have some losing streaks. It’s the nature of trading. It’s not a big deal, especially if you can win more than you lose, and if your average win is greater than your average loss. You do that and who cares about some losses. Don’t get hung up on it.
However, you will care very much if you over-leverage. Do not over-leverage! This is the single, greatest mistake most new Forex traders make. Your state of the art trading calculator spits out numbers that are too great to pass up and you let greed get in the way of logic.
Think about it this way. 200:1 leverage.
You have a trade where you are targeting 25 pips and risking 25 pips. As you’ll learn below, that trade actually has to go 28 pips or more to hit your target of 25 pips and you’ll actually be risking 28 pips or more – but for this example we won’t get hung up on that. We’ll solve that later.
You have a $5,000 account and trade it with 200:1 leverage. That means you can trade 1,000,000 worth of currency (you can see why we said spreads above are a significant cost but with leverage can end up being a small percentage of cost) – and that means 10 full sized pairs.
Oh, and you lose on this trade. Let’s do the math. 10 pairs x 25 pips = 250 pip loss. Make that with spread 10 pairs x 28 pips = 280 pips loss x $10/pip = $2800 loss.
Oops. You’ve just lost over 50% of your account. Don’t even think about what would have happened if you were risking more – and these days on the Forex, good luck risking much less.
If you lose twice in a row – which happens all the time - you’ve just wiped out. Sure, if you win you make a great return, but you are completely counting on virtually never losing. Even if you get a few wins immediately, you’ll eventually wipe out.
It’s what happens to the new gambler in Las Vegas. They try a few hands, they win, they get sucked in, and then before they know it they are at their ATM machine looking for their mortgage money to try and get back that winning feeling.
You’ll have success trading with huge leverage. Some of the time. It will be great and you’ll brag to your friends how you made 50% that afternoon. Then, a few days later you’ll be asking them to pick up the lunch tab.
Do not use crazy leverage. Do not use crazy leverage. Do not use…ok, you get the idea.
Decide on a fixed percentage you are going to risk on your account on any one trade. 5%? 10%? And calculate that amount to determine what size you can trade based upon the risk per trade. It will still be great leverage – Forex provides that. What’s wrong with 5:1 leverage or 10:1 leverage? It blows away the stock market but it’s not going to wipe you out in a couple of trades.
13. Spreads
Find a broker that does not charge high spreads. Sure, you need a broker who provides a stable platform, which provides good customer service, which is regulated (important!), that has account insurance/guarantees, and so on. But realize these brokers make money many different ways. They make spread money, they make money by laying off orders on other banks, they make money on stop running. Did I say that? Guess it’s too late to take it back.
There is simply no reason to pay more than 3 pips on the EURUSD. And really, you should be paying 2 pips. On the GBPUSD and USDCHF why are you paying 5 pips? Sorry, it’s not going to a charitable cause – your broker’s bank account isn’t a non-profit. Those spreads are crazy. You should pay 3, maybe 4 at most on the other majors.
There are new trading platforms coming out in recent months, some based upon the “Currenex” platform that basically takes your orders direct to the “real” trading market and your broker only takes a small commission on the trade, closer to the model we see in stocks and futures. Or they are mimicking the Currenex platform and developing on that works similar. Look for this; it is important to have liquidity and low costs.
And forget about all the “exotics” – avoid trading anything that is not amongst the main pairs – EURUSD, USDCHF, GBPUSD, USDCAD, AUDUSD, USDJPY, EURJPY and maybe EURGBP. And stay away unless spread is 2 or 3 pips, maybe 4. That’s already more than enough to trade so why do you need to trade the GBPCHF for 15 pips spread? Unless you really like to make car payments and pay for rounds of golf for your broker. If you do see a compelling reason to trade, for example, the GBPJPY - and there are some great moves there - just be sure you are building the spread costs into your trading outcomes – you might need it to go 7 to 10 pips just to get break-even, let alone to start making a profit.
The rest of this important top 10 with critical insight into ensuring your forex trading success can be found here: http://www.netpicks.com/BetterTrading.html
By: mark
About the Author:
Mark Soberman of NetPicks provides additional free trading information, forex and futures signals along with the free “30 Minute Guide to an Optimized Trading Life” e-book at http://www.netpicks.com/BetterTrading.html
Filed under Currency Trading by Administrator
October 27, 2008
How to Choose a Trading Platform
Choosing a forex trading platform can be very hard if you dont know what to look for.
In this article you will learn the most important things that a good forex trading platform should have.
Hopefully after reading this article you will have everything you need to choose a good forex broker & platform So for you to learn how to choose the right platform the will work well for you,you just need to continue reading this article and also refer your friend to this page in other for them to get it right,when choosing a trader platform.
How reliable a company is. The easiest way to go here would just be to go to some brandname company. Of course, with smaller investments it might be complicated, but many of the big names also offer mini-accounts which start from anywhere between $300 - $2000 minimum. Additionally, get lost into some investing forums and see what other people are suggesting. And then preferrably ask about the platform/firm they suggested in some other forum as well. This way you will get general information about experiences with the firm and additionally, when people are ready to suggest something, it often means that THEY consider the firm reliable
- How big are the commissions? For forex and stocks the commissions are usually calculated differently. For stocks there is often a certain fee for a trade – anywhere between $4 - $40 or per trade…eg. $0.02 per stock. With forex the commissions are often automatically added into the spreads ( the difference between the ask and bid price), thus no extra commission is taken. I myself have looked around and considering that…
1. I want to day trade not invest for longer term and
2. My initial investing capital will be only $1k-$5k
…the commissions really need to be small. I won’t be looking to earn 10% with a stock and I won’t be working with big numbers. So a $20 commissions on stocks are pretty much killers…buy+sell=$40 only for commissions..and $40 and if I have just $1000 to play with this means that the stock price would have to move to my desired direction at least 4% just not to lose with this deal. And this is a killer. Especially if, as a day trader, I would be happy to take just 1% of profit per deal. So instead I suggest you to find a firm that offers eg. $4 per trade or $0.01 per share. With forex – I have actually already tried to play on forex, without any knowledge of the market, just to try it out. The firm I used had 10 pip spread for mini accounts ( min deposit $25 )…and as I didn’t know a thing about pips and such ( if you don’t have any clue what pip is, check the forex channel on this site..there will be an introduction to forex markets soon) and only now I can say it’s a killer. Good platforms usually offer only a 2-5 pip spread and this is a lot better, independent of your portfolio value.
- With forex and small capital you also want to know what kind of leverage they are offering. Forex is good from the perspective that you might only have $1000 but you could buy currencies for $100k ( this case of course, you are risking all your money, but the possibility here is important). The leverage is different with different online brokers, usually between 50:1 and 400:1. I guess 100:1 or 200:1 is pretty good already while 50:1 might not do it.
- How does their platform look? While other people might say that this or that platform is very good, you might end up hating it. So I suggest you to register for free demo accounts on different sites and see yourself which you would be most comfortable with. For example if you don’t have a laptop with you all the time, it might be a good choice to go for a web-based platform, while if you do have access to your computer all the time, I would suggest a non-web-based platform as these tend to be a bit faster to use. But that again might be my personal fetish. And my 10-pip firm had web-based platform so I might not be as objective here as I could.
Tip #1 Real Time Quotes
This is extremely important. Forex trading is done 24 hours a day and you want to have live quotes. With live quotes you can be in full control of your funds and check them whenever you want.
Make sure to check if the broker platform offer live quotes 24 hours a day. This is really important i cannot stress this enough.
Make sure to check so the broker don’t slow the execution of the orders. This way you will enter a market at a different time than you wanted.
So make sure that the broker don’t slow the execution orders.
Tip #2 Easy to Use
The software you use should be easy to understand. You should be able to start trading immediately. Skip systems that take weeks to learn. They should be easy to use, that’s it.
You should also try to pick a software that doesn’t need any download, that you can access from every computer.
You could choose to download a software but make sure that it got live quotes.
Support
This is very important. Your broker shall provide 24 hours support no question about it. The forex market never rests and if you need assistance you should get it fast.
A good tip is to contact their support about any questions you have before you buy their services.
Trading Rates
Be sure to check if the software allows a freeze option when you decide to buy or sell. This way you get the rate you freeze and not the actual rate that occurs when the buy or sell is processed seconds later.
Spreads
The spread is different from broker to broker. Make sure to check which spread the broker have. If they have larger spreads then the market have to move in your favor more than it would have if the spread was smaller.
harder to make a profit if the spread is larger so try picking a software that have a small spread.
By: tunde
About the Author:
In this article you will learn the most important things that a good forex trading platform should have.
Hopefully after reading this article you will have everything you need to choose a good forex broker & platform So for you to learn how to choose the right platform the will work well for you,you just need to continue reading this article and also refer your friend to this page in other for them to get it right,when choosing a trader platform.
How reliable a company is. The easiest way to go here would just be to go to some brandname company. Of course, with smaller investments it might be complicated, but many of the big names also offer mini-accounts which start from anywhere between $300 - $2000 minimum. Additionally, get lost into some investing forums and see what other people are suggesting. And then preferrably ask about the platform/firm they suggested in some other forum as well. This way you will get general information about experiences with the firm and additionally, when people are ready to suggest something, it often means that THEY consider the firm reliable
- How big are the commissions? For forex and stocks the commissions are usually calculated differently. For stocks there is often a certain fee for a trade – anywhere between $4 - $40 or per trade…eg. $0.02 per stock. With forex the commissions are often automatically added into the spreads ( the difference between the ask and bid price), thus no extra commission is taken. I myself have looked around and considering that…
1. I want to day trade not invest for longer term and
2. My initial investing capital will be only $1k-$5k
…the commissions really need to be small. I won’t be looking to earn 10% with a stock and I won’t be working with big numbers. So a $20 commissions on stocks are pretty much killers…buy+sell=$40 only for commissions..and $40 and if I have just $1000 to play with this means that the stock price would have to move to my desired direction at least 4% just not to lose with this deal. And this is a killer. Especially if, as a day trader, I would be happy to take just 1% of profit per deal. So instead I suggest you to find a firm that offers eg. $4 per trade or $0.01 per share. With forex – I have actually already tried to play on forex, without any knowledge of the market, just to try it out. The firm I used had 10 pip spread for mini accounts ( min deposit $25 )…and as I didn’t know a thing about pips and such ( if you don’t have any clue what pip is, check the forex channel on this site..there will be an introduction to forex markets soon) and only now I can say it’s a killer. Good platforms usually offer only a 2-5 pip spread and this is a lot better, independent of your portfolio value.
- With forex and small capital you also want to know what kind of leverage they are offering. Forex is good from the perspective that you might only have $1000 but you could buy currencies for $100k ( this case of course, you are risking all your money, but the possibility here is important). The leverage is different with different online brokers, usually between 50:1 and 400:1. I guess 100:1 or 200:1 is pretty good already while 50:1 might not do it.
- How does their platform look? While other people might say that this or that platform is very good, you might end up hating it. So I suggest you to register for free demo accounts on different sites and see yourself which you would be most comfortable with. For example if you don’t have a laptop with you all the time, it might be a good choice to go for a web-based platform, while if you do have access to your computer all the time, I would suggest a non-web-based platform as these tend to be a bit faster to use. But that again might be my personal fetish. And my 10-pip firm had web-based platform so I might not be as objective here as I could.
Tip #1 Real Time Quotes
This is extremely important. Forex trading is done 24 hours a day and you want to have live quotes. With live quotes you can be in full control of your funds and check them whenever you want.
Make sure to check if the broker platform offer live quotes 24 hours a day. This is really important i cannot stress this enough.
Make sure to check so the broker don’t slow the execution of the orders. This way you will enter a market at a different time than you wanted.
So make sure that the broker don’t slow the execution orders.
Tip #2 Easy to Use
The software you use should be easy to understand. You should be able to start trading immediately. Skip systems that take weeks to learn. They should be easy to use, that’s it.
You should also try to pick a software that doesn’t need any download, that you can access from every computer.
You could choose to download a software but make sure that it got live quotes.
Support
This is very important. Your broker shall provide 24 hours support no question about it. The forex market never rests and if you need assistance you should get it fast.
A good tip is to contact their support about any questions you have before you buy their services.
Trading Rates
Be sure to check if the software allows a freeze option when you decide to buy or sell. This way you get the rate you freeze and not the actual rate that occurs when the buy or sell is processed seconds later.
Spreads
The spread is different from broker to broker. Make sure to check which spread the broker have. If they have larger spreads then the market have to move in your favor more than it would have if the spread was smaller.
harder to make a profit if the spread is larger so try picking a software that have a small spread.
By: tunde
About the Author:
Filed under Day Trading by Administrator
October 25, 2008
Day Trading – What is It?
Day trading is basically the buying and selling of stocks over a relatively short period of time, sometimes minutes. It was once only available to floor traders and investment banks but now the Internet has made day trading accessible to anyone with a computer system. There is good money to be made (and lost) using this method.
As an example, a day trader might buy 1000 shares of stock A at 10:00 as the price begins to move upwards on good news, then sell it at 10:04 when the stock price has risen (for example, by $0.50). The day trader would make $500 profit, less his commission which with today’s low commission rates of around $30 or less per trade, that’s a nice $440 or better, excluding taxes.
Day trading usually follows one of two approaches, either beating the spread or attempting to catch short term trends. The spread is the difference between what is being offered for a stock (the bid) and the price being asked for the stock (the ask). With spread trading, you attempt to buy at the ‘bid’ and sell at the ‘ask’ as many times as possible. Spread traders can make hundreds of this type of trade every day.
ECNs or Electronic Communication Networks are a recent development. They are completely electronic exchanges with very low commissions and very fast execution of orders. As a method of encouraging traders to use their networks, some ECNs offer incentives in the form of a rebate. In some cases, this can allow a day trader to make money simply from buying and selling a stock at the same price.
Day trading can be very profitable if you get it right, but you need to research as much as possible and take advantage of the free simulation software that is available for you to practice with before you take the plunge. Remember, day trading isn’t for the faint hearted!
By: Andy Hargreaves
About the Author:
As an example, a day trader might buy 1000 shares of stock A at 10:00 as the price begins to move upwards on good news, then sell it at 10:04 when the stock price has risen (for example, by $0.50). The day trader would make $500 profit, less his commission which with today’s low commission rates of around $30 or less per trade, that’s a nice $440 or better, excluding taxes.
Day trading usually follows one of two approaches, either beating the spread or attempting to catch short term trends. The spread is the difference between what is being offered for a stock (the bid) and the price being asked for the stock (the ask). With spread trading, you attempt to buy at the ‘bid’ and sell at the ‘ask’ as many times as possible. Spread traders can make hundreds of this type of trade every day.
ECNs or Electronic Communication Networks are a recent development. They are completely electronic exchanges with very low commissions and very fast execution of orders. As a method of encouraging traders to use their networks, some ECNs offer incentives in the form of a rebate. In some cases, this can allow a day trader to make money simply from buying and selling a stock at the same price.
Day trading can be very profitable if you get it right, but you need to research as much as possible and take advantage of the free simulation software that is available for you to practice with before you take the plunge. Remember, day trading isn’t for the faint hearted!
By: Andy Hargreaves
About the Author:
To find out more about day trading software, take a look at my Day Trading Blog.
Practice before you dive in with free simulation software at my Day Trading Blog.
Filed under Day Trading by Administrator