Anyone here into FOREX?

[savar]

If you had a 200:1 margin, and bought 500,000 units.. you would have made $12,400

does the idea of trading on 200:1 margin frighten you? or are the currencies stable enough that in practice you wouldn't get wiped out?

also, how did you come to be aware of the timing of economic releases. is it just something that you follow in the newspaper?

edit: also, the japanese 0% interest rate, is that real interest or nominal interest?

 

[Curren~Sea]

I'm not sure which brokers/bankers in Switzerland would be the best. I am doing a lot of research now. But to be quite honest, with my style of trading I don't have much trouble with FXCM (actually it is MAN financial in Canada). I'm a longer term trader and my stop losses are generally out of range for a bucket shop to phish. If I have a 50-100 pip stop loss, it is very difficult for a dishonest broker to spike it.

I don't know this for a fact, obviously, but I suspect that most people who complain about their stops being taken out by a broker probably have only themselves to blame for putting it at a vulnerable spot.

It is folly to arbitrarily put your stops at some round number such as 10 or 25 or 50 pips without taking historical highs and lows into account. Doing so will virtually guarantee that your trade is stopped out. And it's not necessarily the broker who will stop you out but the mob mentality of the market.

For sure, announcements move the market. But how far the move travels is a function of technical points of resistance. If a trader is scalping pips off announcements then yes, you need a platform that will let you trade during the few seconds or minutes of major volatility - FXCM does not. But they do honor your trades. If you put in entries, limits, and stops before a major announcement, your trade station may be locked for a few minutes but you'll eventually see that they executed your trades.

As for Canadian brokers, I know many traders who are very happy with FXSolutions, and you can use them anywhere but BC. Another that I have started researching is QuestTrade out of Toronto.

To deposit funds with just about any broker you can simply wire transfer the money. Personally, I funded mine from my credit card (got air miles) which I always pay back every month to avoid interest charges. There are a lot of other papers to read, sign, and fax or scan and email. But, by the time a person is ready to open a live account they should be comfortable with all of the legal mumbo jumbo.

 

[Curren~Sea]

Here's another true story...

When I started trading forex, I was excited and I told my brother about it. I said that I thought he'd make a good trader and that he should take some courses like I have. Well, he didn't want to pay for training so he did some research on the net, read a couple books from the library then opened up a demo account. He was phenomenal in his demo trading. He took his 50k free account to 75k within a month on momentum trades.

He opened a little live account with $1000 and it was gone in two weeks.

Of course he is not interested in trading anymore....

I asked him what happened? He said that he changed his strategy when he went live. I said, WHAT?! Why on earth would you do that? He didn't really have a good explanation and that's the end of that for him.

I have a good explanation, though. Demo trading is nothing like live trading. Demo accounts have no real value and we attach no emotional value to them. It's easy to make money in a demo account. Go live and it's a whole different ballgame.

The morals of this story are: 1) Get some real, professional training. 2) Practice on your demo account at least for 3 months and try very hard to treat it like it is your real, hard-earned money. 3) Find a system that works for you and stick to it.

 

[Hoef]

I'm a longer term trader and my stop losses are generally out of range for a bucket shop to phish.

Curren~Sea, so are you more trading on fundamentals? Why are there so many forex trading sites in Canada?

 

[Music_Producer]

Savar, most forex brokers set the default margin rate to 200:1..thereby making it pretty easy to lose money if you're a newbie and have no idea what a margin call is. My margin is set to 50:1. Oanda does not allow me to set a higher margin than that, and in a way thats good.

For economic releases, just download the economic calendar from any forex site.I don't read the newspaper for that.. the newspaper's only for the comic strips

As for dealing with swiss brokers, I don't know. I feel safer dealing with forex traders who are based in the United States.. because thats where I live. If I were in Canada, I would probably deal with a canadian broker and so on. Oanda's based in NY, and a couple of offices around the world of course.

My first forex account was with Refco FX. They were pretty big.. but they went bankrupt and were bought by another forex broker. Everyone panicked, thinking their money was gone.. but I received my money back (in the form of a check) I only had $48 in there, but they did return it. Thats also because they were based in the US, if it were a Swiss company.. I am not sure how that would work. Maybe I'd have to fly to Zurich to get my money back?

The best way to check if a forex site is for real or not.. is their contact information and the way the site is set up. I mean I have seen some seriously amateurish sites.. and the best giveaway is "Minimum requirement is $30,000 deposit" Lol.. yeah, sure.

You can deposit $10 in oanda and trade with that.. my first deposit was $50 to practice.

Curren~Sea, your brother made the grave mistake of changing his strategy. *Everyone* does well with a demo account! I converted $50,000 into $120,000! Why? Because its fake money. I would simply trade for the heck of it.. for 'fun'. And also, $50,000 gives you a lot of collateral in the event of a margin call.

Which is why I always say.. treat the demo account like a real account! Also, don't go around looking for forex forums or blogs.. there are a lot of idiots out there who give retarded advice "OMG!! SELL GBP/JPY RIGHT NOW!!!! MAKE $$$$" and crap like that.

Sometimes, when you're out of trading strategies.. you will look to adapt anything that anyone says.. and that will usually burn you.

 

[Curren~Sea]

Hoef: I trade on technical indicators such as chart patterns and the Elliott Wave. I do not follow the fundamentals at all. I am aware of fundamentals, and I am aware that announcments occur but I do not really care what they are other than their relative importance, i.e. how much are they likely to move the market.

I care where the market is currently going and I use the Elliott Wave to predict market turn arounds.

Basically, predicting the markets is an odds game. This may sound like gambling but it isn't. It's more like the process of elimination. If you do things that increase your odds then you'll be more successful. This concept is no different than buying stocks or real estate. You take a chance that your investments will move in the direction you expect but you don't really know. However, if you do your homework and make intelligent decisions based on solid facts then you stand a much better chance of succeeding.

I doubt that Canada has more fx brokers than anyone else. I think many of the companies are subsidiaries of larger US or multi-national firms. I have played around with the Oanda FX Game and it's ok. I don't really like the platform itself but I like the concept and the mechanics behind it. I pay for professional charts that originate from FX Trek, and they're unparalleled in my opinion. So, my broker doesn't need to provide charts, they just need to have a good system that is reliable.

 

[Curren~Sea]

Margin, spreads, leverage, pips... it can all be confusing. Well, it still confuses me!

But I am of the opinion that the higher the leverage the better.

With 200:1, it costs $50 to secure $10,000 USD worth of a currency, which is one lot (10000 / 50 = 200). At 200:1, one lot is worth $1. If the currency goes your way by 10 pips, then you make $10. You can buy 10 lots, which would cost you $500 and each pip is worth $10, so a 10 pip move would make you $100.

At 100:1 it costs you $1000 to secure 1 lot but each lot is actually $100,000, and each lot is worth $10. Each pip is worth $10.

So with 200:1 it costs 500 to control 100,000. At 100:1 it costs 1000 to control 100,000. In either case, each pip is worth $10. Which makes the most sense?

You will never lose your margin, i.e. the 500 you use to secure 100,000. The most you can lose is your stop loss, which you should always enter at the same time as your trade. If you get margined out, you'll get your 500 back and everything else will be gone. This is just an example and the numbers can vary.

Example of a worst case scenario: You have a 2000 account, you buy 10 lots for 500 (first silly mistake). That leaves you 1500 worth of pips. You forget to enter a stop (second silly mistake) and you go on a cruise to Alaska. The market goes against you by 150 pips and you get a margin call (150 * 10 = 1500). The broker takes your 1500 and gives you back the 500. You get home, see your mistakes, take your 500 and buy lots of beer and chips.

I still haven't figured out how Oanda calculates its fractional lots but I have only heard good things from people who use them.

Personally, I am all about simplifying. And generally a few pips doesn't mean much to me because I'm after hundreds.

 

[Music_Producer]

ECB meeting today

There's an ECB meeting today at 12.45 GMT.. (next 15 mins) Lets see if they raise interest rates or leave it where it is..

 

[njmac]

There's an ECB meeting today at 12.45 GMT.. (next 15 mins) Lets see if they raise interest rates or leave it where it is..

How did you do?

 

[Hoef]

How did you do?

Also let us know how you are going to approach the non-farm payroll tomorrow. Good stuff!

 

[Crimson]

On a very beginners' level...

Hi again everyone,

I realize I'm so much newer at this than most of you guys in here but you have given me some good advice so I'll figure I can ask some more. But please forgive the lack of the right terms. I am reading all the beginner material I can find on Forex but am yet to come across answers to what I'm really curious about.

If I buy Euros when they seem low, after looking at the bigger picture" chart (on Oanda 1 day charts) and they look low in comparisson to where they've been. Now I'm thinking that they will go back up to where they've been at some point... so why would I put a stop/loss order on it? I mean, can I not leave the order active until it does? Theoretically, for days, weeks... or months? I guess what my question is; does currency go low and stay that way forever? Doesn't it always spring back at some point? What is the reason for taking the loss early and not waiting it out?

OK... probably a really silly question and completely gives away my amature status but I would really appreciate your help!! (and no... im not trading real money yet... phew!)

 

[Curren~Sea]

In theory, everything balances out over time.

However... a smart trader should ALWAYS use a stop loss to protect their capital. What if it doesn't come back for a long, long time? What if you bought the EUR in Jan of 1999, well it took you 4.5 years before it came back.

What if there is a major catastrophe or a major accomplishment? For example, you are in a trade that you expect the USD to go down and they nab Osama, what do you think the US dollar will do? Or you're in a trade and you expect the YEN to go up, and a North Korean missile lands in Japanese territory? What do you think the Yen will do? There are just too many variables that are completely out of our control and you don't want to blow through your whole account on something like that.

Success in forex is as much about protecting your trading capital as it is about profit. Always use a stop loss, that's how you control your risk.

 

[Curren~Sea]

Another way of looking at it is your risk vs. reward. This is a very important concept in trading. A stop loss number is your risk. And you should have some idea what your reward will be based on chart patterns or based on what your goals are.

If I use a 20 pip stop and I expect a 20 pip profit, that is a 1:1 risk vs. reward ratio. Are you happy with that? I can make one good trade and one bad trade and be even.

If I have a 50 pip stop and I expect 100 pip profit, that's 2 to 1. I can make 2 bad trades and one good trade and be even.

A huge part of trading is learning that it's ok to lose as long as your wins outpace your losses. Most people hate to lose (me included) so it takes a lot of discipline to stick with my stop losses, take a loss and move on to my next trade. But it works out well in the long run.

 

[Music_Producer]

How did you do?

Well, nothing happened.. the interest rates were not touched. The Euro went down by a few pips and I made about 8 pips.. thats it though. The Bank of England didn't raise rates either. Quite a boring day.

Crimson.. yeah, thats what I used to think too.. that at *some* time the currency will come back up. In theory you can be fine if you don't use a stop loss.. but when you see that "-700$" sign in your account.. you won't be able to sleep that well

Additionally, you're paying interest if you have a interest negative trade. For e.g. if you buy EUR/USD.. you are paying daily interest. If you sell EUR/USD however, you are getting interest.

Just like I stated about the AUD/JPY.. I buy it and hold it (if it goes down) because it pays me interest. Eventually when it goes back up, I sell it and make my profit. Right now I am *not* doing that because the bank of japan is expected to end its zero interest rate policy next week.. but with all these Korean missiles flying around, I don't quite know what's going to happen.

Crimson, lets assume you bought the EUR/USD at 1.2900 before the interest rates were announced last month. If you even bought only 5000 units, you'd have a -$108 pending loss (if you sold it) Lets say you bought 15000 units..you'd have -$325. In addition you are paying $1.4 interest everyday. Now the EUR has still not come back to 1.29.. in fact, its at 1.278.. and goes to 1.27 at times.

So yes, theoretically.. if you have enough balance in your account to accomodate for these swings.. you will be fine.. as the currency will come back to its level.. but it might take years! One thing's for sure.. the currency will never go to zero like stocks do! But then, those units which are making a loss (which you are holding on to) also reduce your ability to buy more units to make a profitable trade, and so on. Plus the interest..its better to employ a stop loss, and forget about it when you make profit later on.

I'll post about today..er..tomorrow's news this evening and let you know what I think

 

[Crimson]

Ready for book release!

Hi Music_Producer,

Being new at this I've discovered how hard it is to find really good newbie books in this topic - just wanted to say the more I read, the more impressed I get with your way of explaining this to someone who is just starting out, and all I can say is the bookstores NEED a book written by someone like you!! Thank you again. I've gotten more useful info from you than books and sites I've read! Be prepared for more silly questions down the road!

 

[Music_Producer]

Hi Music_Producer,

Being new at this I've discovered how hard it is to find really good newbie books in this topic - just wanted to say the more I read, the more impressed I get with your way of explaining this to someone who is just starting out, and all I can say is the bookstores NEED a book written by someone like you!! Thank you again. I've gotten more useful info from you than books and sites I've read! Be prepared for more silly questions down the road!

Hey Crimson, you're welcome! All I can say is, I don't know why these damn books always 'try' to explain things.. but they never really do. Sure, they explain the basics of forex trading, and all the 'mistakes' you shouldn't make.. but honestly that's already there on every forex site.

All those charting patterns, analyzing stuff is good in theory.. but I find that I can never predict a 'trend'. My trades last for a few seconds, and they work, well they have worked so far. Hey, maybe I'll write a book in the future.. so right now you're kinda seeing a work in progress

 

[Music_Producer]

Hawkish and Dovish

No, they're not characters from a cartoon strip... ..thats just the term they use all the time in forex.. when the Fed chairman is 'hawkish' that means he's more willing to raise interest rates. He will usually talk like "Yes, inflation is a threat and we will be raising rates in the future".. something of that sort. Dovish is when it seems like they are done with raising rates, or will do nothing to the rates.. something like "Inflation is well contained, the economy's strong.. we see no reason to hike rates anymore"

So lets look at the graph for this morning-

1. This is when the ECB announced that the rates were not hiked.. this was expected.. so kinda boring.. but I sold the Euro anyway as i expected it to dip a little .. and it did

2. I closed the trade (by buying euro at a lower price) for about 8 pips. This was all before 5 am. Traders also look for what the ECB chief has to say about the Euro during their meeting.. i.e. whether he is hawkish or dovish (sounds silly i know!)

So at 5.30 am, a bunch of reports came out.. and he was very hawkish.. mentioned that on Aug 3, there won't be a teleconference (as ppl expected) but a real conference.. and a possibility that rates might be hiked. This was huge.. because nobody expected them to really meet again on Aug 3 (I dont know why they waste so much money on meetings..just meet once and raise the rates damnit!! )

When that news came out.. the Euro jumped .. and as you can see .. its been at that level pretty much the entire day (towards 1.2780) I didn't expect that the ECB would announce Aug 3 to be their next meeting, so I went to sleep before this report came out.. damn!

Anyway, hope this explains how even simple comments made by the Feds/ECB can affect the currency. Which is why they used to say Alan Greenspan was so powerful.. because he could move markets simply by talking.. obviously the same holds true for every Fed chairman. And you thought you had the best job in the world huh?

If the US non farm payrolls come out strong, then the USD will go up.. remember, you need a good deviation from the standard 'expectation' If the market expects 310k jobless..and the number comes to 313 or 309k.. thats not going to move the market much. If the number comes to something like 350k or 250 k.. the market will move.. a lot!

And while you're paying attention to all that, don't forget our psycho friend Kim Jong and his missile threats! Its funny though, as the markets have 'factored' these threats.. they apparently don't think Nkorea can be a real danger. I sure hope they're not.

 

[njmac]

Thanks again for the info. It does make sense the way you explain it.

I am very curious to know how you learned the fundamentals? Like how did you learn what specific news will cause a specific spike up or down in the markets. How do you learn what affects other countries currencies? If you read Trade the News, how exactly do you know what that news will do?

 

[Music_Producer]

Thanks again for the info. It does make sense the way you explain it.

I am very curious to know how you learned the fundamentals? Like how did you learn what specific news will cause a specific spike up or down in the markets. How do you learn what affects other countries currencies? If you read Trade the News, how exactly do you know what that news will do?

Hey nj, pretty simple.. trading for months with a demo account, I followed the news and wrote down everything.. whatever effect a certain segment had on that particular currency. Some releases have small impacts, some in turn - huge. I find that interest rate decisions move currencies the most.. even 'rumors' or simply statements about interest rates.

 

[~Shard~]

Once again, thanks Music_Producer. Thanks to you, I might just get back into this crazy Forex game one of these days...

 

[Music_Producer]

Hey Shard! Almost forgot about your country's news release today! At 7 am new york time.. Canadian unemployment rate and change in employment comes out. I usually like trading CAD (canadian dollar) as its less volatile compared to Euro and the like.

So..

7 am - CAD change in employment report
8.30 am - non farm payrolls - affects USD

 

[~Shard~]

Hey Shard! Almost forgot about your country's news release today! At 7 am new york time.. Canadian unemployment rate and change in employment comes out. I usually like trading CAD (canadian dollar) as its less volatile compared to Euro and the like.

So..

7 am - CAD change in employment report
8.30 am - non farm payrolls - affects USD

Yep, I'm always well aware of the economic news, being the active investor that I am, however I'm not in the position to benefit from it as I do not have one of these fancy schmancy Forex trading accounts... yet... I follow all that news closely as well, it would be nice to capitalize on it... ;cool:

So, you'll be ready to go with your hand over the BUY or SELL button for CAD/USD? Let us know how it goes, if you decide to act...

 

[Music_Producer]

Yup Shard.. I'll be ready to trade the USD/CAD at 7 am EST (4 am PST in Cali) I am so used to staying awake now till 6 am..

I will be trading the EUR/USD as well.. but the non farm payroll seems a little weird.. expectations are ranging from 135k to 185k.. and thats a pretty huge range.

 

[Music_Producer]

If I buy Euros when they seem low, after looking at the bigger picture" chart (on Oanda 1 day charts) and they look low in comparisson to where they've been. Now I'm thinking that they will go back up to where they've been at some point... so why would I put a stop/loss order on it? I mean, can I not leave the order active until it does? Theoretically, for days, weeks... or months? I guess what my question is; does currency go low and stay that way forever? Doesn't it always spring back at some point? What is the reason for taking the loss early and not waiting it out?

OK... probably a really silly question and completely gives away my amature status but I would really appreciate your help!! (and no... im not trading real money yet... phew!)

I know I have replied to this earlier but I wanted to post an additional comment on your question.. based on personal experience. During my first few months of trading recklessly i.e. no stop loss, gut trading and so on.. I tried the same thing. At that time I had a 200:1 margin, so I bought EUR/USD and didn't have a stop loss.

The next morning, I was at a $400 loss.. with little margin left. So I panicked, and wired some more funds into my forex account. The funds showed up the next day, and everything was good (well, that $400 loss was still staring at me in the face) I was hoping the EUR would go back up and everything would be sunny again.

24 hours go by.. the Eur's gone down again.. and I'm looking at a possible $950 loss. I still have some margin left, so i don't worry about it. In a few hours, it tanks to -$1200. Again, I have hardly any margin left, so i wire more money into my account. Too late.. i get a margin call and *poof* I just realized a $1200 loss.

no problem right? I'm the oh-so-wannabe-George-Soros trader. So I got pissed off.. and wired more money and bought EUR at that level. Hey, it tanked so low.. it has to go up! Wrong. The bastard tanked again.. and I went through the whole frikkin cycle again.

Had I employed a stop loss, I would have lost about $100, instead of $2400. AND the interest I had to pay on top of that. So Crimson, if you make the same mistake that I did, or intend to make the same mistake.. please wire me your money and I will take more care of it than you will

 

[Music_Producer]

Before you try a Carry Trade Strategy

Assume you have $10,000 in capital. Use $5,000 (keep the other 5000 in the forex account as collateral) and buy AUD/JPY at 50:1 margin. That gives you about 334,000 units to buy at the current usd/aud rate.

You will fetch $36 every 24 hours in interest. Not bad for using only $5000 of your capital. Lets say you bought the aud/jpy at 86.00.. anda fter 30 days, it dips to 83. This is absolutely possible, because in one month aussie has jumped from 83.50 to almost near 86. So the reverse can happen too.

At 50:1 margin, you are looking at a -$8717 loss. But you have $5000 collateral.. so you need to pump in atleast $4000 extra in your account to accomodate for that dip.

The bank of japan eliminates their zero interest rate policy. The Yen skyrockets.. Aussie dips to 79 (can easily happen in 24 hours)

Whats your loss looking like? -$20,340. So you're gonna pump in more money to accomodate for it? you cant.. you wont! To make $36 per day in interest, you just spend a hell lotta money! This is where a lot of newbies mess up too.

The aussie can go up too.. say from 86 to 90 (if the bank of japan does not end the zero interest policy, korea launches more missiles so the yen tanks etc etc) then you stand at a $11,000 profit PLUS your $36 per day interest.

So if you're going to operate a carry trade, be careful and be aware of what can possibly happen. Banks don't have to worry about this as we do, since they have billions in collateral (until they go bankrupt )