Newbie Forex Questions

[brownsfan019 17]

Hoping some of you experienced forex guys can answer some basic questions. I've been trading futures for years and enjoy that, but just curious about forex and whether or not it would be a good fit for me.

 

Some questions...

1) Tell me about forex trading. I've read horror stories of bucket shops and such. How do you avoid this?

2) I like volume, esp Volume Based Charts. Is there anyway to translate that to forex since it's not trading centrally?

3) I've read that forex can trend more in comparison to indexes. Do you find this true? If so, how often would you say that a trend can go?

4) Assuming it does trend more, is it better to swing trade here or is it possible to daytrade. I've also read that brokers can 'get mad' or 'blackball' you if you trade too quickly.

5) How about during econ news... I've read that the spreads can get ridiculous.

6) What's a good charting platform?

7) How does leverage work here? I understand futures, but have read about 'mini' accounts and such in forex, so not sure.

8) Who are stable, recommended brokers?

9) What else should I know?

 

I appreciate the help guys. Just looking to satisfy my curiosity.

Thanks!

[notouch 10]

1) There are two types of forex broker: the direct access broker and the bucket shop. The direct access broker gives you direct access to the banks (Bear Stearns, UBS, Deutsche Bank etc) while the bucket shop makes its own market. Avoid bucket shops at all costs. Some direct access brokers are EFX, Interactive Brokers (IdealPro) and hotspotfx.

 

2) There's tick volume and some data providers allow you to subscribe to the volume of particular banks but total interbank volume is not available. Volume on futures is available but often too light to be useful. CME Euro futures are very liquid though.

 

3) I wouldn't say currencies trend necessarily. It depends entirely on the currency pair. USD is in a long term down trend against the European currencies. I think swing trading opportunities are best.

 

4) I wouldn't use less than a 30 minute chart. 4 hours and daily charts are also good. Direct access brokers couldn't care less how you trade. Bucket shops will try to fiddle you.

 

5) Extreme volatility and wide spreads immediately after economic news.

 

6) The same one you use for index futures will work just as well for fx.

 

7) A full sized lot is $100,000 and leverage is typically 100:1 so you need $1000 to trade 1 lot. So for GBP/USD and EUR/USD each pip is worth $10. With EFX you can trade $10,000 lots and with IdealPro you can trade any size above $25,000.

 

8) EFX and IB.

 

9) Do your own research before pestering me with such simple newbie questions again.

[torero 10]

I use MBT, which is a direct access broker, which has the same trading platform as EFX. Also Oanda is a good option. If you don't see on average EURUSD is 1 pip or less at normal times, then it's a bucket. GBPUSD should be at most 2 pips.

 

Also, make sure you make yourself available for London open (2am EST), best time to get in or out despite being a 24-hr mkt, even for swing trading. This is an important time where levels tend to be broken or tested.

[brownsfan019 17]

I use MBT, which is a direct access broker, which has the same trading platform as EFX. Also Oanda is a good option. If you don't see on average EURUSD is 1 pip or less at normal times, then it's a bucket. GBPUSD should be at most 2 pips.

 

Also, make sure you make yourself available for London open (2am EST), best time to get in or out despite being a 24-hr mkt, even for swing trading. This is an important time where levels tend to be broken or tested.

 

I was afraid someone would mention that 2am EST thing... That's a deal killer for me. As much as I love trading, adjusting my life and sleep schedule is just not an option right now and probably never. I can see why the Euro open is important.

[notouch 10]

If you trade a non-European currency pair like USD/JPY, USD/CAD, AUD/USD or NZD/USD or even a cross like AUD/JPY then the London open is not that important.

 

USD/JPY is the second most traded currency pair and if you like trends check out NZD/JPY.

[torero 10]

These are fine but it's still not ordinary non-vampire hours LOL.

[Anonymous 11]

* Currencies have the highest propensity to trend of all the markets. Unfortunately, that does not mean they are easier to trade. Nor does it mean that they always trend. It simply means they tend to trend more often than all the others, and when they do trend they tend to trend longer.

 

* Technicals work well in currencies, when used correctly. Which is true of all markets. But if used to define trends rather than pick tops and bottoms, technicals do work well. I don't like indicators myself .......

 

* Tick volume only in a lot of cases with spot currencies. You would do better to trade currency futures for constant volume candles.

 

* 24 hour spot market, but the best hours do put a crimp in your day. The European open is important as is the New York session.

 

* Some brokers will widen the spread prior to and during news releases. I hate this and it is one reason I am moving to the indexes. I would suggest making sure that the broker does not do this, if they even exist. Not to mention you might not get your stop honored.

 

* A lot of brokers frown on scalpers, at least that is the story. If you are a in and out 20 xs a day looking for 3-5 pips, you might have to beware.

 

* You can't beat the leverage offered in this market (spot FX) tho.

[PYenner 10]

Recommend you do your demo trading with someone that offers the MBT4 platform and an account that doesn't expire.

 

Coesfx is unusual, they have non-bucket accounts for bigger accounts only and bucket accounts with MBT4 platform. The smaller accounts with high leverage are sucker traps IMHO, $US5k at 100:0 is actually risky, too you must stick to half lot trades at first, 1 lot is overtrading IMHO. Trading with just one position is tedious and difficult but unless you are rich I don't know where else to start.

 

MBT4 platform = bucket account, it can't be used for non-bucket accounts, sadly.

 

The reason for recommending MBT4 even though it is a bucket platform is that it is a whole lot better than any of the cumbersome treatcherous in-house platforms. Also better charts than many. For a demo, it doesn't matter so much if it is bucket trading, even though you will have to relearn everything if you even go live trading and non-bucket.

 

From memory, GBPJPY swung 3,500 pips last year, EURUSD moved about half that speed. But longer term trading is far more complicated than it looks at first, don't let the $ signs blind you, it isn't Xmas every day.

 

In GBPJPY it is often necessary to trade just the first half of a swing, eg buy the bigger dip only and get out sooner rather than later near halfway.

Midswing has a lot of sideways and reversals and it is a lot more dangerous to enter near midswing.

 

The 5 Major currencies have 10 pairs between them, they work a bit like an octopus with 10 tentacles, interelated and working together and sometimes against. Its a dance with 10 dancers, follow just 1 dancer and you are missing a bigger picture.

 

GBPUSD is a big mover but to me seems more difficult to predict than GBPJPY.

[Guest cooter]

The tick volume on these spot forex accounts, regardless of source, is only indicative of bid/ask changes in price.

 

There are no real transactions necessarily associated with the volume, per se.

 

If a bank "adjusts" its price, a new tick with the new price will be registered, with a tick volume of 1.

 

A transaction doesn't have to occur for any bank or bucketshop to change their price (and thus register a new tick).

 

Something to think about if you rely upon this "tick volume" in the spot forex market.

[PYenner 10]

The common indicators are statistical indicators, despite the fact that most people seem to be relying on them I believe them to be sucker traps.

 

Have a guess why bucket shops are happy to provide an assortment of indicators.

 

They work the same was as a roulette wheel, you win often enough to think you are onto something but then you lose just often enough to give your winnings plus some of your own money to the bank.

 

Any system you rely on has to be backed up by your own savvy IMHO, knowing when to stay out, regardless of what your indicator or system may be telling you, is a damn good insurance policy.

 

There will always be another day if you are cautious, but if you blow your startup money there may not be another day.

[wsam29 10]

OK too much too read, but this is what I have experienced from trading FX over the years.

 

The Asian session, not much action. 0200h EST the FX markets start to pick up for the Euro session. Then the US session 0830h

 

The FX market has dull moments and then shear terror from explosive moves which can move +/- 50 ticks/pips just like that. Mostly due to a report on a number, don't ask me which ones move what and when.

 

Because the FX market is 24 hrs. you either catch the move or you don't since you can trade this market with the tape. If you do JC's "box" play, sometimes these stops are pretty huge and trading a CME Euro contract, your stops may be hundreds of dollars.

 

Which to trade, spot FX or futures? I would say thats a traders choice, I have traded both spot and futures for the Euro. I prefer the futures because it is all settled in USD, with IB's spot FX, you trade the actually currency and it gets deposited into your account, if you suffer a lose, your account shows a debit for that currency, no idea how to settle it.

 

CME Euro 1 tick = $12.50 (125,000 contract size)

CME mini Euro 1 tick = $6.25 (62,500 contract size)

IB FXPro? Euro 1 tick = $2.50 (25,000 minimum trade size)

 

Be prepared to sit with a trade for hours if you enter during a quiet period or have it develop.

 

My experience, the larger time frames have better signals than say a 5 or 15 minute chart. 60 minute chart minimum for my Euro trades.

[bronxterp 10]

I'm a newbie to FOREX as well and had some questions (didn't want to start a new thread). I've traded stocks and futures for nearly 6 years. I know all the risk and money management mumbo jumbo. I've found that I've done my best trading when I keep it so simple that I could train my dog to do it. When I try to over-think and come up with super strategies, I find that I struggle a lot. I'm going to take time to learn this currency stuff and come up with some simple strategies before I trade. But first, I need to learn the nuances of the FX market. Now onto the questions:

 

What are the 2 or 3 best pairs to watch as a newbie (or even as a pro)?

 

Which pairs have the best daily range?

 

I consider myself to be somewhere between a scalper and a daytrader, how many pips can one expect to take on a "typical" trade?

 

How many worthwhile trades do you usually see per day...day in this case being 7am EST to about 11pm EST (I don't plan on being awake for most of the overseas openings)

 

How many pips is reasonable to expect per day? (I realize this all depends on what type of trading is done and on which pair)

 

 

Thanks in advance for any help!

[notouch 10]

1) GBP/USD, EUR/USD, USD/JPY

2) GBP/JPY

3) 5-60

4) You'll see far fewer if you miss the London open and not much is tradeable after the London close so maybe 2 or 3.

5) Between -200 and +200.

[Reaver 10]

Alot of this has already been covered by posts above, but you've helped me out a lot so I wanted to at least offer some confirming opinions....answers in bold...

 

1) Tell me about forex trading. I've read horror stories of bucket shops and such. How do you avoid this?

 

I'd say go with either Oanda or MB Trading/EFX group (same people really)

Oanda is a Market Maker, but it is all computerized (supposedly and they hedge all positons, making money only on the spread (supposedly). I use them and have had a good experience-all things considered. I have had my issues with them, but nothing blatant so far....

 

2) I like volume, esp Volume Based Charts. Is there anyway to translate that to forex since it's not trading centrally?

 

To my knowledge volume is very unreliable in forex as the way the market set up, being uncentralized and all....the information would be too esoteric and unreliable.....

 

 

3) I've read that forex can trend more in comparison to indexes. Do you find this true? If so, how often would you say that a trend can go?

 

Looking at a chart, yes, forex does seem to trend well...general rule of thumb I have found, is the larger the market, the more propensity to trend....with currencies having such an enormous amount of units being traded, it does have the ability to trend better, in theory...although as mentoned on a post earlier in the thread...it doesn't mean the currencies will always trend, as I have found out painfully in the past.

 

4) Assuming it does trend more, is it better to swing trade here or is it possible to daytrade. I've also read that brokers can 'get mad' or 'blackball' you if you trade too quickly.

 

It really depends on the type of day trading..I would say as long as you're not scalping you should be okay....though the fact that MM's can manipulate the price, I wouldn't want to scalp anyway personally....I have found that as currencies are a larger market and do have the propensity to trend so well....swing trading seems to work well for me at least.

 

5) How about during econ news... I've read that the spreads can get ridiculous.

 

Oh yes, they can get really insane.....in forex I would advise sitting on the sidelines to avoid getting ripped off...but of course it all depends on the style and method and what your approach will be..I am sure some people still have a way to take advantage of a market with enormous spreads.....

 

6) What's a good charting platform?

 

Metatrader 4 is good and cheap...I would only use it for swing trading, that way it would minimize the chances of getting burned on bad data, as it is free...and we know how that can go sometimes....but Ensign is very good from my experience...and they offer forex data free with the platform ($40/month).

 

7) How does leverage work here? I understand futures, but have read about 'mini' accounts and such in forex, so not sure.

 

I prefer Oanda in this case, as you can adjust not only your leverage from anywhere between 1:1 to 1:50 ( I also like the fact they don't let you go higher than 1:50 to be honest)....but you can also trade any lot size you want, even $1. This allows for very precise risk management as well. But that is just my opinion.

 

8) Who are stable, recommended brokers?

 

Once again, I recommend Oanda, because I use them, but it is just my opinion. I also like the fact they pay out interest in a very accurate second by second basis and don't screw you on the rollovers, etc

 

9) What else should I know?

 

Watch out, because a lot of people think of forex as a kindergarten version of trading, when in fact there are some of the biggest traders ever out there moving tons and tons of money around. Central Banks, Institutions, etc..It's kind of like the Kaiser Soze quote in Usual Suspects...."the greatest trick the Devil ever pulled was convincing the world he doesn't exist"..kind alike that...no one really thinks about who is really out there in the market, so they don't take it as seriously as they should...and that's what can kill em.

 

 

 

I appreciate the help guys. Just looking to satisfy my curiosity.

Thanks!

[mister ed 10]

This is good thread answering FX questions, let me add a comment in reply to Q9: What else should I know?

 

Know what economic news/numbers are due for release, what time they are due for release, and what is the consensus expectation for the release. In order to make sense of these releases you need to have a basic understanding of the economic theory as it relates to exchange rate valuation. The FX market works on some very basic rules of thumb, especially for short-term moves, so knowing this stuff is not at all difficult.

 

For example, if there is a release of inflation data due in the UK and the numbers for the CPI come in higher than expectations then expect a rally in the GBP/USD. For technical traders, and specifically system traders, who rely on price action alone to make trading decisions this approach may be repugnant, but knowing why the currency has suddenly jumped 50 points or more can be helpful. At the very least it can be helpful by allowing the technical trader to improve his fill.

 

There are some good websites with reliable economic calenders, I am not sure about the etiquette of posting links to them from this site, so will refrain, but they are not difficult to find.

 

Along similar lines, know what the FX market is focusing on and talking about. One day it will be the carry trade, shorting a low yield currency and buying a high yield. The next day the focus may have switched to talking about the US deficits, the next day Japanese politics...and so on. The focus of the FX market shifts, knowing what is being talked about helps with deciding which currency pairs to trade over the coming days. Again, finding this info is not difficult, and even only a basic understanding of it can be very helpful to the trader.

 

Volume figures for the FX market. Yep, not available, there is no central exchange. BUT, a good approximation can be found in using the volume figures of the deals transacted over EBS. EBS is an electronic broking service used by banks and institutions, so the bad news is these figures are not available to retail FX traders (as far as I know, but I would LOVE to be corrected on this, accurate volume figures for FX would be great to have!)

 

Hope this helps.

[Guest cooter]

 

Volume figures for the FX market. Yep, not available, there is no central exchange. BUT, a good approximation can be found in using the volume figures of the deals transacted over EBS. EBS is an electronic broking service used by banks and institutions, so the bad news is these figures are not available to retail FX traders (as far as I know, but I would LOVE to be corrected on this, accurate volume figures for FX would be great to have!)

 

 

Some folks use so-called tick volume in forex. Each time a bank or dealer moves the bid/ask up or down in price, a new tick is registered. E-signal is one data feed that captures this information for its customers from over 200 participating sources. Keep in mind, it is not indicative of any trades having taken place, just bid/ask movement by each bank or dealer.