WHY FOREX?

 

Faced with a vast array of markets and securities to trade it’s small wonder that retail traders often ask why they should specialise in forex and not equities, futures, or commodities? What are the major benefits to trading forex over and above trading other markets? What has underpinned the massive growth in the retail forex market over the past ten years?

 

Not all traders are ‘fans’ of forex trading and justifiably they’ll point out the faults, some of which we’ll talk through and debunk during this article to arrive at the conclusion as to why trading the FX markets, as a retail trader, makes perfect sense.

 

Limited Choice

When you consider that there are circa 4,500 stocks listed on the New York Stock exchange, 3,500 on the NASDAQ and that this is only one country’s bourses which equities will you decide to trade? Will you simply trade any equity according to; fundamentals, the noise from the squawk, or Bloomberg or Reuters, will you attempt to get in front of their numbers and results? Perhaps you’ll choose to do some technical analysis, the most basic being is the equity “overbought” or “oversold” in relation to its sector? An impossible management task for even the most sophisticated hedge funds, investment banks and algorithms.

 

I know equity traders who only trade certain sectors and drill down their trading to only a select few US stocks in that sector, for example, Google, Apple, Microsoft, Verizon. The irony is that these contacts of mine are adopting the same principles a successful forex trader would adopt, by only selecting 3-4 equites to trade they are mimicking similar behaviour to that of an FX trader who selects perhaps 4 pairs to monitor for the right set up.

 

Low Barriers to Entry

Many ‘anti’ FX traders will refer to the low barriers to entry in the FX market as a draw back when in fact it’s a huge benefit. Many traders will arrive at the markets due to a change in personal circumstances or a desire to seek out a new direction or challenge. Why should that desire be hampered by restrictive entry capital? Used correctly the leverage permitted in FX trading can always work to the trader’s advantage. Far better to risk and obligate €5000 to your new business venture as opposed to risking €50000, surely whilst learning any new self employed profession the less risk you take the better?

 

Liquidity and Size of Market

The FX market dwarfs all stock markets in volume. The figures for FX transactions are put at circa $4 trillion each day. Estimates put the New York Stock Exchange (NYSE) trading at circa $30 billion a day. The entire U.S. stock market trades circa $200 billion daily. The Futures market trades circa $500 billion daily. In terms of liquidity nothing surpasses the FX markets and whilst there are times during the day when the trading of certain pairs falls away, the market is, (during the Sun – Fri open) always ‘open’. The forex market is a seamless 24-hour market. The vast majority of brokers are open for business from Sunday at 4:00 pm EST until Friday at 4:00 pm EST, with their dedicated customer service divisions usually available 24/7. With the ability to trade during the U.S., Asian, and European market hours, you can easily customise your own trading schedule to fit around these market times.

 

Spotting Your Trades

In spot currency trading there are dozens of currencies traded, the majority of market players trade the four major pairs. Four pairs are much easier to trade than thousands of stocks. Even if you look for the same set up to occur on more currency pairs, (perhaps as many as nine pairs before correlations render it excessive), traders can monitor this level of activity quite simply.

 

Low Costs

The vast majority of reputable forex brokers charge little or no commission or additional transactions fees to trade currencies online or over the phone. Combine this with the tight, consistent, and fully transparent spreads and you quickly realise that forex trading costs are lower than those of any other market. Most brokers are compensated for their services through the bid/ask spread. The spread you’re charged is their profit.

 

Straight Through to the Market, No Intervention

Your forex trades are instantly executed under normal market conditions. Under these conditions, usually the price shown when you execute your market order is the price you get. You’re able to execute directly off real-time streaming prices. However, many brokers only guarantee stop, limit, and entry orders under normal market conditions. Trading during a market event, such as NFP day, or a Greece prime minister putting his country’s EU membership to a referendum, would not fall under the description of “normal market” conditions. Fills are instantaneous most of the time, but under extraordinarily volatile market conditions order execution may experience slight lagging delays.

 

Limited Risks

Forex trading offers the advantage of limited risk, one of the biggest advantages over the futures market. When you buy a futures contract, you are obligated to buy or sell a specific amount of a specific security or commodity at a specific time for a specific price. If you buy a futures contract to sell oil and news breaks that Renault are giving away water powered trucks and cars and Ford etc will follow suit, then the price on your contracts will drop through the floor, limits will drop, and you could be buried in your position finally taking massive losses. This could not happen in the forex market were you can simply exit your position.

 

No Restrictions

There are no restrictions on short selling in the currency market. Trading opportunities exist in the currency market regardless of whether a trader is long or short, whichever way the market is moving. Since currency trading always involves buying one currency and selling another, there is no structural ‘bias’ to the market. Therefore you always have equal access to trade in a rising or falling market.

 

Lower Margin Requirement

Margin requirements are significantly lower in forex trading than equity or futures trading. Whilst the level of margin allowed is determined by each broker, the restrictions are usually much less stringent when trading forex. Margin allows the investor to leverage, theoretically you borrow from the broker to invest in your own account. While this can be risky, it can also be very lucrative and profitable.

 

For example, you have €10,000 of your own money to invest, if you open up a margin account at an equity broker, you can usually margin up to 50% of the value of stock. So if you buy €10,000 in Apple stock, you can borrow another €5,000 to own a total of €15,000 in value. With your forex account, the margin requirement is often as low as 1%. Which means that if you buy €10,000 in Euros, you can use your broker’s money to buy another €1,000,000. So technically you own over $1 million in Euros.

 

If the value of each investment increases by 10% then your €15,000 in Apple stock is now worth €16,500. You then sell it, ‘pay back’ the €5,000 you borrowed, and you remain €1,500 in profit. Your return on investment (ROI) is 15%. If your Euros went up 10%, your €1 million is now worth €1.1 million. After selling and repaying your broker, your profit is €100,000 before any interest. That’s a return on investment of over 1,000%. Naturally you have to be careful when trading on margin, if the transaction highlighted went against you then you’d be in a much bigger drawdown in the forex scenario, however, you can close the trade before you reach such extremes. The potential for enormous gain is obvious, the major reason why forex trading attracts serious investors.

 

No Middleman

Centralised exchanges can provide many advantages to the trader. One drawback with centralised exchanges is the involvement of middlemen. Parties located in between the trader, buyer or seller of the security add a layer of cost. The cost can be quantified either in time, fees or both. Spot currency trading is decentralised, quotes vary from different currency dealers and liquidity providers. Competition is so fierce that you are always assured that you get the best quotes. Forex traders get quicker access and cheaper costs. With the advancement of ECN, NDD and STP and as the liquid pools of quotes from banks is constantly changing you can be assured that the quote you obtain will be as close to the best the market can provide.

Read the full story.....

Editat Decembrie 12, 201114 ani de Stefan
removing the link from the post body

Despre corelatii nu scrie niciunde ? Eu le vad ca pe un plus mare al forexului. Ma gandesc ca si la comodities exista. Si daca are cineva materiale, sau macar impresii despre corelatii, va rog sami dati/ spuneti si mie

@Alecsa:

La ce anume te referi?

Corelatiile sunt doar niste coeficienti matematici calculati intre 2 active. Se pot calcula corelatii intre orice 2 elemente(perechi, commodities, actiuni) de pe lumea asta pentru care exista date statistice. In urma calcului poate rezulta o corelatie directa(gen EURUSD - GBPUSD ->1), inversa(gen EURUSD - USDCHF -> -1) sau inexistenta(aproape de 0)/nesemnificativa.

 

Corelatia intre active e folosita la risk management sau, poate in unele scenarii de trade de genul: vezi EURUSD ca a facut un break al unui suport si te astepti,de asemenea, ca GBPUSD sa faca noi minime.

 

Din cate am citit pana acum nu prea s-a tratat subiectul asta prin nici o carte, cel putin nu intr-un mod aprofundat.

 

 

LE: Si un link: http://www.investopedia.com/articles/forex/05/051905.asp#axzz1gLxwzSR9

Editat Decembrie 12, 201114 ani de Adi.M

exista, exista ...

... watch here

 

Later edit:

Nu sunt "un plus mare al forexului" ...sunt doar o alta fata morgana, ..din punctul meu de vedere

Editat Decembrie 12, 201114 ani de sec

Eu ma refeream la corelatii intre ... perechi valutare. La ce se referea Adi. M. Si poate fi folositor ca strategie de hedge la swinguri.

 

 

 

. Spre exemplu. USD - CAD - EUR

Am perechea eurusd intr-un swing trade, in sell, dar nu de la cel mai bun entry, ca n-am nimerit poate cel mai bun nivel al zilei, sau al saptamanii, sau am o perioada de range, si pur si simplu numi ia nici sl nici tp.. Acuma, ce pot eu face pentru balance / equity meu? SLul, o sa-mi ia sapt pana sa fie atins, sau daca o sa fie atins. Si ma mut pe intraday, simi fac hedge la tranzactie.. Cum pe EURUSD, nu pot, ma duc la o moneda corelata. Vad ca USDCAD e aprox la paritate, si-mi fac hedge pe intraday.

Offtopic

Eu ma refeream la corelatii intre ... perechi valutare.

Fii sigura ca toata lumea s-a gandit la acelasi lucru cand ai spus "corelatii in forex" , adica corelatii intre perechi valutare,
Iar cand am spus ca ...

Nu sunt "un plus mare al forexului" ...sunt doar o alta fata morgana, ..din punctul meu de vedere

...la corelatiile intre perechile valutare m-am referit
Oricum, forumurile sunt pline de metode si tehnici de trade ce au la baza corelatiile astea, ... pentru cei ce sunt pasionati de ele ...

Later edit:

Si ma mut pe intraday, simi fac hedge la tranzactie.. Cum pe EURUSD, nu pot, ma duc la o moneda corelata. Vad ca USDCAD e aprox la paritate, si-mi fac hedge pe intraday.

De ce zici ca nu poti sa faci hedge pe EURUSD? Ce broker ai?
P.S. Problema cu hedge in cazul prezentat de tine : USD - CAD - EUR , este ca si CAD / EUR fluctueaza. Daca ar sta la 1 sau la alta cotatie fixa, ar fi o smecherie, insa ... nu sta, sa misca ca orice alta pereche.

Hai sa mai vin cu un exemplu:
EUR - USD - CHF
pe vremuri se incerca o corelere intre miscarile de la EurUsd si UsdChf, pentru ca Eur/Chf era foarte stabil, adica se misca putin ... asta pana intr-o zi, cand o lua din loc cate 300 pp sau chiar mai mult ... etc. Din punctul asta apar problemele ...

Editat Decembrie 13, 201114 ani de sec

Sa spun si eu care sunt costurile tranzactionarii pe bursa, mai exact bursa de futures din Chicago. Datele sunt luate din specificatiile brokerului Interactivebrokers.Contractul cu suport pe S&P500 este numit E-MINI S&P 500. Marginea care se cere pentru un contract tinut intraday este de 2500 USD. Deci ca sa cumperi un singur contract trebuie sa ai in cont minim 2500 USD. Dar multiplicatorul este de 50. Cat valoreaza un contract? Ieri s-a inchis la valoarea de 1229.5 puncte. Cea mai mica unitate este tick-ul care este echivalent cu un pip de la forex. Acum un punct contine 4 tick-uri. Un tick este 0.25 puncte. Deci de la 1229.5 la 1229.75 avem o miscare de un tick. De la 1230 la 1231 avem o miscare de 4 tick-uri. Un tick valoreaza exact 12.5 USD. Cu alte cuvinte un punct, adica 4 tick-uri valoreaza 50 USD. Deci daca cumparam un singur contract cu 2500 USD si valoarea contractului creste cu un punct, am castigat 50 USD.

Datorita lichiditatii enorme intotdeauna spread-ul va fi de un singur tick. Nu exista slippage decat daca joci chiar cand se anunta vreo stire importanta, in special la ora 17. Si chiar si atunci slippage-ul este de relativ mic, de maxim 1-2 puncte. Dar mai bine nu joci pe stire si esti in siguranta.

Cat se poate castiga? Daca esti scalper intraday care tranzactioneaza bara de 5 minute, in general se foloseste un target de 2 puncte si un stop tot de 2 puncte. 2 puncte inseamna 8 tick-uri, dar mai trebuie sa pui la socoteala si spread-ul deci vei avea nevoie ca pretul sa mearga 9 tick-uri in directia ta ca sa castigi 2 puncte. Deci pierzi sau castigi 100 USD la o tranzactie cu un singur contract. Se mai adauga comisionul, care la Interactivebrokers este de 2 USD pe tranzactie pe contract. Deci 2 USD la vanzare plus 2 USD la cumparare, 4 USD comision in total. Cand castigi ai 96 USD, cand pierzi, pierzi 104 USD. 100 USD la un cont de 2500 USD inseamna un risc de 4% pe tranzactie. Cam mare. Ca sa fii in deplina siguranta si sa risti doar 2% ar trebui sa ai un cont de minim 5000 USD zic eu.

Intr-o zi E-mini are in medie un range de 20 de puncte intre high si low. Suficient ca sa scoti 2 puncte intr-o zi. Exista cam 10-15 tranzactii pe zi pe bara de 5 minute in sesiunea de la ora 16:30 la 23:15. Dar poti sa tranzactionezi si intre alte ore, piata futures fiind deschisa 24 de ore din 24. Sa zicem ca faci 5 tranzactii pe zi. Trei bune, 2 proaste. Sau 5 bune, 4 proaste. Ramai cu 2 puncte, 100 USD pe zi. In 22 de zile ai scos 2200 USD, aproape 50% din contul prudent de 5000 USD. Si n-ai riscat decat 2% din cont pe tranzactie. Destul de bine zic eu . Nici nu mai socotesc cat scoti pe luna daca faci 4 puncte pe zi!

Avantaje fata de forex:

Joci direct pe bursa, nu prin tot felul de intermediari dubiosi care iti vaneaza stopurile sau joaca impotriva ta.

Lichiditatea uriasa, poti sa joci si 100 de contracte si tot nu vei misca piata nici un tick.

Dezavantaj. Nu merge sa joci cu 100 de dolari ca la forex.

Bineinteles, exista si alte contracte pe petrol, aur, euro-dolar, etc, dar eu joc doar S&P pentru ca este cel mai lichid.

Datorita lichiditatii enorme intotdeauna spread-ul va fi de un singur tick.

Nu chiar intotdeauna. A se vedea mai jos, cand spread-ul a ajuns la 40 de ticks.

 

http://www.youtube.com/watch?v=9OWFaGNN5hU

 

Joci direct pe bursa, nu prin tot felul de intermediari dubiosi care iti vaneaza stopurile sau joaca impotriva ta.

Crezi ca pe bursa nu se vaneaza stopurile? N-ai auzit de short-squeeze? Da stiu, aici toata piata te vaneaza, nu doar broker-ul. La fel e si in forex, daca folosesti un broker de calitate.

Datorita lichiditatii enorme intotdeauna spread-ul va fi de un singur tick.

Nu chiar intotdeauna. A se vedea mai jos, cand spread-ul a ajuns la 40 de ticks.

 

http://www.youtube.com/watch?v=9OWFaGNN5hU

 

Joci direct pe bursa, nu prin tot felul de intermediari dubiosi care iti vaneaza stopurile sau joaca impotriva ta.

Crezi ca pe bursa nu se vaneaza stopurile? N-ai auzit de short-squeeze? Da stiu, aici toata piata te vaneaza, nu doar broker-ul. La fel e si in forex, daca folosesti un broker de calitate.

 

Ai gasit o zi, la 10 ani. In forex astia iti maresc spread-ul in fiecare zi. Eu iti vorbesc din experienta, spread-ul este de un tick in 99,99% din timp. Daca esti nebun si vrei sa joci cu 3 secunde inainte sa vorbeasca aia de la FED, o fi si mai mare, nu stiu, ca eu de obicei nu sunt prost sa joc chiar atunci. Pentru mine este intotdeauna de un tick. Si stau in fiecare zi 6 ore pe bursa, deci stiu ce vorbesc. Cat despre vanarea stop-urilor, am spus ca nu iti vaneaza stop-ul tau SPECIAL, cum face brokerul. Ca marii rechini vaneaza stop-urile fraierilor, asta e alta problema. Dar poate ar fi timpul sa faci si tu ceea ce fac marii rechini, sa treci de cealalta parte a baricadei. Nu e nevoie sa joci miliarde, ca sa iti dai seama unde pune loser-ul stop-ul! Poti sa joci si tu la fel ca rechin-ul indiferent daca joci 1 contract sau 1000 Asta este frumusetea de a juca direct pe bursa fara intermediari. Toti jucatorii sunt egali si nu pot ascunde ceea ce fac. Totul se vede pe chart. Mai ramane doar sa si intelegi ce-ti spune chart-ul.