For position trading, would you mind sharing how is it different between forex and stocks? Not asking for your secret. Only hoping to learn enough to stop my bleeding.
Difference between forex and stocks trading to take note?
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For position trading, would you mind sharing how is it different between forex and stocks? Not asking for your secret. Only hoping to learn enough to stop my bleeding.
I don’t actually do position trading, and though I wrote that my advice would be different depending on the particular style of trading, what I meant was that what I myself would do personally would be different, since I don’t really give out advice.
So, if I were position trading Forex rather than the pseudo-swing trading I’m actually doing on a daily basis, the first thing I would do is pay a lot more attention to guys I think do at least a halfway decent job (if not better) with respect to fundamental analysis.
For me, this would mean closely following Jarratt Davis, Christopher Lewis (dailyfx/fxempire), and Cristian Moreno (csc traders), though I don’t pay for anyone’s services. I just pick up whatever information I can for free. Oh, and I almost forgot, I would probably follow forexlive a lot more closely as well. (In fact, now that I think about it, at this point in my development, I would probably have a notebook where I would keep a detailed record of how the various economies are doing and update it on a regular basis.)
From my point of view, the big difference between position trading stocks and position trading foreign currency pairs is that analyzing equities is all about a company’s value or perceived value, whereas analyzing foreign currency pairs is all about how one nation’s economy stacks up against all the others.
(But as a pseudo-swing trader, I practically ignore such fundamentals in my own personal trading.)
Consequently, I’ve formed the opinion that currency pairs tend to trend much more consistently than stocks, since the economy of one country as compared to the economy of another is not likely to change for quite some time, all things being equal.
For example, in looking at this daily chart it is clear to me that as a position trader, I would definitely be much more interested in selling AUDJPY than in buying it...
As for indicators, the only things I care about are a currency pair's typical price range and which moving average or moving averages signal bona fide reversals as opposed to head fakes. I couldn’t care less about MACD, RSI, CCI, Bollinger bands, or what have you in that I have learned to put absolutely no trust in such measurements whatsoever...but that's just me.
Liquidity is simply how easy it is to get in and out of a market. Bid offer being tight doesn’t mean a market can’t be manipulated. In fact it seems every 3-4 years a major bank or two get busted for fixing forex.
Since the SEC heavily regulates stock trading the risk of direct price fixing is very low. I don’t consider stop running a kind of manipulation because it’s simply taking advantage of market psychology and provides no real unfair advantage (you could do it too if you traded lots big enough to move a market).
One case of manipulation in stocks is placing fake orders in the order book. This has been clamped down on severely.
Unlike forex, it is virtually impossible for people to “fix the market” for very long in stocks. There are too many stocks, too many variables, and too many independent big swinging dicks to deal with. In Forex the liquidity is often coming from the banks themselves, which is why it is so easy for desk traders to fix markets in the interbank. More importantly your broker could be feeding you intentionally bad data and you really would not know. You have no optics into the way a forex operation is run, and so you can be manipulated at almost every level by a nefarious broker (or cabal of them).
The vast, vast majority of retails trade forex because of pitifully small account sizes and massive leverage. Do yourself a favor and get an account big enough to trade lots of forex futures. It’s the same underlying, and far safer.
Thank you for your insight. I can understand now why you have more likes than posts
Seems like forex is more rigged and manipulated than stocks despite its much higher liquidity. Going by your logic, the most manipulated currency pair will be EURUSD, since it is the most traded and the profit to be made from manipulation will be the highest. So, it makes sense for the big banks to manipulate this pair. Do you think this theory is plausible?
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Wise words from gaussian. Transparency should never be discounted. Trading exchange traded products, times&sales are published, an official close is determined upon which positions are marked to market. In OTC FX, unless you have direct quotes from banks and liquidity providers like on Reuters or BloombergIn case of derivatives, all open positions are centrally cleared through the clearing house which eliminated counterparty risk. The FCM/broker is paid a fee (or maybe almost none seeing how things are going in the US) to process your order. No conflict of interest arises. Given quarterly expiry schedules of futures, positions can be held over night against a margin. The FCM will only earn interest on your positive account balance (as no interest is being paid) but on the flipside, no "carry charges" or whatever they want to call them are applied. If located in the US, SEC/CFTC/NFA regulations are in place to protect investors and to provide a mechanism of dispute resolution.
Will trading forex futures be a solution to work around the cow-boy lack of regulation in OTC spot forex?
Forex futures have some caveats. First of all costs. There will be exchange clearing fees 2c to the NFA and your broker commission. The smaller the lot size (say CME micros vs standard lots), the higher the costs in percent vs. the lower your leverage of your position wrt. account size. This may make a big difference. If you trade low frequency, and pay $2/trade, that'll eat less into your PNL than if you trade 100 lots in and out intraday. So, get an idea what your style is, what your objective is and do the numbers in terms of cost of transaction. Other costs to consider: platform fees, some are free others can get very expensive and then finally exchange data fees. Check with a prospective FCM on their costings.
Over at the sub-forum "retail brokers" I am sure folks can give you pointers or recommendations/advice.
Secondly, when it comes to FX futures, you will see that say the current Dec contract for GBP/USD is different to spot. So, you need to do a bit of math. The difference are the forward points based on the interest rate differential for the duration to delivery day. This will impact your charting as with futures you have to take contract rolls into account. Liquidity is very good for FX futures but only in the front month (like with most financial contracts apart from Eurodollar, but that's a different animal altogether). Work-around: use spot FX for charting, trade it via futures but be clear on the forward premium/discount. Both prices ultimately converge, so a premium/discount will erode over time.
Have a look at the educational material at the CME on FX futures. Good intro material. If you want to go deeper into it, have a look at Hull (Options Futures and other derivatives). With that you get a good grounding on the instrument you trade.
For the FX research, strategy etc side I would use spot FX rates/charts for reason of convenience (no contract rolls etc). If you build a short term strategy, say in/out in a few days, forward points should not matter too much. If you have a long term strategy in mind, you need to take the forward points into consideration. But first do you research, develop ideas and see where it leads you.
Over at the sub-forum "retail brokers" I am sure folks can give you pointers or recommendations/advice.
Secondly, when it comes to FX futures, you will see that say the current Dec contract for GBP/USD is different to spot. So, you need to do a bit of math. The difference are the forward points based on the interest rate differential for the duration to delivery day. This will impact your charting as with futures you have to take contract rolls into account. Liquidity is very good for FX futures but only in the front month (like with most financial contracts apart from Eurodollar, but that's a different animal altogether). Work-around: use spot FX for charting, trade it via futures but be clear on the forward premium/discount. Both prices ultimately converge, so a premium/discount will erode over time.
Have a look at the educational material at the CME on FX futures. Good intro material. If you want to go deeper into it, have a look at Hull (Options Futures and other derivatives). With that you get a good grounding on the instrument you trade.
For the FX research, strategy etc side I would use spot FX rates/charts for reason of convenience (no contract rolls etc). If you build a short term strategy, say in/out in a few days, forward points should not matter too much. If you have a long term strategy in mind, you need to take the forward points into consideration. But first do you research, develop ideas and see where it leads you.
Is this your opinion or can you support it with facts?