Forex Is A Scam

[cabletrader]

Quote from intradaybill:

You cannot make a killing in forex. Banks with their huge resources can only make 20% to 40%. You should expect about 15% as a retail trader with prudent risk and money management

Specifically you should trade a mini lot ($10,000, which usually requires posting a $100 margin) for every $5,000 you got in the account. In this way you are x2 leveraged overall. Any leverage above x2 increases significantly the probability of losing a good portion of your account.

You can't compare banks to small retail traders, ~100% (6% per month compounded) is perfectly achievable for an experienced private trader or small fund, without any need to take excessive risk.

Your numbers don't stack up either, trade size depends on the stop loss for a particular trade and risk parameters not on some arbitrary leverage limit.

 

[intradaybill]

Quote from cabletrader:

You can't compare banks to small retail traders, ~100% (6% per month compounded) is perfectly achievable for an experienced private trader or small fund, without any need to take excessive risk.

You are welcome to post audited account statements by you or anyone else that illustrate that 100% on a medium term consistent basis.

Quote from cabletrader:

Your numbers don't stack up either, trade size depends on the stop loss for a particular trade and risk parameters not on some arbitrary leverage limit.

Account leverage is the most important factor during black swans that are the primary cause of disasters. People who do not have a lot of experience with forex do not know that brokers will at times not execute orders to close positions, especially during fast markets or when their market maker cannot hedge their positions.

Stops executed as far as 50 pips or even more away have been reported during unusually fast markets such as sudden central bank intervention or geo-political events. You know what this can do to your risk and management position sizing.

Theory is nice, bur in reality you have to protect your account from black swans and limit on overall leverage is the only way of doing that. This is what experience tells.

 

[cabletrader]

Quote from intradaybill:

You are welcome to post audited account statements by you or anyone else that illustrate that 100% on a medium term consistent basis.

And you are equally 'welcome to post audited account statements by you or anyone else that illustrate that 15% on a medium term consistent basis'.

If you're an experienced trader producing 15% (~1.25% per month compounded) trading forex as a private speculator or small sub-10m fund then I'm sorry to say but you are underperforming.

Quote from intradaybill:

Account leverage is the most important factor during black swans that are the primary cause of disasters. People who do not have a lot of experience with forex do not know that brokers will at times not execute orders to close positions, especially during fast markets or when their market maker cannot hedge their positions.

Stops executed as far as 50 pips or even more away have been reported during unusually fast markets such as sudden central bank intervention or geo-political events. You know what this can do to your risk and management position sizing.

Theory is nice, bur in reality you have to protect your account from black swans and limit on overall leverage is the only way of doing that. This is what experience tells.

Leverage used means absolutely nothing when it comes to calculating risk, I suspect that is why your returns expectation is so low.

In your example you stated....

"Specifically you should trade a mini lot ($10,000, which usually requires posting a $100 margin) for every $5,000 you got in the account. In this way you are x2 leveraged overall. Any leverage above x2 increases significantly the probability of losing a good portion of your account."

....now calculate your suggested fixed leverage for a tight intraday stop of 25 pips and a positional trade with a stop of 250 pips and compare the two. Allow for your black swan event in both calculations if you like. Now compare your risk, there's a 4.5% difference in risk!

Risk is calculated by taking a percentage of capital balance (ie 1%) and then dividing it by the stop loss for the trade, and from there calculating trade size, allowing some margin for unexpected slippage if required. Leverage used never came into the equation, it's a meaningless 'by-product' number which serves no purpose, using some arbitrary number like you've done is misleading as can clearly be seen if you do the calculation I mentioned.

 

[achilles28]

Quote from intradaybill:

Forex is not a scam, it's a market and a very important one. Some online forex brokers are scams, I agree to that from own experience.

It is hard to make money as a retail forex trader because the leverage and the volatility demand to take very small risks as a percent of your trading capital so that you comply with basic risk and money management rules. But many do not understand this and think they can quickly make money by risking a lot in a highly leveraged and volatile market. Well, keep in mind that forex trading is populated by extremely competent and well-informed traders. As a result, the only thing you can make in the longer term is a return on your capital by financing the activities of commercials (providing liquidity, counterparty to hedgers, etc.) You cannot make a killing in forex. Banks with their huge resources can only make 20% to 40%. You should expect about 15% as a retail trader with prudent risk and money management. Specifically you should trade a mini lot ($10,000, which usually requires posting a $100 margin) for every $5,000 you got in the account. In this way you are x2 leveraged overall. Any leverage above x2 increases significantly the probability of losing a good portion of your account.

The above to start with. It takes much much more to win money from forex trading activities.

Every market trades the same. None are efficient. Remember, 75% of fund managers ("competent" and "well-informed" traders), can't beat the S&P 500.

Brains and resources have little to do with it. Why do u suppose that is?

 

[IShopAtPublix]

people like intradaybill should really read Charlie Munger's article on stock picking (yes he is an investor but the concept I am highlighting applies to trading as well)

http://vinvesting.com/docs/munger/art_stockpicking.html

Pay attention to this paragraph:

...And the o_ne thing that all those winning betters in the whole history of people who've beaten the pari-mutuel system have is quite simple. They bet very seldom.

It's not given to human beings to have such talent that they can just know everything about everything all the time. But it is given to human beings who work hard at it ‑ who look and sift the world for a mispriced be that they can occasionally find o_ne.

And the wise o_nes bet heavily when the world offers them that opportunity. They bet big when they have the odds. And the rest of the time, they don't. It's just that simple.

That is a very simple concept. And to me it's obviously right based on experience not only from the pari-mutuel system, but everywhere else.

And yet, in investment management, practically nobody operates that way. We operate that way ‑ I'm talking about Buffett and Munger. And we're not alone in the world. But a huge majority of people have some other crazy construct in their heads And instead of waiting for a near cinch and loading up, they apparently ascribe to the theory that if they work a little harder or hire more business school students, they'll come to know everything about everything all the time.

The morale of the story, you spend conceivable time finding your "edge" which is essentially a situation where the outcome is known with high probability, when the opportunity presents itself you shoot. All the demagoguery about risking too much and other crap, if your edge is good enough you can handle leverage over 2:1 (which is a joke btw)

 

[DeeDeeTwo]

Quote from achilles28:

Every market trades the same. None are efficient. Remember, 75% of fund managers ("competent" and "well-informed" traders), can't beat the S&P 500.

Brains and resources have little to do with it. Why do u suppose that is?

You are misinformed and naive.

> 90% of the funds out there are "skimming operations"...
The Business Model is not to outperform anything...
It's to stay in business and take 3% every year for eternity.

If someone takes 3%/year for a lifetime...
Say 3%/year for 40 years...
They end up with 60-70% of your money...
While taking ZERO risk.

That is the Securities Industry Business Model...
So there is no reason for Fund managers to be "competent" or "well-informed"...
They just need to make their Customers believe they are.

 

[DeeDeeTwo]

Quote from TraderZones:

it is called an "efficient" market, not "scam."

The Forex market is highly fragmented...
And surprisingly volatile and inefficient.

If you are an experienced stock trader with good feel...
And you trade on a bona fide ECN like IDEALPRO...
There is no reason you cannot be profitable.

After > 1,000,000 stock trades...
I've been trading Forex FOR THE FIRST TIME in 2009...
And my first 10,000 Forex trades have been nicely profitable...
(Which is a statistically significant sample)...
But keep in mind... I'm very good at this.

 

[intradaybill]

Quote from cabletrader:

Risk is calculated by taking a percentage of capital balance (ie 1%) and then dividing it by the stop loss for the trade, and from there calculating trade size, allowing some margin for unexpected slippage if required.

In your example, risk is 1%, it is not calculated. It is preset. Gosh...

Quote from cabletrader:

Leverage used never came into the equation, it's a meaningless 'by-product' number which serves no purpose, using some arbitrary number like you've done is misleading as can clearly be seen if you do the calculation I mentioned.

Account leverage and position size are of course related by the simple formula you should know before you blow up:

Leverage = Position size x contract face value /account size
= account risk x contract face value/stop loss

From this we get

Account risk = Leverage x stop-loss / contract face value

Now this is our difference:

For 25 pips stop loss (mini contract) and an account of $5,000 you calculate the position size for 1% risk as :

Position size = .01 x 5000/(25 x 1) = 2. Your leverage is equal to 4 (2 x 10K/5K).

In my case, for maximum leverage of 2, I calculate the position size follows:

Position size = 2 x 5000 /10000 = 1

So you trade 2 contracts and I trade 1. Suddenly, ECB starts selling Euros and there is a 100 pip gap down our long EURUSD position stop price. You lose 4% in a single trade and I lose 2%. After 8 such hypothetical losses , you are down 32% and I am down only 16%. If you are a fund or a fx pro trader, you are forced to liquidate everything because you are over cummulative stop loss of 30%. Extreme scenario some may call it but it seems it happens occasionally. Last year proved that 10 consecutive losers is not that impossible scenario.

Furthermore, the above callculation you suggested and I also used in my example for position sizing for illustarting the relation of leverage to risk is for naive and newbie traders. You should really visit a forex dealing room and ask to find out how traders calculate position size and risk. Nothing like the naive stuff you proposed. I worked in a dealing room. I will not reveal the calculations here but I can tell you one thing. It involves several parameters, like percent risk, cummulative risk allowance, past performance and market volatility.

Best.

 

[chipmunk]

You cannot make a killing in forex. Banks with their huge resources can only make 20% to 40%. You should expect about 15% as a retail trader with prudent risk and money management
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ROFL you loser!

I am up 9% September so far....not taking big risks and I do not make profits every day! They guy who says 6% per month moderate risk is dead right....I have done it for a while. So go and take your losing attitude elsehwere. My guess is you'll lose in every business you enter and then spend all your time trying to convince people it's not you ...it's the business... "it's a scam" Joker

 

[chipmunk]

Joke....

so that's like me saying "all Dr.'s are Quacks..." Just because a few are (in fact quite a lot are.)

You are doing one thing right..that's staying in your Dr's job. Becasue it's clear you can't make it trading.

"help people..." so you do it for free?
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As a physician everyday I go to work and enjoy that I help people. I do not day trade, because I do very well in my job