Forex, worst trading market? Retail vs. Institutional

[Nagelis]

Quote from billyjoerob:

Currencies don't move that fast, and they tend to trend . . . So they really should be good trading vehicles. I suspect the leverage is the problem . . . Is it true that some brokers will take the other side of client trades, simply assuming that the stop will be hit?

They trend 10% of the time only, if that much at all, as proven by lots of hedge fund papers and academic discussions. What happens in the meantime is purely driven by the short term algo guys who play the range, play mean reversion or, last but not least, gun for a few points only per trade, but many many times per day on high volume.

And yes, many brokers put clients in internal ''tiers'' or ''groups''. Ranging from smart sharp clients who they will directionally follow straight away to 'eternal losers' at the other end of the spectrum (who they trade against or wait several seconds to cover their trade). Some brokers have smart technology and pricing robots tracking these things / detecting patterns. Its all part of the algo tech race...

 

[billyjoerob]

Not to threadjack, but what do FX traders think of this?

http://www.brandes.com/Institute/Documents/BI_CarryingOn.pdf

The argument is that high interest rate currencies consistently outperform other currencies, or the carry trade works.

 

[Nagelis]

Quote from billyjoerob:

Not to threadjack, but what do FX traders think of this?

http://www.brandes.com/Institute/Documents/BI_CarryingOn.pdf

The argument is that high interest rate currencies consistently outperform other currencies, or the carry trade works.

Interesting link, thanks.

The carry trade does work indeed, but I wouldn't recommend anyone to use 50:1 leverage whilst using this strategy... Chances are your account will have blown up in a few hours time.

The carry trade does mainly work for investors. Check out ''Uridashi Bonds'' as an example: they are mainly issued for smaller Japanese investors, wanting a higher return in foreign currency such as AUD and NZD, so the institutions behind it sell yen and buy high yielding currencies.

 

[moarla]

Quote from Nagelis:

Interesting link, thanks.

The carry trade does work indeed, but I wouldn't recommend anyone to use 50:1 leverage whilst using this strategy... Chances are your account will have blown up in a few hours time.

It does NOT depend from the leverage you use, but it depends on HOW MUCH MONEY from your account aou use to leverage.
if i use 1% of my liquid capital to trade a 300 leverage, i dont see any problem.

 

[Nagelis]

Quote from moarla:

It does NOT depend from the leverage you use, but it depends on HOW MUCH MONEY from your account aou use to leverage.
if i use 1% of my liquid capital to trade a 300 leverage, i dont see any problem.

In academic terms, this is correct.

In practical terms: this is not ''trading'' but ''investing''. How many carry trades would you do every day? The point of a carry trade is to buy the high yielding currency / sell the low yielder, and then SIT on that position, i.e. carry it for months in order to get the interest advantage.

 

[moarla]

Quote from Nagelis:

In academic terms, this is correct.

In practical terms: this is not ''trading'' but ''investing''. How many carry trades would you do every day? The point of a carry trade is to buy the high yielding currency / sell the low yielder, and then SIT on that position, i.e. carry it for months in order to get the interest advantage.

why this is investing??
if i trade with 1% of my capital (lets say that is 100.000) the 15 min chart (20 trades / day) that is trading.
with 20% i trade options (swing trading)
with the rest i invest (maby)

 

[chipmunk]

that's B*S*!


And another few points:

FX is totally dominated by very short term high frequency FX algo players which are only in the market for seconds to a few minutes maximum. Fully automated algo's or high volume manual scalpers. They are the ones that cause the moves and make consistent money with very little downside risk. If you know what they are doing, you stand a very good chance of making consistent daily returns in FX...

This is also the reason why you won't read much FX posts or calls here (apart from the hourly or multiday time frame calls). By the time you have typed out what you are doing, chances are that price has moved already 10-20 pips and you should already be out of the trade and be looking for the next opportunity.

Next to that, for daily scalping in 1-2 pairs, you need to keep a continuous eye on the overal FX landscape: say if you scalp in gbp/usd, you need to have a very good overview of what happens in all GBP crosses, you need to know what the overall dollar sentiment is and how and to what degree that affects all majors etc. Very few fx starters do that. FX looks easy, but it takes hard work, as I said before.

 

[drasfs]

Its possible. The only ones Ive seen who are profitable are the ones who master price action at short time frames, and are scalping. Im doing well scalping. Ive a journal on forexfactory, where ive 90% winners, and where the average loser equals average winner.

I do however agree. Its not easy. Im struggling with the psychology.

 

[drasfs]

TOdays trade, 4 trades, 4 winners. 20 pips profit.

http://img717.imageshack.us/img717/3313/part7.png

 

[moarla]

future EUR and FOREX EURUSD are moving exact in the same matter.

I trade both symbols looking at the futures chart, with single click.

so 1 click means f.e. buy 10 EUR + 2000000 EURUSD....

it works