New traders should avoid FX, and trade stocks instead. New traders need to learn about trading, and to develop some sophistication, by remaining in the regulated stock market, in which they will be better protected, from crooked brokers, than in the essentially unregulated, wild wild west of FX trading. They need to develop this sophistication before they trade FX, so that when they do trade FX, they will be more able to recognize when their broker is stealing from them.
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Is Fx trading the hardest instrument?
- Thread starter ForexPro
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theSnaggle
Quote from jimrockford:
New traders should avoid FX, and trade stocks instead. New traders need to learn about trading, and to develop some sophistication, by remaining in the regulated stock market, in which they will be better protected, from crooked brokers, than in the essentially unregulated, wild wild west of FX trading. They need to develop this sophistication before they trade FX, so that when they do trade FX, they will be more able to recognize when their broker is stealing from them.
All due respect, there is little difference between stock brokers and FX brokers when it comes to stealing. Very few on both sides do it. And there are many reputable FX brokers on the retail side -- proportionate to reputable stock brokers I would say. (Stock brokers find ways to rip off their clients even with regulations in place, by the way.) Altogether, transaction costs are the same if not lower on the FX side and retail FX brokers offer better platforms for the small-scale trader. As for insurance, e.g. the REFCO fiasco, that's a risk everyone has to face.
As for which is easier:
I would actually say that, on the fundamental side, FX is only slightly easier for me than stock trading. The macro factors affecting price tend to be more "global" and they tend to telegraph themselves -- I'm talking about interest rates and such. (Fundamentals in FX can be tricky in the same way they are with stocks, however.) News and rumor surprises make price movements apparent shortly after price is affected, so if a currency pair moves you will usually know why within a few minutes with a good data service. While this doesn't help with scalping much, it will help one assess good and bad positions when this information is combined with technicals. On the other hand, I know some people who successfully scalp news -- but they know how to pick their battles and have very specific techniques.
All in all I would say that, considering risk and reward, the needed learning curve, mastery of one's trading model and techniques, an understanding of the overall market structure, etc., the two domains are even. I would also agree with a post above -- one needs a strong grounding in technical analysis as well as in fundamentals to understand FX.
So, to sum up, FX is neither easier nor more difficult than stock trading. It will depend entirely on the individual. I say trade both. Trading is trading. It takes desire, research, discipline, and action. Nothing more and nothing less.
Quote from theSnaggle:
All due respect, there is little difference between stock brokers and FX brokers when it comes to stealing. Very few on both sides do it. And there are many reputable FX brokers on the retail side -- proportionate to reputable stock brokers I would say. (Stock brokers find ways to rip off their clients even with regulations in place, by the way.) Altogether, transaction costs are the same if not lower on the FX side and retail FX brokers offer better platforms for the small-scale trader. As for insurance, e.g. the REFCO fiasco, that's a risk everyone has to face.
Your suggestion that "everyone" has to face the risk of REFCO-type problems is absurd. Stock accounts are insured by SIPC. FX accounts (other than Interactive Brokers) are not. It is really very simple. I hope you didn't mean to suggest that stock traders have to face the same risk of broker bankruptcy as FX traders. Maybe you should clarify this point, to make sure that new traders are not misled?
I think your claim that very few FX brokers steal from their clients is untrue. All of the bucketshops do it. Very few FX brokers are not bucketshops.
I think that there is no merit whatsoever to the distinction you draw between "reputable" and disreputable FX brokers. The retail spot FX trading industry is, on the whole, fundamentally based on fraud, deception, and on taking advantage of new internet technologies and the absence of government regulation to protect gullible victims. The entire industry is disreputable. The bucketshop business model, used by almost every company in the retail FX industry, is a very old business model previously used to trade vehicles other than FX, and has had an extremely poor reputation since as long ago as the 19th century. Read Reminisciences of a Stock Operator to learn about how stock trading bucketshops operated prior to the modern era of securities trading regulation.
Bucketshops claiming to have lower transaction costs than securities brokers are flat out lying. It is impossible to predict or to measure transactions costs of bucketshop trading, because bucketshops use an array of techniques to conceal the true cost of trading thru them. The true costs are much higher than the spreads advertised by bucketshops. These techniques, for concealing transaction costs, are too subtle for new traders to detect or to understand. This is one of the reasons why bucketshops market to new traders - because new traders, with small accounts, have no sophistication and are defenseless victims.
T
theSnaggle
Quote from jimrockford:
Your suggestion that "everyone" has to face the risk of REFCO-type problems is absurd. Stock accounts are insured by SIPC. FX accounts (other than Interactive Brokers) are not. It is really very simple. I hope you didn't mean to suggest that stock traders have to face the same risk of broker bankruptcy as FX traders. Maybe you should clarify this point, to make sure that new traders are not misled?
I think your claim that very few FX brokers steal from their clients is untrue. All of the bucketshops do it. Very few FX brokers are not bucketshops.
I think that there is no merit whatsoever to the distinction you draw between "reputable" and disreputable FX brokers. The retail spot FX trading industry is, on the whole, fundamentally based on fraud, deception, and on taking advantage of new internet technologies and the absence of government regulation to protect gullible victims. The entire industry is disreputable. The bucketshop business model, used by almost every company in the retail FX industry, is a very old business model previously used to trade vehicles other than FX, and has had an extremely poor reputation since as long ago as the 19th century. Read Reminisciences of a Stock Operator to learn about how stock trading bucketshops operated prior to the modern era of securities trading regulation.
Bucketshops claiming to have lower transaction costs than securities brokers are flat out lying. It is impossible to predict or to measure transactions costs of bucketshop trading, because bucketshops use an array of techniques to conceal the true cost of trading thru them. The true costs are much higher than the spreads advertised by bucketshops. These techniques, for concealing transaction costs, are too subtle for new traders to detect or to understand. This is one of the reasons why bucketshops market to new traders - because new traders, with small accounts, have no sophistication and are defenseless victims.
Taking into consideration a worst case scenario with retail FX broker and a best case scenario with a stock trading broker, I agree with you.
I think our disagreement is more a matter of perspective. One can easily do their research on reputable brokers in both communities and try to avoid getting screwed in one way or another. One can also trade FX with insured funds, provided they do their homework. Your narrowing of the options for the FX trader to the "bucketshops," is in itself misleading. If new traders don't do their homework first before diving into trading in any instrument, the deserve what they get!
I've read LeFevre's book. Those bucketshops are much different than mainstream retail FX outlets. Granted, there are still bucketshops -- and they aren't all FX brokers -- but you really have to be stupid to have an account with one considering all of the online resources available to new traders. (REFCO, incidentally, was not a bucketshop.) And transaction costs with some retail FX brokers are in fact less expensive than the average stock broker/dealer. This is no lie. Do your own due diligence on this. It is also not impossible to anticipate and account for transaction costs on the two FX platforms that I use. If one doesn't learn how to do this, they shouldn't be trading FX in the first place. (It's not complicated!)
I respect your opinions from other postings, but I fear you are a bit too hard on what is still a young and fast developing community of brokers who, for the most part, do a much better job at regulating themselves than the "bucketshops" of old ever did. (Not making excuses for the crooks...just noteworthy.) Give the industry time to develop a strong regulatory agency or two. It will (and is) happen(ing) sooner than most realize. For every case of FX fraud you cite, I could come up with 3 or 4 stock fraud cases. Again...perspective. If crooks can't screw you in one way, they'll certainly try to screw you in another.
Also note that SIPC and FDIC insure up to a point. (FDIC to 100K and SIPC to 500K in cash...both with conditions that either cover a total loss or that limit compensation depending on the circumstances...) Many firms are eliminating the SIPC excess coverage -- some readers may already have received notices from their broker-dealers. (I got mine.) Even with insurance, one still must assess the financial strength of their chosen firm. Several brokers who deal in FX offer either FDIC or SIPC insurance Firms that allow trading of multiple instruments usually offer FDIC or SIPC -- which effectively means that whether trading FX, stocks, commodities, etc, the funds are insured. You mention IB, which is a very good outfit. There are others.
I'm done debating this point. Traders should do their homework, identify the risk they are willing to accept, and suck it up. We are not 5-year old kids here. If someone doesn't read the fine print in their contract and unwittingly signs up with some guy who absconds with their money, they have my sympathy but they also have to accept responsibility for their decision. I see no problem with a new FX trader throwing $1K or less into a broker like Oanda and moving the bulk of those funds to an insured broker/dealer once they have learned how to trade and have built up a nice chunk of change that requires insurance (provided they succeed).
T
theSnaggle
Quote from jimrockford:
I never said this. I said most, but not all FX brokers, are bucketshops.
I also disagree with almost everything else you said in the same post.
Although I don't care one wit about whether you agree with me, I think my presence is counterproductive. At best, it makes for boring reading and I'm sure the original question has been aswered sufficiently.
One of my ten New Year's Resolutions was to stop engaging in silly discussions on trading fora, but I've amended that to include any trading on internet fora. Thought elitetrader was different than the others, but apparently not. Same old pissing contests. This is my last post and then I'm done.
Good luck all.
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