Electronic Spot Forex Markets

Discussions about trading the Forex markets.
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wcb
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Electronic Spot Forex Markets

Post by wcb » Wed Apr 16, 2003 11:18 pm

I have limited risk capital and I find the mini forex contracts offered by gain capital, fxadvantage, etc. to be very appealing.

I have been researching and trading in the electronic spot forex market for the last six months and pending further analysis of cross rates I will be launching my systems on these markets. But first a few questions:

Does anyone with experience trading these markets have any suggestions, pros, cons, etc?

What are thoughts on the validity of an investment approach focusing on only these instruments? Initially I plan to only trade G7 currencies. For reference John Henry currently offers three programs focusing solely on currencies. http://www.jwh.com/templ007.cfm

Finally, any suggestions for obtaining cash forex data for cross rates?

damian
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Post by damian » Thu Apr 17, 2003 12:45 am

You can calculate cross rate data by a little division or multiplication.

eg,

USDJPY = 119
AUDUSD = 0.6138

thus the cross AUDJPY = USDJPY*AUDUSD = 73.04

It is different if you have two conventional quotes:

USDJPY= 119
USDCAD = 1.4513

thus the cross CADJPY = USDJPY/USDCAD = 81.99

You can apply this calculation to the time series to get the cross rate time series.

As for advice:

I would take care when a service offers no bokerage transactions and wholesale market spreads. No brokerage usually means that you are charged a ‘fee’ to carry the position overnight. This is totally normal in that they will charge you the FX forward points calculated for that particular currency pair’s overnight swap. The forward points are nothing more than the interest rate differential between the two currencies overnight rate, expressed in FX points and adjusted for time. This is what banks FX desks have to do to carry spot or value today positions overnight. However, the broker will probably calculate these FX swap points using a) favourable interest rates relative to what their FX swap points are calculated on and b) a wider FX Forward market spread than they pay. The benefit will go to the broker, this is probably how they earn a living.

I do not claim that they are trying to rip you off, simply that they need to get paid and if they offer narrow spreads and no brokerage, you need to look for how they make their money.

Moodaeng
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Post by Moodaeng » Thu Apr 17, 2003 9:59 am

I suggest you take a look at fxtrade (oanda.com)
No minimum trading size, very tight spreads, very intuitive platform and good support. I have used their "game" software for 1 month and have started trading real money since the beginning of the year. Very satisfied so far. :lol:

wcb
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Post by wcb » Sat Apr 19, 2003 12:19 pm

Moodaeng,

I appreciate the referral to O&A. It appears their flexibility with minimum trade size will allow excellent position sizing.

What do you use for a data source when dealing with FXTrade? Do they provide any type of historical OHLC data? I would like to automate my analytics and trade entry and exit as much as possible.

Finally, are you employing a systematic trend following technique? If so, I would be interested in how you select which currencies you trade and what time frame you are working with.

Thanks,

WCB

Moodaeng
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Post by Moodaeng » Sat Apr 19, 2003 4:07 pm

wcb,

"What do you use for a data source when dealing with FXTrade? /"
I use FxTrade's data feed. They provide a continous market on the crosses they quote.

"Do they provide any type of historical OHLC data?/"
Not that I am aware of. Their parent company provides high frequency data. http://www.olsen.ch/data.html

"Finally, are you employing a systematic trend following technique?If so, I would be interested in how you select which currencies you trade and what time frame you are working with. /"

No. But I have tested many trend following systems on End of Day data. I trade all the currencies provided by FxTrade.

Hope it helps, Moodaeng.

redbullpeter
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Post by redbullpeter » Tue Apr 29, 2003 6:14 pm

Hi,

I use two dealers FXCM (www.fxcm) and deal4free (www.deal4free.com).

FXCM is a traditional FX broker and they have a mini trader account, great for starting out small. Also I am extremely impressed with their charting software which comes in a free and a subscription version for more bells and whistles.

Deal4free is a spreadbetting bookmaker and the trades you make are structured as gambling bets. This has the advantage that any winnings are tax free - in the UK at least.

Warning! I have limited experience of trading and trading platforms so what impresses me may bore you. Have a look any how.

Hope this helps.

red

Jester

FX trading

Post by Jester » Wed May 28, 2003 7:41 pm

I use FXCM.com, it's a pretty good site.

Here are the pros:
mini accounts allow you to start small.
you pay bid/ask spread (no formal comission).
stops get executed at your level (99%) of the time.

cons:
crosses have a larger spread.
they think a million dollar position is big
no exotic currencies

Net/net it's a good place to start. Don't waste your time trading currencies in the pits and have gap openings against you, cash currencies trade 24/5 (??).

Jester

Oh, one more important item. Make sure you sign up for 2% margin or they will charge you carry even if interest rates are in your favor.
:P

edward kim
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Re: FX trading

Post by edward kim » Wed May 28, 2003 9:22 pm

Jester wrote:Oh, one more important item. Make sure you sign up for 2% margin or they will charge you carry even if interest rates are in your favor.
:P
Can you explain what you mean by the "2% margin or they will charge you carry even if interest rates are in your favor"?

Edward

Jester

2% margin

Post by Jester » Wed May 28, 2003 9:59 pm

When you trade spot FX you have to 'roll' the position by 5pm NY time (EST) or deliver the currency. When trading currencies online you don't have to worry about rolling your contract, it's done for you automatically.
FXCM automatically puts new accounts at a 1% margin which means when you roll your contract at the end of the day, they charge you a fee, regardless of the direction of the carry. If you opt for a 2% margin requirement (which means less leverage) you can earn the carry, assuming your positioned to recieve the carry.
Would you like me to go through an example?

Jester
:P

edward kim
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Re: 2% margin

Post by edward kim » Wed May 28, 2003 10:50 pm

An example would be really helpful, because I don't know what "direction of the carry" and "assuming your positioned to recieve the carry" mean in context with various margin %'s. What are the fees: are there variable and fixed fees? Or just one or the other?

Thanks,

Edward

Jester

2% margin

Post by Jester » Thu May 29, 2003 12:56 am

Okay, this can be a challenging topic without a whiteboard. I'll try my best.
Let's say $/yen is trading at 118.00 (I won't use bid/offer) and you think the dollar will rally (due to your system or because the BoJ spends $2 trillion yen to defend it - yes, I'm a little bitter right now). Okay, so you're long dollars at 118 for value spot (delivery in 2 days), you don't want to actually deliver yen in two days so before the end of the business day today (5pm EST) you will sell your dollars for spot and buy the same amount back for the next value date (delivery in 3 days). This is called rolling your position from spot to the next delivery day or spot/next, you do this at prevailing spot rates. We also know that interest rates in Japan are close to flat (due to the 'L' shape recovery), and rates here in the US, although low, are higher than Japan's.

So, let's throw some numbers at this.

- We're long 1mm $/Yen at 118.00 (long $1mm US/short 118mm yen). We executed this position on Monday for value (delivery) on Wednesday.

- At 5 pm Monday(EST), let's say $/yen is trading at 118.50 and the points for spot/next are -.02. I'm pulling this -.02 from no where, but the point differential will equal the difference between one country's interest rate vs. the other country, for one day (in this case the US and Japan).

- Your M-T-M would be $4,219.41 (118mm yen / 118.50) and that would close your position for value Wednesday, and your new position would be
long 1mm $/yen at 118.48 (long $1mm US/short 118.48mm yen - 118.50 less the -.02 in points = 118.48 ) for value Thursday. Of the $4,219.41, $168.78 (20,000 yen / 118.50) was due to the interest rate carry for being long USD's and short yen. If interest rates were exactly equal in both countries than you would roll at the prevailing spot rate and you would earn no carry (118.50 vs. 118.50).

- It's now sometime on Tuesday and your long $/yen at 118.48, and you will either unwind or roll your position by 5pm (EST).

- To bring this around, the carry is not a lot of money but if you're trading for days or months it starts to add up. So if you trade FX on line be sure to ask the institution how much margin is needed to earn the carry. Otherwise, they would keep the $168.78 for themselves, nice huh?

- I know you can read all about this on line, goto FXCM.com, I bet they have something. Plus. I recall a futures and options book by Hull that details this.

Oh, and remember, you can also pay the carry. So if you were short $/yen then you'd pay the $168.78.

All the best,
Jester
:P

paris
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CFTC versus FXCM

Post by paris » Sun Mar 21, 2004 12:18 pm

Gentlemen--

Please forgive me for being the bearer bad news. I was so excited to follow your suggestions regarding Retail Forex companies I did a background check on Oanda and FXCM.

I was very dismayed to discover on the National Futures Association website that as of February 12, 2004, FXCM is under investigation by the CFTC. (!)

According to the NFA posted info, charged were filed against a Gibraltar Monetary Corporation in Florida for allegedly defrauding customers they solicited to trade foreign currency options. Since much of Gibraltar's client money was being traded by FXCM, FXCM is in hot water, too. (How hot, who knows?)

The website is www.nfa.futures.org/basicnet/
Enter FXCM's NFA ID# 0308179, and then click on CFTC case#
04-80132.

By the way, after chatting with the night manager of FXCM.com chatroom I received a very candid email response from--
David S. Sassoon
Compliance Director
Forex Capital Markets LLC
dsassoon@fxcm.com

He was very upfront about the investigation and stated, "We fervently disagree with and dispute those allegations with respect to FXCM and intend to defend the lawsuit vigorously." Then he assured me they are still open for business.

Perhaps some of you experienced guys, particularly those who trade with FXCM can check it out. David Sassoon's email is dsassoon@fxcm.com

Just lookin' out for your back.

Thank you very much for the awesome learning material.

Regards

paris

SMKJ
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Go with Refco

Post by SMKJ » Mon Jun 07, 2004 1:10 pm

Refco, the largest North American futures clearing house also has a Forex trading operation called Refcofx. The website is www.refcofx.com

I personally trade with RefcoFX and it has been great. The spread is tight and liquidity and execution are both fantastic. In fact, Refco has guaranteed quotes with zero slippage for orders up to $10 million.

Refco is a very reputable broker and is not in any legal trouble.

TradingCoach
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refco is also part owner of fxcm

Post by TradingCoach » Sat Jun 12, 2004 2:20 am

look you can't look at a politician or a broker and seek no blemishes. There are none out there. there are not saits. I am sure fxcm will not run away and take your account.

K1
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Post by K1 » Sat Jun 12, 2004 6:00 am

I've been using FX Solutions for the past 2 years with no problem.

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