FOREX vrs. Stocks

Discussions about trading the Forex markets.
Post Reply
billpritjr
Roundtable Fellow
Roundtable Fellow
Posts: 93
Joined: Mon May 19, 2003 1:17 am
Location: Ft. Worth, Texas

FOREX vrs. Stocks

Post by billpritjr » Sat Nov 22, 2003 2:25 am

Hello

I am a individual investor that trades stocks using a trend following strategy, fortunately with fairly good success. My "system" is primarily dual MA cross with volume and RSI analysis. I have been trading via technical analysis and trend following for about 3 years now, and have about 7 years of general stock market investing experience.

I am unable to sit at the computer all day, due to my "real job", and typically hold stocks 1 to 3 months, and buy and short as the trend dictates. My broker is DATEK/Ameritrade.

I recently have become interested in FOREX, and would like to know:

1. For a "non-pro" trader like me, which broker is reputable and recommended?

2. I am very fond of dual MA crossovers, is FOREX receptive to such trend analysis?

3. Maybe a simple-simon question, but is the "profit potential" with FOREX more than with stocks? Which one offers more bang-for-the-buck?

4. Comments, further info, etc?

thanks for the info

BILL

seanmclaughlin
Full Member
Full Member
Posts: 11
Joined: Mon May 12, 2003 10:15 pm
Location: Chicago, IL

Forex - The New Scam

Post by seanmclaughlin » Tue Nov 25, 2003 9:02 am

Which Forex dealer is most "reputable"?

I think right now we have to be weary of whether there are ANY reputable dealers. It seems to me that they are all bucket shops.

My ignorance aside, it appears to me they operate on the premise that 90% of all daytraders lose money. And thus, they are either "bucketing" all customer orders, taking the other side, and/or "laying off" or hedging themselves in any situation where a customer places an unusually large order that poses a risk of loss to the firm.

They figure they'll make money off of customer losses (by taking the other side), earn interest off each trade, and best of all....collect the 5 pip spread so prevalent in online trading platforms. Imagine daytrading the emini-S&P with a 5 tick spread. You'd get killed.

Yes ladies and Gentlemen....Forex trading is the "new, new thing". And as such it will proliferate and blow up much like retail daytrading shops burned brightly them Flamed Out during the great Bubble Burst of the late 90's, early 2000. And the only ones left holding the cash will be the firms who took the other side of all your trades, and laughed all the way to the bank - or perhaps in some of their cases - all the way to prison.

-w.
Roundtable Fellow
Roundtable Fellow
Posts: 95
Joined: Wed Nov 19, 2003 11:02 am

Re: Forex - The New Scam

Post by -w. » Wed Nov 26, 2003 7:24 am

seanmclaughlin wrote:Forex trading is the "new, new thing". And as such it will proliferate and blow up much like retail daytrading shops burned brightly them Flamed Out during the great Bubble Burst of the late 90's, early 2000.
Forex trading for individual speculators might not be such a "new, new thing" as it now appears to be. Especially in Europe, many of the large US brokers seem to have built the foundation of their private client operations on forex-trading before the equity market took off in '95. After the crash in '87, equities (especially US) were a no-no for European investors for years to come. High yield bonds provided good business for some time but when that was over as well, forex was about the only thing left for a couple of years.
They figure they'll make money off of customer losses (by taking the other side), earn interest off each trade, and best of all....collect the 5 pip spread so prevalent in online trading platforms. Imagine daytrading the emini-S&P with a 5 tick spread. You'd get killed.
Before the advent of online forex trading you could only dream of 5 pip spreads. You were looking at spreads of at least 15 pips which translated to as much as 50 for the client (who obviously had no direct access to quotes). If he was lucky, that is. If trades were profitable enough, they sometimes were closed at even higher spreads.

Interestingly, the US brokers and the more reputable private banks seem to have stopped that kind of business in the middle of the nineties. But most European banks held on to it right until the first online forex shops opened.

In my opinion, all the problems surrounding "emerging" markets aside, the forex markets are definitely worth looking at. But it's a challenge alright, especially for systems traders.

brendo
Senior Member
Senior Member
Posts: 41
Joined: Wed Dec 03, 2003 11:46 pm
Location: Melbourne AUSTRALIA

In Defence of Online Forex

Post by brendo » Thu Dec 18, 2003 6:26 am

In my informed opinion the services offered by some of the better-known online Forex providers is as good as (or better) than what has been available in the wholesale Corporate and Institutional marketplace.

1. 5-pip spreads is pretty damn good in volume of just USD 100k. Whilst Institutional clients may get 3-pip spreads they'd normally have to trade a parcel of USD1m or more.
2. No slippage on stop-loss is not a common practise in the wholesale Forex market, but most online providers seem to g'tee this service.
3. Leverage of 50:1 , 100:1 or even 200:1 is made possible by state-of-the-art Mark-To-Market and allows you more efficient use of your capital.
4. Instant on-line fills, free data and charts. This saves a huge amount on data and communication costs.
5. Free real-time portfolio reporting. Makes trade reconciliation a breeze.
6. No-commission trading. A few years ago you'd need to pay the spread as well as a % fee to margin trade FX on the telephone.

The key difference between most Online Forex houses is that they are NOT brokers, but rather they are trading as your counterparty. They take the risk on each trade and hope to have enough volume coming through that they will be able to capture the spread between the buy and sell prices. They are not really betting against their clients, as they would generally rather remain as square (and riskless) as possible. In fact, in an ideal world they would prefer that ALL of their clients were successful and profitable so that their trading volumes and spread-income would grow continually.

However, there is one common trap for the unwary, in the form of "Carry Costs" and some providers are less generous than others. There is a couple of forum discussions on this matter that may be worth a look. From my experience this is the least understood part of Forex trading and perhaps an easy way for a counterparty to make extra $ from their clients.


Regards

Brendo
(not affiliated in any way with any Online Forex shops...)
(Ex Institutional Forex Salesman)

JPG
Contributor
Contributor
Posts: 1
Joined: Sun May 11, 2003 11:46 am
Location: East Coast

Buyer beware

Post by JPG » Sat Jan 03, 2004 11:56 am

I would like to point out a couple of points that you may want to look at be fore you plunk down your money to trade Fx. I would say if you are considering trading on a online fx platform I would suggest you find one in your country so you avoid unnecessary currency risk to trading capital.
For example, I had friend from Spain put $100,000 usd in an online acct in the U.S. becuase he liked the spreads of 3-5 pips in the major currencies. He did this when the Euro/usd was trading below .9000 now with Euro above 1.25 he stands lose a good portion of his capital base at the current market rate.

The other thing I would be carefull of is this unregulated market. Which opens the door for alot of less then desirable people. Do your homework when it comes to dealing with these online pltforms.

brendo
Senior Member
Senior Member
Posts: 41
Joined: Wed Dec 03, 2003 11:46 pm
Location: Melbourne AUSTRALIA

Re: Forex Buyer beware

Post by brendo » Sat Jan 03, 2004 6:38 pm

JPG wrote:For example, I had friend from Spain put $100,000 usd in an online acct in the U.S. becuase he liked the spreads of 3-5 pips in the major currencies. He did this when the Euro/usd was trading below .9000 now with Euro above 1.25 he stands lose a good portion of his capital base at the current market rate.

The other thing I would be carefull of is this unregulated market. Which opens the door for alot of less then desirable people. Do your homework when it comes to dealing with these online pltforms.
JPG

You have raised two excellent points with regard to Forex trading.

Firstly, as most of the major Margin Forex shops are run on a USD account basis, non-US traders will have to accept currency risk on their account. IMO it is a little bit of an oxymoron to use this risk as an excuse for not trading Forex, in that you want to enjoy the volatility and opportunities that are available in this marketplace, but don't wish to have the same risk on your underlying capital??? :? Besides, many non-US traders are active in USD-denominated equity & futures markets already. There are however a number of solutions to this currency risk issue:

1. Get an Account in Your Own Currency - There are a number of outfits that offer Margin Forex with a Euro account. Sooner or later I imagine accounts will be offerred in more and more currencies as more complex accounting systems are devised.

2. Adopt a No-Hedge Policy - As a Trader, you can just accept that you now have a long-term asset in USD and learn to live with it. Sure, there'll be periods where your equity will be whacked by something unrelated to your trading results, but over the long term it may not be a major problem. (This is what the majority of Mutual Funds will do when managing international assets.)

3. Get a Passive Hedge in Place - Your first Forex trade can become a 'passive hedge' back to your home currency. For example, your friend could have simply kept a Long EURO/Short USD position open for the express purpose of protecting the value of his account in Euro terms. Depending upon taxation, accounting requirements, volatilty of equity and the contract size flexability this hedge could be kept open indefinitely or closed and re-opened at regular intervals. This is actually a method employed by the minority of Mutual Funds that choose to hedge their currency risk

4. Employ Dynamic Hedging - You could choose to treat your own currency risk as a trade in itself. So, for example as a trend-follower, you would choose to go long your own currency if it was rising (as in the case of Euro agst USD) and thus become hedged against adverse movements. At other times, when your own currency is falling you would remain 'unhedged' and thus gain from a strenthening USD.

Check Into Your Forex Dealer
With regard to your second point, you are indeed correct that due to the lack of a centralised exchange the regulation of Margin Forex Dealers is quite loose. However, I have found that many US players are regulated by the CFTC and NFA and some UK organisations are SFA regulated. In recent months the CFTC and NFA have jointly launched a program to clean up the dealing practices of this market.

Given the risk of losing one's entire trading capital in the event of a firm's collapse it is paramount that adequate checking is done on the background, stability and regulation history of your Forex Dealer. As a trend-follower I am not so concerned about whether a get a 3-pip or 5-pip spread, security of funds will have a much greater financial impact on my trading. There is another forum that is for Forex-only discussion at http://www.moneytec.com/forums/index.php. At this forum, discussion of the service providers is quite a well-worn thread.

To protect yourself further, there is no need to deposit all of your trading capital with your dealer. Assuming you are employing reasonable money-management techniques, you will only need to deposit a relatively small proportion to cover Margin requirements, leave the rest of the funds elsewhere.

Finally, I have heard that some of the larger US-based online equity brokers are planning to open Margin Forex subsidiaries......

ES
Roundtable Fellow
Roundtable Fellow
Posts: 97
Joined: Mon May 05, 2003 1:02 am

Technical Indicators

Post by ES » Sat Apr 10, 2004 10:44 pm

Be careful with ma and rsi indicators. they serve to attempt to predict the future. I could never make consistent money with the technical indicators. I would rather rely on intelligent science that would dissuade a potential possibly leading to emotional instability. Can i count on it or not ?

The forex market is constant any traders are trading all of the time. Your exits have to be real tight and you're execution has to be with a honest house. Most of the forex joints are full of shit. They rip apart you trades and rip you off even 5 basis points and the losses can really mount. Especially the pairs trading crap that is being marketed like crazy. I demo'd a few products including the refco product and they're all quite shit becasue they only serve to take your money away as you are down money upon initiation of a trade.

The marketing sector of these companies is selling the sexual sizzle of currency trading by telling you that you can make a fortune. Investigate first. Any piece of hype from anyone or thing in the trading business is crap and should be avoided.

Now you can easily develop a correlation matrix comparing stocks and currencies. If they're highly correlative why increase risk. Just be patient man. pull 25 to 50 % out of the stock market every year and youll turn a 25k usd account into milllions before youre ready to collect your employer's pension. then one day you'll park in your bosses spot and he'll even buy you lunch.

Kiwi
Roundtable Knight
Roundtable Knight
Posts: 513
Joined: Wed Apr 16, 2003 1:18 am
Location: Nowhere near

Forex: Yet another Opinion

Post by Kiwi » Sun Apr 11, 2004 12:41 am

I have system traded currency futures for years and much of the profitability of systems trading comes from the trendiness of currencies.

All currency trading is pairs trading ... the cme futures you trade are typically EUR/USD, JYP/USD, SF/USD, GBP/USD and AUD/USD.

We talk about the spreads that forex dealers require. Poor spreads now are 5-6 ticks for major pairs (the first two above really) and 10+ for minor pairs (where the liquidity is lower and the spread is worse. The best spreads on the majors come from Oanda (2ticks but no guarantees on stops etc) and the next best come from people like GFT and SGFX (3ticks but guaranteed).

Be aware that when you trade currency futures the spread is often 3-6 ticks anyway so the forex dealers spread is frequently less than the spread you see on globex. At least on this dimension they are not the necessarily the thieves that people suggest.

I have been daytrading currencies on globex for a few months now and getting quite used to the slippage and spreads. I do this with two contracts and am about to scale up to four and then bigger with time. The problem is that when you are trading more than two contracts you almost certainly get 1 or more ticks of slippage on stops and a tick or more bid/ask on limit entries. This makes a 3 tick guarantee quite attractive especially for entries outside of the most liquid US morning period.

So I am opening a GFT account now to see if I can do better than with futures. The biggest risks I perceive are:

1) They wont honour their guarantees ... I have asked and they claim they will up to 1M which is the equivalent of 8 futures contracts.

2) There are reports of a swiss forex dealer fading their clients positions and I will be watching GFT carefully for this behaviour. Basically, if this is happening, if you are long then you will see a price that is lower than you would see if you were neutral. So I will use a free oanda training account and the futures price less the futures/cash spread to check how they perform.

Personally, given the slippage in futures I see these guys as a good opportunity to trade markets that are trendy in all timeframes and wonderfully diverse (ie trade mixed pairs to reduce the effect of USD). But I need to scientifically check the two risks ... much of the stuff on bulletin boards is unreliable evidence from people who have never experienced the slippage of futures.

John

PS. Moving averages can be used to trade futures very profitably.
But don't count on anything in trading. Understand the probabilities and watch them to make sure they still work for you.

PPS. I include a picture showing liquidity and half hourly range for the euro using globex futures data. The cash version has similar move size but more liquidity during the european morning (units are points per half hour and contracts per half hour).
Attachments
Euro Range and Volume 03.gif
Euro Range and Volume 03.gif (58.06 KiB) Viewed 16331 times

brendo
Senior Member
Senior Member
Posts: 41
Joined: Wed Dec 03, 2003 11:46 pm
Location: Melbourne AUSTRALIA

"Fading" (Reading your interest)

Post by brendo » Sun Apr 11, 2004 2:50 am

Kiwi

Interesting that you've heard of reports of retail brokers that are "fading ' or "reading" a clients interest and the skewing the price against the client. I'm sure you'd be aware that this is standard practice in the wholesale Forex markets, it's only natural that it would trickle down to retail level.

What traders have to remember is that Forex "pricemakers" are not really brokers as such, but are in fact "principals" to each trade. Rather than wait to match each client trade, the Forex pricemaker takes on each interest and seeks to either match at a later stage or accumulate it into a larger position size before backing it out. As I see it they have no moral or legal obligation to make you any particular price other than what they think is to their best advantage. You are not paying them a fee to obtain a best possible price.

Because few retail Forex pricemakers charge commissions, the spread they show and the skew (if any) is the only way to make money from their clients.

This activity can be worked to your advantage:
a. if the spread is constant, a large skew may create an arbitrage opportunity (although the mechanics will be tricky in the absense of a cenralised clearing house)

b. if you are trading a trend-following system that involves pyramiding, they are often going to read you wrong and thus make you a price better than if there was no skew. For example, I am long one unit of USD/JPY. The market is now 0.5 ATR higher than my entry point and I am looking to add an additional unit. However a Forex pricemaker that knows I'm long might assume I'm looking to square up by selling a unit and may read me as a seller and thus pitch the price down - result: unit 2 is cheaper for me !!

Later

BRENDO
Last edited by brendo on Sun Apr 11, 2004 5:42 am, edited 1 time in total.

Kiwi
Roundtable Knight
Roundtable Knight
Posts: 513
Joined: Wed Apr 16, 2003 1:18 am
Location: Nowhere near

Post by Kiwi » Sun Apr 11, 2004 5:36 am

Thanks for the thoughts,

That may well prove correct. GFT stated that they don't do it so, if I catch them, I will dump the account simply because they lied to me. I will also document it in detail on a couple of boards.

In the general sense, if fading is standard practice then it will impact the decision as to when I should use forex vs futures, what the guarantee is worth, and whether I might use a different broker with different characteristics.

Most learning has a cost so it will be interesting to evaluate the cost of this after I discover it :wink:

John

FrankWala
Full Member
Full Member
Posts: 22
Joined: Sun Apr 11, 2004 12:32 pm
Location: San Diego, CA

Post by FrankWala » Sun Apr 11, 2004 12:55 pm

I am also looking at FXCM & GFT. GFT has a nice interface and has a 'trailing stop' feature. I have been using a standard Turtle which KSBerg posted. The only modification I made was use 'hourly' bars.
and am doing 'demo account' on GBP USD only. I have hourly bars for 60 days only( unscientific testing seems stable). The system holds up well in daily bar testing.

Sometimes I wonder if the Forex dealers are not the 'bucketshops' of the 2000. But then Saloman, Morgan Stanley are in the same boat.


*********************************************
Kiwi wrote: That may well prove correct. GFT stated that they don't do it so, if I catch them, I will dump the account simply because they lied to me. I will also document it in detail on a couple of boards.

In the general sense, if fading is standard practice then it will impact the decision as to when I should use forex vs futures, what the guarantee is worth, and whether I might use a different broker with different characteristics.

SMKJ
Full Member
Full Member
Posts: 17
Joined: Mon Jun 07, 2004 12:43 pm

To answer your 4 questions

Post by SMKJ » Thu Jun 10, 2004 5:02 pm

1. I use Refco, as you know they are one of the biggest clearing house and broker of financial futures and derivatives etc. So..very reputable
www.refcofx.com Their spreads are tight, and has guaranteed quotes for order up to
$10 mil.

2. For MA cross over... you might consider back testing with historical data if you are serious about the markets.

3. The allowed level of leverage is much higher for forex..so if you are talking about higher profit potential..yes it's there... for instance, Refco allows for up to 200x leverage.

4. Refco offers a demo account, where you can check it out.
One thing though, cross rates are traded on interbank...meaning that there will be no volume data available for you to find.

Wayne50
Contributor
Contributor
Posts: 4
Joined: Mon Oct 25, 2004 5:44 pm
Location: Bradenton, FL

Re: Forex: Yet another Opinion

Post by Wayne50 » Mon Nov 01, 2004 11:11 am

Kiwi,

You say,
I have been daytrading currencies on globex for a few months now and getting quite used to the slippage and spreads.


1) Where do you get your intra-day forex data from?

2) Are currencies on globex equivelant to spot forex markets?


Thanks for any help you can provide,

Kiwi
Roundtable Knight
Roundtable Knight
Posts: 513
Joined: Wed Apr 16, 2003 1:18 am
Location: Nowhere near

Post by Kiwi » Mon Nov 01, 2004 5:14 pm

Intraday forex data comes from gft.
Intraday futures data comes from Interactive Brokers.

Futures are similar to Forex. Basically should be the same with allowance for the interest rate built into futures and a little more volatile because they are thinner so a thrust will push them harder.

Post Reply