The FOREX Thread -- n00b version

[freakshow]

This thread, unlike the other one, will be for total forex noobs, like me.
Please bear with my simple, possibly stupid quesitons.

I know forex is regarded as a big risk, but why?
Are the fees so much that it would require you to day-trade to make it worthwhile?
How is it different than exchanging your money back and forth at VBCE, except getting better (market) rates? (assume you only do USD/CAD)

[waddy41]

Is it like day trading, but with currencies instead?
How are your gains taxed, if at all?

I guess it's risky because you're dealing with large amounts of money in a short period of time.

Personally, I buy USD when I perceive as undervalued and hold it until I can realize a large gain. Last time I earned 25% and held it for around 9 months.

[Scudz]

I'll try to answer your questions. I've been looking into Forex for half a year and have a pretty good working system. I'm still testing it to see if it is robust enough and to see how I will handle market fluctuations. So far so good.

Originally Posted by freakshow

This thread, unlike the other one, will be for total forex noobs, like me.
Please bear with my simple, possibly stupid quesitons.

I know forex is regarded as a big risk, but why?
Are the fees so much that it would require you to day-trade to make it worthwhile?
How is it different than exchanging your money back and forth at VBCE, except getting better (market) rates? (assume you only do USD/CAD)

Forex is regarded as a big risk due to it's gigantic leverage it offers. Brokerages offer anywhere from 1:1 to 700:1. That means, your $1,000 micro account can control $1000 USD or up to $700,000.

To help illustrate, let us assume you buy a single standard contract. That equates to about 100,000 units. Let's say you were looking to trade the USD/CAD currency pair. You chose to open a micro account with a minimum of $1,000 deposit and make maximum use of the 700x leverage. With that, you pick your price at $1.0536, today's close on my TOS broker.

That means for every 1 USD, you can get $1.0536 CDN. One pip equates to a $0.0001 movement in price. One pip up on the USD/CAD would be $1.0537 and one pip down would be $1.0535.

So, if you maximized your leverage, you will have bought 7 standard lots of the currency pair, which is 700,000 units which means you now control $700,000 worth of USD with your $1,000 account.

At this amount, you will have a $70/pip. (1.0537-1.0536)*700,000 = $70. That's $70 of your OWN capital gain or loss.

So, one pip up, you now have $1070. One pip down, you now have $930. In a given time period, you can have the price move from 1 pip to 100 pips. It only takes about 14pips to wipe you out. Some of the more volatile currency pairs, and also my favorite, is the GBP/USD. Yesterday, it tanked 400 pips over the last 4hrs, 200 of it in less than 5 mins!!

Why? That's another topic to discuss.

The commissions on Forex, imo, make it a great place to day trade. It is based on pip spreads. So, for example, for the EUR/USD, the bid/ask spread is only 0.00009!. That's less than one pip. No matter how many units you buy, it is always the same, unlike equities/stocks.

Lastly, banks and retail foreign exchange desks charge a 300 pip spread. Knowing the most you could pay in spread is anywhere from 0.9pips to 50 pips on some of the very illiquid markets, you can see how it is a disadvantage to trade Forex at the retail level.

Originally Posted by waddy41

Is it like day trading, but with currencies instead?
How are your gains taxed, if at all?

I guess it's risky because you're dealing with large amounts of money in a short period of time.

Personally, I buy USD when I perceive as undervalued and hold it until I can realize a large gain. Last time I earned 25% and held it for around 9 months.

Forex dwarfs the Stock market and Derivatives market by a lot. The stock market trades about $2 billion a day. The commodities, I believe, trade at around $24 billion. Forex hunkers at $4 trillion a day. Big? Nah.

As for how it is taxed, it depends if you're doing it as a business or just added income. I'm not qualified more than what I can tell you on that.

Don't let the big numbers and liquidity fool you. Forex is a different beast on its own. Most of the $4 trillion is the big big banks trading with each other. I believe only about $2 billion is retail traders playing.

I might get chastised for this, but waddy41, let's say you played with $1,000 and made the 25% from last year's par to Dec at it's height for the USD/CAD; say from $1.00 to $1.25. That's a 2500 pip movement. Back to our above example of $70/pip that's $175,000 that you could've made. Haha, big winners, little losers! If it went against you, you only lost $1,000. But if you won...!

Ok, enough of the gambling tidbit. I'll give you a tip, brokers who offer this insane leveraging are to only micro accounts. Trust me, they want your $1,000 and don't want you to make the $$$. It is far more lucrative for them to take your money than make it on the commissions. Hence, the crazy leverage.

Anyways, creating a thread for questions is unnecessary. It wasn't like the other thread was for experts only. Mod should combine the two. Hope that helps.

PS. Did you know during the Lehman brother's fall period, where the dollar fell, you could've turned $10,000 into $730,000 with only a 400x leverage in 6 weeks time? Happy gambling!

[604_Snooze]

Thanks Scudz, now I get the idea of how forex works. Seems that forex is a better than the current stock market then.

[misteranswer]

Originally Posted by Scudz

If it went against you, you only lost $1,000.

Is this because they forgo the margin call and just liquidate your assets as soon as you lose it all?

[Scudz]

Originally Posted by misteranswer

Is this because they forgo the margin call and just liquidate your assets as soon as you lose it all?

Margin calls do happen, except because you're so heavily loaded, normal market breathing could force the account to liquidate before a call can be made. 10-14pips is a very small movement. Any of the currency majors, GBP/USD, EUR/USD, USD/CAD, CHF/JPY, USD/CHF, USD/JPY can blip 20 pips in 2 secs and you're out!!

You see, Forex is a 24hrs market that opens mid-day Sunday for us and closes Friday afternoon. What makes it dangerous is that because we're essentially the last time zone, all the good trading hours happening in the wee hours or early mornings. For example, the action doesn't really get heated until around 1 AM our time. This is London Time which also overlaps US EST time starting around 4 AM. If you're a night owl, like me, this is perfect!

But news are usually released either during these times.

If you're not careful, a critical news report, such as the Non-Farm Payroll will destroy your profits in matter of seconds. Some people ride it through, some trade nothing but the news, and others avoid it. The trick is, whatever works for you, you stick with it.

If you guys have more questions, let em out. If you're still not understanding some things, or I wasn't clear, let me know. I'll try my best to make it easy to understand. We haven't even scratched on trading systems, discipline, strategies or what the dangerous things are!

Hope that helps!

PS. I made a mistake. My first post in regards to the CAD dollar falling? Yeah, it's not 400x leverage. Haha, it's only 20x!! With 400x, it puts you into the billionaire category! Tell me which market can allow you pull something off like that?? Happy gambling!

[kaitamasaki]

Go check out babypips, I learned a bit off there. I'm trying out some of the systems posted on the forums right now, and basically if you know what you're doing, it is possible to win 90% of the time, but you have to make sure those few losses don't set you back for all the profit you've gained. It is wise to backtest a bit first.

I haven't traded stocks before, but I chose forex because of it being open 24 hours a day, as well as no comission or minimum charges. I don't want to go with Questrade, and not qualified for IB's minimum yet, so forex seemed like a solid starting ground. Just don't go crazy on leverage.

[Scudz]

I definitely second http://www.babypips.com as a great place to go to learn about Forex. I learned most of it there and derived my own system from there as well.

Anyone in any trades for Forex? I shorted the CAD/JPY pair at 87.090 and I'm hovering around 87 pips. I was on the wrong side of the USD/CHF pair and missed out on the fantastic climb. It hit my stop loss while I was asleep. Goodbye +200pip climb! :*(

[kaitamasaki]

Just trading really small amounts right now, trying to get used to the surge of emotions and adrenaline I get...

Also check out forexfactory forums, tons of strategies and systems. Might want to look at one or two that you like and start backtesting them.

[$_$]

Good thread to get started on forex, thanks everyone and keep the info comming!

[Scudz]

Why I think ‘Investing’ is another word for gambling. Why? Let me explain.

Since the daytrading meeting that Ulic and Chuck Norris organized last year, I have done quite a bit of research. They introduced me to day-trading and what it is like.

During my edumacation, I’ve come to realize that investing is definitely not my cup of tea.

You see the word ‘investing’ in many books, financial papers and magazines. All these media forms tout the general wisdoms of NOT picking tops/bottoms, avoid roller coaster rides and to have long horizons.

Great! Generally, these wisdoms are sound. It is for those who simply do not have the time nor the inclination to learn about the markets.

But, the problem is that they don’t offer any ideas on how to profit from your investment, which is the number one reason you’re investing in the first place!



Let it be known and clear that I am not proclaiming I have the markets all figured out or hint that I am expert in this!



But, what I can tell you is that it IS possible to pick the tops, be able to take the rollercoaster rides and have short time frames. Like Chuck said; “No such thing as easy money, but there is quick money!”

When do the tops and bottoms happen? How long will the trend last? Nobody knows. But what I can tell you is that it is the professionals who create the tops and bottoms. Huh?

The big players include the large institutions or fund managers with deep pockets who have the resources to manipulate the stock. They create false breakouts, absorb the buying/selling pressures, create a market, etc. They are the bears and bulls and those who are caught in their way are the pigs. The name of the game is to trade on their side, with them. They go shorting, you short. They buy, you go long.

I won’t go into details about how to spot hints of institution players readying themselves for a big move (as that is for another post, if people demand it), but I want to go back to why this post was here. Can you still invest in something to ‘grow’ knowing that someone out there is moving the price at your expense? Up or down, they are making money, you are not.

So, let me offer some general trading wisdom that all successful traders know. Don’t buck the trend, the tape tells the story and cut your losses, but let your profits run.


PS: A few books that I recommend books that can be applied to all markets are:
Trading for a Living by Dr. Alexander Elder
- A granddaddy of a book on how to look at a chart, indicators and how to trade them, and a little on money management.

Stock Market Wizards and The New Market Wizards by Jack Schwager
- A look at all the different kinds of traders who are successful. Very insightful from learning how they got started to how their lives are.

Millionaire Traders by Kathy Lien
- A copy of Jack Schwager style of interviewing successful traders and their experiences. Quite a few Forex traders.

The Complete TurtleTrader: The Legend, the Lessons, the Results by Michael W. Covel
Way of the Turtle: The Secret Methods that Turned Ordinary People into Legendary Traders by Curtis Faith
- These two books are essentially about the same subject. One was a turtle trader. A real life bet between to traders to see if traders can be taught or are born to be successful. Includes a complete, but now defunct, trading system. Goes into strong detail about money management being the utmost important rule.

Master the Markets by TradeGuider Systems
- This book is a rare find. Goes into details about how to spot bottoms and tops and what volume and price action means. Gives you an insight into why the markets move up and down and how news is just a temporary setback.

Reminiscences of a Stock Operator by Jesse Livermore
- A successful stock operator who won and lost millions of dollars back in the early 1900s. Lots of general wisdom and a very good read. A classic for all those who are traders themselves.



Happy gambling! And stay tuned! I'll see if I can do a quick intro to candlesticks and a sample trading system!

[waddy41]

I will definitely take a look at those book

[TouringTeg]

Great information thank you Scudz