Being a Forex Trader in Dubai, you must constantly receive advice regarding professionalism and discipline, in relation to trading and how these two factors can impact on your success. Retail FX traders will receive advice over the type of FX trading account they should open and which brokers they should trade with. For example, trading with an ECN broker, who uses an STP access method and opening an account with zero fees, is considered to be the right first step, or next step, to progress your FX trading. Taking such measures should be regarded as an immediate indication of your overall levels of: professionalism, discipline, self respect and respect for the industry.
Discipline, in relation to retail trading, can take many forms, it can encompass: the times you trade, the trading plan you develop (and more importantly stick to), the strategy you employ (which you never violate) and the level of self control you develop, to ensure your emotions are in check. The benefits of attaching discipline to your trading and becoming a highly disciplined trader, are significant and can’t be underestimated.
Your trading plan is a construct in which you can embed all your professionalism and discipline, it is arguably the single most important bedrock, from which to build you trading career. Creating a robust trading plan and continuing to refine it over time, will indirectly help improve your discipline and professionalism; if you fail to plan, you plan to fail and if you fail to create a trading plan, you could be (unwittingly) planning to fail at trading.
What to place in your trading plan is far more straightforward than most novice and intermediate level traders realise, it doesn’t have to be an onerous exercise. The initial trading plan doesn’t take weeks to compose, it only takes hours and it forms a base from which to potentially build a successful trading career. It should principally contain your trading method and your trading strategy, these two factors are different, but closely aligned.
For Trading Forex in Dubai, your trading method is how you describe your trading style, are you a: scalper, day trader, swing trader, or position trader. Across the spectrum of options you have, do you trade off low, or high time frames? This decision will also indirectly the times of day you’ll decide to trade. Scalpers and day traders might trade full time and closely monitor the market during all times of the day, across the distinct trading sessions, whilst isolating certain times of the day to trade. Or they may only trade when high impact calendar events are due to be published, perhaps they alert themselves to upcoming events by way of setting alarms. Whereas, swing traders might attach a different form of discipline; making time to check their charts at regular intervals throughout the day, or they might place alerts on their charts, to make them aware of any rapid, or significant changes in price and market conditions.
The strategy you create is a different aspect of your trading plan, but also encourages high levels of discipline. Your strategy will encompass factors such as: the currency pairs and other securities you trade, the stops and take profit limit orders you attach to every trade you take, any circuit breaker you employ, the risk per trade you take and whether you use any technical indicators to trade off.
You could decide to possibly only trade the major currency pairs, or indices, you could place stops on each trade limiting your risk and potential loss to perhaps 0.5% account size per trade. You could place take profit limit orders of perhaps 1% on every trade. And you could place a limit on any losses per trading day to perhaps 2% per day; you’ll mentally lock yourself out of your platform if you lose four trades in series, at 0.5% loss. These measures will immediately elevate your levels of discipline and professionalism.
Once you’ve established these core aspects of your strategy and matched them to your trading method, with both elements embedded into your trading plan, whilst creating your own set of rules which you’re determined not to violate, you’re behaving like a professional, institutional level trader. By taking such a simple measure as creating a plan, you’ve indirectly played a trick on yourself; you’ve immediately altered your trader mindset and placed your trading future on the right path of potential success and profitability.
Friday 25 October 2019
Wednesday 27 February 2019
Can't see the wood for the trees? Make sure you can see the forest, the trees and the wood
Many of us involved in the trading industry get invited to attend various trade shows. If you get the chance, if you're ever invited to an expo, then take a bit of time out as they're really worth attending, try not to turn the opportunity down.
Of particular interest is where the industry could be headed over the coming years; virtual reality trading headsets, AI, robots, intuitive trading platforms, some form of trading singularity, the development opportunities appear to be boundless and always right at the cutting edge of technology. The development of retail algorithmic trading, via picking up social media chatter and thereby making trading decisions based on a currency pair's direction due to global trader sentiment, was a development that caught this author's eye a few years back.
It wasn't that I'd suddenly been seduced by the technology, I simply experienced a moment of clarity, becoming aware of just how many of the best and brightest attached to our industry, were pushing back the boundaries of possibility. There's also an irony and paradox in trading FX; it's one of the industries that's enjoyed huge improvements through the technological advancement we've all enjoyed over the past decades. So many of the aspects of our personal life, which has embraced technological advancement, is directly used in trading. We need fibre optic broadband speeds, the ability to trade on the go through mobile devices, we can programme alerts to warn us (via SMS) of price levels, RSI island media keeps us constantly connected to our markets etc.
We trade using STP into ECNs, experience spreads as low as 0.1 pips, enjoy lightning fast fills, pay zero charges (other than small commissions). We can access experts (for free) on social media, we're delivered reports, blogs, updates, market snapshots, offered free coded strategies, experts will code your ideas to use on MetaTrader for relative buttons, I wondered if we'd reached the peak. How could we improve from here; spreads of 0.01 pips, fills measured in milliseconds as you've visualised the trade, some form of (legally) front-running the FX markets, through a form of universal consciousness?
Whilst at an expo, or if you ever get the chance, it's worth talking to those who've been involved in the trading sector of the finance industry for decades, specifically before the birth of what we now refer to as the "retail trading industry", pre-dating the mass appeal and universal access to the Internet.
As you discuss the recent past you'll get a fascinating aspect into just how the industry has evolved over the past decade, you also begin to wonder how it was possible to make any profit from the Forex market twenty - thirty years back. It's not just the fact that the "old timers" possess a deep well of information and experience and are a fountain of knowledge, they can often ground us, reminding us just how far the industry has travelled in a (relative) blink of an eye.
Imagine conducting all your business and orders over a landline phone, imagine paying a spread of 15 pips on cable (GBP/USD). Imagine paying horrendous commissions, substantial overnight costs, being (finally) advised by fax that your order had been filled, at what price and being put on hold when you wanted to finally close out the trade. It's fair to say that we all take many aspects of our trading life for granted, we often fail to see the huge opportunities presented to us, because they've become so familiar and so accessible to us.
For many of us, who've been around the financial trading sector for many years, we often raise an eyebrow when we hear of retail traders complaining over the odd random poor fill during the release of a high impact news event, or paying 0.5 spread on cable, or a tiny commission to execute a trade. Honestly, we've never had it so good as traders. There are tens of highly reputable, regulated FX brokers laying out a red carpet for you to trade, going that extra mile to offer you every conceivable comfort and opportunity to be successful.
So when you compare what we currently have, versus what some of us old timers and lifers had to contend with back in the day, if you're struggling to make a profit out of these markets at this time, then ask yourself why.
If you're not successful, it's not because of that one poor fill amongst the hundred trades you've taken this week. It's not because you're paying 0.4 as a spread on cable, versus 0.1 on the euro, it's not because your platform froze, these are incidental examples of the small price to do business in our business, the damage to your bottom line will be minimal as a consequence of some of the afore mentioned incidentals. No, if you're not profitable in an industry that's never been cheaper to trade in, never so accessible, never had so much help and technology driving it forward, then it's time to reflect on what's wrong with your strategy and seek out some methods to help you improve. Brokers, forums, fellow traders, there's a wealth of contacts out there who'll be glad to offer assistance.
Of particular interest is where the industry could be headed over the coming years; virtual reality trading headsets, AI, robots, intuitive trading platforms, some form of trading singularity, the development opportunities appear to be boundless and always right at the cutting edge of technology. The development of retail algorithmic trading, via picking up social media chatter and thereby making trading decisions based on a currency pair's direction due to global trader sentiment, was a development that caught this author's eye a few years back.
It wasn't that I'd suddenly been seduced by the technology, I simply experienced a moment of clarity, becoming aware of just how many of the best and brightest attached to our industry, were pushing back the boundaries of possibility. There's also an irony and paradox in trading FX; it's one of the industries that's enjoyed huge improvements through the technological advancement we've all enjoyed over the past decades. So many of the aspects of our personal life, which has embraced technological advancement, is directly used in trading. We need fibre optic broadband speeds, the ability to trade on the go through mobile devices, we can programme alerts to warn us (via SMS) of price levels, RSI island media keeps us constantly connected to our markets etc.
We trade using STP into ECNs, experience spreads as low as 0.1 pips, enjoy lightning fast fills, pay zero charges (other than small commissions). We can access experts (for free) on social media, we're delivered reports, blogs, updates, market snapshots, offered free coded strategies, experts will code your ideas to use on MetaTrader for relative buttons, I wondered if we'd reached the peak. How could we improve from here; spreads of 0.01 pips, fills measured in milliseconds as you've visualised the trade, some form of (legally) front-running the FX markets, through a form of universal consciousness?
Whilst at an expo, or if you ever get the chance, it's worth talking to those who've been involved in the trading sector of the finance industry for decades, specifically before the birth of what we now refer to as the "retail trading industry", pre-dating the mass appeal and universal access to the Internet.
As you discuss the recent past you'll get a fascinating aspect into just how the industry has evolved over the past decade, you also begin to wonder how it was possible to make any profit from the Forex market twenty - thirty years back. It's not just the fact that the "old timers" possess a deep well of information and experience and are a fountain of knowledge, they can often ground us, reminding us just how far the industry has travelled in a (relative) blink of an eye.
Imagine conducting all your business and orders over a landline phone, imagine paying a spread of 15 pips on cable (GBP/USD). Imagine paying horrendous commissions, substantial overnight costs, being (finally) advised by fax that your order had been filled, at what price and being put on hold when you wanted to finally close out the trade. It's fair to say that we all take many aspects of our trading life for granted, we often fail to see the huge opportunities presented to us, because they've become so familiar and so accessible to us.
For many of us, who've been around the financial trading sector for many years, we often raise an eyebrow when we hear of retail traders complaining over the odd random poor fill during the release of a high impact news event, or paying 0.5 spread on cable, or a tiny commission to execute a trade. Honestly, we've never had it so good as traders. There are tens of highly reputable, regulated FX brokers laying out a red carpet for you to trade, going that extra mile to offer you every conceivable comfort and opportunity to be successful.
So when you compare what we currently have, versus what some of us old timers and lifers had to contend with back in the day, if you're struggling to make a profit out of these markets at this time, then ask yourself why.
If you're not successful, it's not because of that one poor fill amongst the hundred trades you've taken this week. It's not because you're paying 0.4 as a spread on cable, versus 0.1 on the euro, it's not because your platform froze, these are incidental examples of the small price to do business in our business, the damage to your bottom line will be minimal as a consequence of some of the afore mentioned incidentals. No, if you're not profitable in an industry that's never been cheaper to trade in, never so accessible, never had so much help and technology driving it forward, then it's time to reflect on what's wrong with your strategy and seek out some methods to help you improve. Brokers, forums, fellow traders, there's a wealth of contacts out there who'll be glad to offer assistance.
Thursday 14 February 2019
Your broker is not you enemy, you are the biggest barrier to your own potential success
"A person who blames others has not begun their lesson. A person who blames themselves has begun their lesson. A person who blames no one has finished their lesson."
Blame is a fascinating concept, it's best described as a feeling or a belief that someone, or something is responsible for a fault or wrong. There's a tendency when we're losing at trading, for us to quickly apportion blame, rather than introspectively analyse our trading plan and methods.
We'll blame the markets, perhaps insisting that "they're rigged". We'll blame the platform we use, "it's too slow, too clunky, the fills are inaccurate". We'll ultimately blame our broker, "the spreads are too wide, the commissions too high, the service is poor". Generally, at the very back of the blame queue, is any admission that our own poor performance is leading to avoidable mistakes. One of the first challenges we face, on the journey to becoming a fully developed trader, is taking control of our trading, by taking ownership of our mistakes and decisions.
Before we deal with the "everyone is against me" claims, it's worth applying some logic and percentages to the claims, by using some basic industry averages. The average spread being quoted, on a EUR/USD trade with an STP/ECN broker, is currently less than one pip. Slippage only occurs on a small percentage of trades and some slippage can be positive; you are just as likely to experience positive slippage as negative. Therefore, when measured over a significant sample of trades, slippage is neutralised. Moreover, if you employ a broker who uses straight through processing, into an electronic configured network, then you couldn't possibly find a more efficient and equitable method to trade the FX markets.
Taking all the afore mentioned factors into consideration, what reasonable assumption could we reach to determine the effects on our trading? Could the various inconsistencies and variables cause us a 2% annual reduction in our overall profitability? Is that an acceptable price of doing business in our FX trading business? If we do calculate that the reduction in our bottom line is limited to such a small figure, then we must be honest with ourselves; it's not enough of a dent in our profit margin to significantly alter the ambitions and objectives we originally set for ourselves. Further, with some diligence, investigation and application, we could reduce our 'profitability impact' to perhaps one percent, a statistically negligible sum.
The market is not rigged, no single body, or entity can possibly exercise control over the FX market, with its estimated turnover of circa $4.3 trillion each trading day. As for the other issues we've listed, there are some simple steps which individual traders can take, in order to ensure they're trading in the fairest, most transparent and ethical methods available.
Firstly, only trade FX through an STP/ECN broker. In that way you're trading in as professional a manner as a retail trader possibly could. You're accessing a liquid pool of live quotes delivered by institutional level participants. The trading is transparent and in effect anonymous. STP/ECN brokers are on your side, they charge an extremely small levy for each trade made. They don't trade against you, they want you to win. Their long term success is dependent on traders such as you, staying with them as loyal and successful clients.
Secondly, use a platform that's been thoroughly tested, through rigorous and testing market conditions over many years. Use a platform that you can adapt to your preferences, a platform on which you can set all your personal trading parameters. One where you can perhaps create an expert advisor, to automatically enter and exit the market on your behalf.
Applying these two conditions to your trading; STP/ECN whilst utilising a state of the art platform, ensures that blame, in terms of inefficiencies, is reduced to the statistically negligible issue previously mentioned. Once blame and suspicion is eradicated, we can concentrate on the real issues that may be holding our trading back and your broker will be only too delighted to speak to you on that very subject.
Blame is a fascinating concept, it's best described as a feeling or a belief that someone, or something is responsible for a fault or wrong. There's a tendency when we're losing at trading, for us to quickly apportion blame, rather than introspectively analyse our trading plan and methods.
We'll blame the markets, perhaps insisting that "they're rigged". We'll blame the platform we use, "it's too slow, too clunky, the fills are inaccurate". We'll ultimately blame our broker, "the spreads are too wide, the commissions too high, the service is poor". Generally, at the very back of the blame queue, is any admission that our own poor performance is leading to avoidable mistakes. One of the first challenges we face, on the journey to becoming a fully developed trader, is taking control of our trading, by taking ownership of our mistakes and decisions.
Before we deal with the "everyone is against me" claims, it's worth applying some logic and percentages to the claims, by using some basic industry averages. The average spread being quoted, on a EUR/USD trade with an STP/ECN broker, is currently less than one pip. Slippage only occurs on a small percentage of trades and some slippage can be positive; you are just as likely to experience positive slippage as negative. Therefore, when measured over a significant sample of trades, slippage is neutralised. Moreover, if you employ a broker who uses straight through processing, into an electronic configured network, then you couldn't possibly find a more efficient and equitable method to trade the FX markets.
Taking all the afore mentioned factors into consideration, what reasonable assumption could we reach to determine the effects on our trading? Could the various inconsistencies and variables cause us a 2% annual reduction in our overall profitability? Is that an acceptable price of doing business in our FX trading business? If we do calculate that the reduction in our bottom line is limited to such a small figure, then we must be honest with ourselves; it's not enough of a dent in our profit margin to significantly alter the ambitions and objectives we originally set for ourselves. Further, with some diligence, investigation and application, we could reduce our 'profitability impact' to perhaps one percent, a statistically negligible sum.
The market is not rigged, no single body, or entity can possibly exercise control over the FX market, with its estimated turnover of circa $4.3 trillion each trading day. As for the other issues we've listed, there are some simple steps which individual traders can take, in order to ensure they're trading in the fairest, most transparent and ethical methods available.
Firstly, only trade FX through an STP/ECN broker. In that way you're trading in as professional a manner as a retail trader possibly could. You're accessing a liquid pool of live quotes delivered by institutional level participants. The trading is transparent and in effect anonymous. STP/ECN brokers are on your side, they charge an extremely small levy for each trade made. They don't trade against you, they want you to win. Their long term success is dependent on traders such as you, staying with them as loyal and successful clients.
Secondly, use a platform that's been thoroughly tested, through rigorous and testing market conditions over many years. Use a platform that you can adapt to your preferences, a platform on which you can set all your personal trading parameters. One where you can perhaps create an expert advisor, to automatically enter and exit the market on your behalf.
Applying these two conditions to your trading; STP/ECN whilst utilising a state of the art platform, ensures that blame, in terms of inefficiencies, is reduced to the statistically negligible issue previously mentioned. Once blame and suspicion is eradicated, we can concentrate on the real issues that may be holding our trading back and your broker will be only too delighted to speak to you on that very subject.
Wednesday 24 December 2014
Forex Binary Options – The Simple Alternative to Forex Trading
If you have grown tired of losing sleep chasing the currency markets but losing money anyway as a retail Forex trader, there is a simple alternative to Forex trading – the Forex binary options or Forex binaries for short.
A typical Forex binary option contract will only cost you $20 but will give you a payout of $100 per contract. It is as simple as betting for (buying) or betting against (selling) a particular currency pair contract. If you bet for (bought) a particular currency pair contract and the price of which went up by the end of the week (if it is a weekly binary), then you win $100. However, if the price by the end of the week ended lower, then you lose the difference between your buying price and selling price. Similarly, if you bet against a currency pair contract and the price goes down by the end of the week you gain $100. If the price goes up then you gain nothing and lose only what you paid for the contract. No over loss what so ever. It is as simple as that. The best part is you rid yourself the hassle of analyzing every single fundamental that goes through the wire plus you sanitize yourself from the worries of losing more than you wanted to lose.
There are no margin calls or problems of being booted out of your position. You can only get timed out if you fail to close the contract by the end of the contract period which can be an hour, a day, a week or whatever.
You need not wrestle with the problem of slippage, widening spreads, and other sneaky problems scrupulous brokers can think of to rob you of your hard earned money. There are only two possible outcomes – either you end up ‘in the money’ which means the price ended in your favor; or, ‘nothing’ which means the price ended against your position. That is why it is also called an ‘all or nothing’ binary option. All you need to do is predict whether the price is going to end up or down by the end of the contract period. The risks and rewards are certain and highly manageable.
You may even use Forex binary options to hedge your position in the spot market. For example, if you are selling a currency pair in the spot market, then you should buy the binary option for the same currency pair. If you lose in the spot market then at least you will be able to recoup some of your losses with your winnings in the binary options. In short, you now have a mechanism to cushion the effects of an adverse price movement. You can even use it instead of a trading stop in times when you feel the adverse price movement is only temporary.
Forex binaries are relatively new and there are but a handful of brokers offering them. It is however a very promising trading instrument you should consider including in your trading arsenal.
A typical Forex binary option contract will only cost you $20 but will give you a payout of $100 per contract. It is as simple as betting for (buying) or betting against (selling) a particular currency pair contract. If you bet for (bought) a particular currency pair contract and the price of which went up by the end of the week (if it is a weekly binary), then you win $100. However, if the price by the end of the week ended lower, then you lose the difference between your buying price and selling price. Similarly, if you bet against a currency pair contract and the price goes down by the end of the week you gain $100. If the price goes up then you gain nothing and lose only what you paid for the contract. No over loss what so ever. It is as simple as that. The best part is you rid yourself the hassle of analyzing every single fundamental that goes through the wire plus you sanitize yourself from the worries of losing more than you wanted to lose.
There are no margin calls or problems of being booted out of your position. You can only get timed out if you fail to close the contract by the end of the contract period which can be an hour, a day, a week or whatever.
You need not wrestle with the problem of slippage, widening spreads, and other sneaky problems scrupulous brokers can think of to rob you of your hard earned money. There are only two possible outcomes – either you end up ‘in the money’ which means the price ended in your favor; or, ‘nothing’ which means the price ended against your position. That is why it is also called an ‘all or nothing’ binary option. All you need to do is predict whether the price is going to end up or down by the end of the contract period. The risks and rewards are certain and highly manageable.
You may even use Forex binary options to hedge your position in the spot market. For example, if you are selling a currency pair in the spot market, then you should buy the binary option for the same currency pair. If you lose in the spot market then at least you will be able to recoup some of your losses with your winnings in the binary options. In short, you now have a mechanism to cushion the effects of an adverse price movement. You can even use it instead of a trading stop in times when you feel the adverse price movement is only temporary.
Forex binaries are relatively new and there are but a handful of brokers offering them. It is however a very promising trading instrument you should consider including in your trading arsenal.
Thursday 20 November 2014
Common Forms of Currency Trading Signals
Foreign exchange or currency trading signals refer to indicators that signal traders about the perfect time to make a move in the forex market. For example, it indicates the perfect time to enter a trade or sell a certain currency. The signals can be developed and provided by a human analyst or computer. All of these indicators are also time-sensitive. This means that these are capable of providing traders with the most ideal time-frame or lead time to take action. This is the reason why most alerts are available on websites, SMS, email and other means of communication that support immediate and fast access.
The indicators play a crucial role when formulating a trading decision. These are valuable in deciding whether to enter or exit the market. It also enables traders to determine whether it is best to sell or purchase a currency pair at a provided time. Providers of the signals make sure that the offered alerts use systems related to stop loss, take profit and entry. While there are numerous forms of alerts or signals available for traders, it is crucial to select one which you can easily comprehend and suits your trading platform, strategies and needs.
There are alerts that are available in simple buy or sell indications offered at price messages. There are also those that can be accessed in either line graphs or pie charts. Aside from the conventional buy or sell alerts, it is also possible to get the OB/OS signal. This indicates that a currency is already oversold or overbought when the alert reaches a particular level.
Volatility is also another useful form of signal. This refers to a statistical measurement frequently presented in the form of a line graph. It works by measuring the likelihood and frequency of a currency pair to obtain deep falls or high rises within a short period. SL/TP signal also stands for stop-loss/take-profit. It refers to a particular point wherein the prediction system offers a suggestion to stop incurring losses using downward trending currency pairs. It also suggests obtaining the profits acquired based upon an upward trending pair.
Currency trading signals can either be manual or automated. Both are also accessible online either for free or with a price. However, a trader should make sure that he takes extreme caution when selecting the best trading signal system for him. If possible, choose a system which offers a free trial. This can help in testing the suitability of the alerts to your platform and strategy and their usefulness in formulating the soundest trading decisions.
The indicators play a crucial role when formulating a trading decision. These are valuable in deciding whether to enter or exit the market. It also enables traders to determine whether it is best to sell or purchase a currency pair at a provided time. Providers of the signals make sure that the offered alerts use systems related to stop loss, take profit and entry. While there are numerous forms of alerts or signals available for traders, it is crucial to select one which you can easily comprehend and suits your trading platform, strategies and needs.
There are alerts that are available in simple buy or sell indications offered at price messages. There are also those that can be accessed in either line graphs or pie charts. Aside from the conventional buy or sell alerts, it is also possible to get the OB/OS signal. This indicates that a currency is already oversold or overbought when the alert reaches a particular level.
Volatility is also another useful form of signal. This refers to a statistical measurement frequently presented in the form of a line graph. It works by measuring the likelihood and frequency of a currency pair to obtain deep falls or high rises within a short period. SL/TP signal also stands for stop-loss/take-profit. It refers to a particular point wherein the prediction system offers a suggestion to stop incurring losses using downward trending currency pairs. It also suggests obtaining the profits acquired based upon an upward trending pair.
Currency trading signals can either be manual or automated. Both are also accessible online either for free or with a price. However, a trader should make sure that he takes extreme caution when selecting the best trading signal system for him. If possible, choose a system which offers a free trial. This can help in testing the suitability of the alerts to your platform and strategy and their usefulness in formulating the soundest trading decisions.
Tuesday 4 November 2014
Techniques for Setting Stop Loss Orders
Leverage is a trading tool that all forex traders use when they trade in order to increase the amount of their profit. However, it is also very risky because it also intensifies the chances that your trading account will be wiped out if a trade goes against you. It is very tempting to use high amounts of leverage, both because it can greatly magnify profits but also because it is so readily available. In fact, your broker may even offer you leverage of as much as 100:1, which means, for example, that if you have just $500 in your trading account, you can trade as much as $50,000.
Hence, in order to reduce your risk of losing too much, you have to learn to set the appropriate stop-loss orders. Here are some of the approaches you can take in setting stops:
1. Static stops. In this method, you set your stop loss a certain number of pips from your entry price. For example, if you are trading the USD/JPY currency pair and you enter at 1:9800, you may opt to fix your stop loss order at 20 pips. This method is ideal for traders who are risk-averse and willing to limit their potential profit in exchange for also reducing their potential losses, as well as new traders who are still learning the ropes.
2. Static stops based on market indicators. With this method, the trader considers what the market conditions are before setting their stop loss orders, by monitoring indicators such as price swings or average true range. This method is ideal for traders who have more experience in the markets and can more accurately analyze the risk of a trade.
3. Trailing stops. In contrast to the first two methods, these stop loss orders can be moved based on the way the trade is going. The trader adjusts the stop and limit orders based on the way his trades are going. For example, if the trade is going his way and he wants to increase his profits, he can remove or increase the limit order. On the other hand, if he wants to protect himself, he can increase the stop order to a level close to the entry price. There are a number of ways you can create trailing stops, such as dynamic stops in which you move the stop every time the trade moves a pip in the trader’s favor; fixed stops in which the stop adjusts in increments every time the trade moves in their favor; manual stops in which the trader monitors the trade and manually moves the stop based on how the trade is going. These methods are recommended for traders with a high level of experience in the markets since they can be tricky.
Hence, in order to reduce your risk of losing too much, you have to learn to set the appropriate stop-loss orders. Here are some of the approaches you can take in setting stops:
1. Static stops. In this method, you set your stop loss a certain number of pips from your entry price. For example, if you are trading the USD/JPY currency pair and you enter at 1:9800, you may opt to fix your stop loss order at 20 pips. This method is ideal for traders who are risk-averse and willing to limit their potential profit in exchange for also reducing their potential losses, as well as new traders who are still learning the ropes.
2. Static stops based on market indicators. With this method, the trader considers what the market conditions are before setting their stop loss orders, by monitoring indicators such as price swings or average true range. This method is ideal for traders who have more experience in the markets and can more accurately analyze the risk of a trade.
3. Trailing stops. In contrast to the first two methods, these stop loss orders can be moved based on the way the trade is going. The trader adjusts the stop and limit orders based on the way his trades are going. For example, if the trade is going his way and he wants to increase his profits, he can remove or increase the limit order. On the other hand, if he wants to protect himself, he can increase the stop order to a level close to the entry price. There are a number of ways you can create trailing stops, such as dynamic stops in which you move the stop every time the trade moves a pip in the trader’s favor; fixed stops in which the stop adjusts in increments every time the trade moves in their favor; manual stops in which the trader monitors the trade and manually moves the stop based on how the trade is going. These methods are recommended for traders with a high level of experience in the markets since they can be tricky.
Sunday 2 November 2014
Forex Trading Spreads: The Key to Broker Selection
For Forex trading aficionados, cost is the most important criterion in the selection of a broker. In this regard, a good understanding of the trading spread comes to play. In case you have not noticed, majority of forex brokers earn their dough from the difference between the buy and sell orders. This difference is called the spread. It, therefore, stands to reason that brokers who offer the narrowest spreads represent the best choice cost-wise.
Newbies should, however, be aware that in the foreign exchange market, spreads may vary between currency pairs and over time. As a general rule, some brokers offer the lower spread between one pair, say EUR/USD, and the highest spread for the USD/JPY pair. Brokers typically keep the reason to themselves.
A low spread on one currency pair may not necessarily be so for other pairs. This discrepancy should always be considered if you are eyeing to trade more than one pair. Another thing to watch out for are promotional materials with fine print Some unscrupulous brokers circulate or publish promotional literature in brochures/flyers and on the Internet that contain low spreads; but in actuality, they indicate in fine print that the spreads shown are sample spreads that may not be accurate. Do not be duped by such tactics.
Test the Waters
If you want to have a fairly good idea about the potential spreads of an online broker, opening a demo account would be a great move. Try opening a demo account for two or three currency pairs. Demo accounts are usually supplied with the same live quotes including those of spreads that actual account holders have access to. With the demo account, you will have a better idea of the spread for currency pairs you plan to actually trade later on. Additionally, you also get to observe how the spreads change over time and comparing brokers will be much easier.
Research Is Important
There is also a website called FX Intelligence where interested traders can compare broker spreads live or in real time. However, if you are after spread changes over a period of time, go for the demo account as that is not possible in this website.
Before Taking the Plunge
While spreads are of utmost importance, your research should not stop you from looking at other fees which may be charged to you. It is not enough that you are offered a low spread if the broker charges inactivity fees and other fees which are not charged by other brokers. Evaluate your options after choosing three to five brokers with the lowest spreads.
Newbies should, however, be aware that in the foreign exchange market, spreads may vary between currency pairs and over time. As a general rule, some brokers offer the lower spread between one pair, say EUR/USD, and the highest spread for the USD/JPY pair. Brokers typically keep the reason to themselves.
A low spread on one currency pair may not necessarily be so for other pairs. This discrepancy should always be considered if you are eyeing to trade more than one pair. Another thing to watch out for are promotional materials with fine print Some unscrupulous brokers circulate or publish promotional literature in brochures/flyers and on the Internet that contain low spreads; but in actuality, they indicate in fine print that the spreads shown are sample spreads that may not be accurate. Do not be duped by such tactics.
Test the Waters
If you want to have a fairly good idea about the potential spreads of an online broker, opening a demo account would be a great move. Try opening a demo account for two or three currency pairs. Demo accounts are usually supplied with the same live quotes including those of spreads that actual account holders have access to. With the demo account, you will have a better idea of the spread for currency pairs you plan to actually trade later on. Additionally, you also get to observe how the spreads change over time and comparing brokers will be much easier.
Research Is Important
There is also a website called FX Intelligence where interested traders can compare broker spreads live or in real time. However, if you are after spread changes over a period of time, go for the demo account as that is not possible in this website.
Before Taking the Plunge
While spreads are of utmost importance, your research should not stop you from looking at other fees which may be charged to you. It is not enough that you are offered a low spread if the broker charges inactivity fees and other fees which are not charged by other brokers. Evaluate your options after choosing three to five brokers with the lowest spreads.
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