Are you new to forex trading?If so, forex trading may seem "foreign" to you now, but it doesn't have to. Use the information in these pages to help you learn more about the forex markets and how you can trade more confidently in them.
What Is Forex?
Forex (foreign exchange) is the buying and selling of currencies. Forex transactions always include two currencies—one currency is purchased while the other is sold. For example, in a forex transaction euros (EUR) may be purchased while US dollars (USD) are sold; or Great British pounds (GBP) may be purchased while Japanese yen (JPY) are sold. The two currencies involved in a transaction are considered a currency pair (e.g., EUR/USD or GBP/JPY) and each currency pair has an exchange rate.
The goal of forex trading is similar to the goal of stock trading where you attempt to "buy low and sell high." Currency exchange rates fluctuate up and down throughout the day, providing forex traders with the ability to potentially profit from these movements.
The basic concept of forex trading is similar to those used in equities, bonds, futures, and options markets—the distinction being the product that is traded. In fact, most new forex traders will probably find the transition to forex to be simple and straight forward. The technical indicators and strategies used in other markets can be used in the forex market as well.
Why Trade Forex?
■Flexibility: Place trades 24 hours a day (Sunday, 5:15 p.m. ET — Friday, 4 p.m. ET).
■Opportunity: Easily trade when markets are trending up or trending down.
■Simplicity: Use technical analysis (indicators on charts) methods from other markets like equities.
■Strength: Access the most liquid market in the world ($4 Trillion average daily volume).
Sunday, August 21, 2011
Saturday, August 13, 2011
money management
If you want to be a successful trader you should know that the first thing you have to do is to preserve your capital. Risk management protects your money. Most of the time, newbies do not consider the losses that will mandatorily occur in their trading plan, they only think about the gains. Money management or risk management consist in entering trades that will respect several conditions: · For each position that you open, you must know exactly how much money you are ready to risk and depending on that parameter; you should adjust the size of your position and/or the level of your stop loss. · Once in position, your goal is to protect your gains and limit your losses. While the market is in your favor you have to adjust your stop loss. · Exiting positions is important when you feel the market is going nowhere. Take your profit and exit. Each trader should obverse this concept because it allows your capital to increase and your trading account will appreciate with time. You are guaranteed to be able to trade the day after. The money management: a simple technique. The following money management technique is a basic tool for the newbie trader. It includes simple notions as risk management by adjusting sizes of our positions and moving your stop loss. Size of your position: At the beginning the size of the position should be fixed; working with money that represents a percentage of the total amount on your trading account (margin included) allows you to intervene as much as you want in regards of where the market goes. For example: If you have in your trading account $15000 with a margin 40, then you have a buying power of $600000= 15000 x 40. Depending on your broker, you can trade lots by $50k or $100k hence you have the ability to trade 12x50k$ or 6×100 k$. This choice is very personal and depends on each trader’s risk’s aversion. Stop Loss Placing your stop loss is very simple. Your main goal should be preserving your capital so each time you open a position, you should consider not trading more than a percentage of your capital. For example, suppose that you have $15000 in your trading account, you trade lots of 50k$ and you accept to lose 1% of your capital on each position. 1% of $15000 represents $150 and suppose you have 1 pip at $5 on euro/dollar, you should put your stops at 30 pips maximum from your entry. As long as the trend is in your favor, you can move your stop loss but never remove it in order to protect your trade and thus lower your risk. Of course in my trades, my stop loss is never fixed, I will not put my stop loss at 30 pips exactly, I will include in my analysis the notion of volatility which allows me to move my stop loss in regards of the characteristics of the market, which decreases the risk. Yield vs. Risk Regarding where you put your stop loss, you may assess if the trade worth the yield vs risk. This part is based as well on the technical analysis of the price, which allows you to assess the potential of your trade. Generally speaking, if the potential is less than 4 times the stop loss, I will not trade. For example if I have a stop loss at 30 pips, my potential gain must be more than 90 pips. You can be wrong 3 times on 4 without losing your capital (3 losses of 30 pips = 1 gain of 90 pips), so you have to assess every time your yield vs. risk. Following the trade Following your trade allows you to maximize and protect your gains by moving your stop loss. You can also open new trades once the trend is in your favor. In the following example, I am short on euro/dollar at 1.2875. I move my stop loss on the moving average 50. I open a new trade short at 1.2835, my stop loss follow the same moving average until it reaches 1.2815. So this trade is a profit of 60 pips for the 1st trade and 20 pips for the 2nd trade. Total +80 pips, we made a profit of 30% more with a risk management. Exiting the trade The exit can be done on stop loss or on target. Each entry can be treated independently in 2 steps : · As long as the yield vs. risk is not reached my stop loss are at a maximum level, they move fast. · Once the yield vs.risk is reached we can take more profit in order to follow the trend as long as possible. The 50% rule Here is a trading strategy and money management among others: the 50% rule. You have a winning trade and you don’t know what to do. Should I take my profit or leave it for more? Why not take 50%? Suppose you have a profit of 50 pips on a trade on euro/dollar for 50000 units. If you take 50% of you gains only, means 25000 units so (2.5×50=)$125, you take already a interesting profit. If the trade goes the other way, it should go by 100 pips in order to lose on this trade. If the trade is in your favor, your profit will be more interesting. Good luck every one do not forget that your success depends on your money management.
RETAIL FX INDUSTRY WATCH
For the first time we may have a situation with Forex that retail traders can have the same opportunities as large market players such as banks and Hedge Funds”
RETAIL FOREX:
Evolution, regulation, and current trends
The retail Forex market has evolved quickly, from being nearly non-existent 20 years
ago, to being a major Forex liquidity provider (about 5% of Forex volume is retail traders).
Unlike other more established financial markets, such as the Stock, Commodity,
and Bond markets, Forex trading didn’t start until the early 1970’s and the retail Forex
market didn’t begin until the early 1990’s. With the retail offering of forex brokers
such as Oanda, Saxo Bank, and others, retail traders had the same access as banks and
other large institutions. So retail Forex can be examined and defined by brokers offering retail trading, because without this market access, the retail Forex market would never have evolved.
Also, because Forex was an unregulated market, it allowed for many unethical practices and outright fraud. This has been approached by the regulator, the National Futures Association, although not explicitly a Forex regulator, they became the de-facto global Forex regulation model.
Defining Retail
Even the definition of what ‘retail’ has evolved. Retail used to be a 100,000 minimum, now at some brokers retail is 100. Generally, retail is considered to be individual traders opening accounts with relatively small deposits. The NFA defines retail as anyone who isn’t a QEP (Qualified Eligible Person).However, reading the regulatory definition precisely, one notes several categories that although QEP’s, would by industry standards be considered retail: “non-United States persons” and “Knowledgeable Employees”. The thinking here is that the NFA doesn’t regulate foreign persons and foreign markets, which is correct. However most would consider a non-US person from India with a $500 deposit retail.
Retail traders are – almost by definition- undercapitalized. Thus they are subject to the problem of gambler’s ruin. In a “Fair Game” (one with no information advantages) between two players that continues until one trader goes bankrupt, the player with the lower amount of capital has a higher probability of going bankrupt first. Since the retail speculator is effectively playing against the market as a whole- which has nearly infinite capital – he will almost certainly go bankrupt.
The retail trader always pays the bid/ask spread which makes his odds of winning less than those of a fair game.
Additional costs may include margin interest, or if a spot position is kept open for more than one day the trade may be “resettled” each day, each time costing the full bid/ask spread.
Defining Forex Industry
The Forex industry didn’t exist when Forex first started. Banks traded currencies on behalf of their customers and that was it. Now there are companies that specialize in providing services to Forex companies, such as technical services as provided by companies such as FX System Hosting, who offers dedicated servers and domain names specific to Forex companies. The Forex Industry can be defined as the growing number of companies offering Forex specific
products and services, and service providers to those companies. There is now a specific registration category in the NFA called RFED, or Registered Foreign Exchange Dealer. This is a new category that didn’t exist 5 years ago.
Problem obtaining data
Since Forex data is available on a survey & voluntary basis, data is difficult to analyze. For example, even for the entire Forex market, official BIS data used commonly “4 Trillion per day” is a mere survey. While most accept that it is accurate, the data is obtained by banks volunteering this information to the survey, which is unaudited. Retail Forex is even harder to quantify. Many brokers are private companies or based offshore. As no reporting of financial or customer data is required, it leaves researchers to only speculate. FXCM can provide a good model because they are considered to be the largest retail broker in the world, and as they are a public company they submit customer and financial data. According to Google Finance, FXCM has 165,000 customerS.
FXCM releases monthly metrics of their trading volumes on their Investor Relations website. See their latest release:
May 2011
Retail Trading Metrics:
• Retail customer trading volume of $328 billion in May 2011, 12% higher than April 2011 and 5% higher than May 2010.
• Average retail customer trading volume per day of $14.9 billion in May 2011, 7% higher than April 2011 and no change from May 2010.
• An average of 363,579 retail client trades per day in May 2011, 13% higher than April 2011 and 8% lower than May 2010.
• Active accounts of 155,592 as of May 31, 2011, a decrease of 2,410 or 2% from April 2011, and an increase of 26,465 or 20% from May 2010.
• Tradable accounts of 167,844 as of May 31, 2011, an increase of 1,696 or 1% from April 2011, and an increase of 6,635 or 4% from May 2010.
Institutional Trading Metrics:
• Institutional customer trading volume of $80 billion in May 2011, 28% higher than April 2011 and 4% higher than May 2010.
• Average institutional trading volume per day of $3.6 billion in May 2011, 22% higher than April 2011 and no change from May 2010.
• An average of 8,694 institutional client trades per day in May 2011, 28% higher than April 2011 and 95% higher than May 2010.
More information, including historical results for each of the above metrics, can be found on the investor relations page of the Company’s corporate web site.
White Labeling
Another phenomenon in Forex is the proliferation of White Labeling.
Private Labels exist in all industries; however in Forex it is very common. There are a few companies offering platforms and trading strategies, and 10x more who white label that
product and market it as their own. For example, Citibank uses a white label of Saxo Bank for their retail business.
The problem with this when analyzing data is that it is difficult to determine how many unique platforms or strategies there are in existence, compared to how many are simply a white label of another.
Forex attracts criminals
Since Forex was unregulated, the Forex market attracted a white collar criminal element that used Forex as a story to steal money from people. Unlike the rather sophisticated Madoff operation, many of these criminals simply take money from customers and spend it on lavish
life styles, sometimes not even trading 1 contract. Another factor is that Forex is unknown to many, and rather complex for someone who doesn’t have a mathematical or financial background. Thus when the criminals explain how big banks trade currencies and make billions, to the average person it sounds exciting. A good example is provided by the case of Joel N. Ward, currently serving a prison sentence for his crimes which he was convicted. Over his trading career, 110 people trusted Ward with $15 million of their money, with over $1 million was taken in the final weeks of the scheme. Ward and his employees traded only $2 million of this money, losing $1.84 million. Twenty-two of the 24 accounts traded incurred losses, with the profits in the other two accounts, amounting to less than $1,000 total. Ward used the rest of the money to pay himself a $180,000 annual salary, support his trading school business, stay at 5-star hotels at his “trading retreats,” and pay out $3.7 million in “lulling payments” to investors who demanded money from their supposedly profitable trades. He also created fictitious Merrill Lynch account statements to show that one investor had an account balance of $9.5 million. In August 2006, Washington Mutual Bank contacted the authorities with suspicions about Ward’s banking activities. In November 2006 Ward emailed his investors, “There are no funds left in JNF as all monies have been misappropriated.” In a handwritten confession that Ward gave his wife and that was later given to the FBI, Ward wrote of much personal distress and even the possibility of taking his own life over his guilt. In that context, he wrote that he “felt like a financial serial killer” and “just another scumbag con artist bilking old people out of their retirement money.” He was later divorced. In August 2007, Ward pleaded guilty to nine felony counts, including fraud and money laundering. The U.S. Attorney’s office claimed that Ward defrauded more than 100 clients out of more than $11 million. Separately,
Ward is alleged to have defrauded investors in a Mississippi real estate project.
These criminals have given Forex a bad reputation, as explained in the Wikipedia page Forex Scams.
Forex SEO
What made Forex very popular on the internet is a group of international internet marketers who picked up on Forex as something to promote. The reasons that Forex is one of the best product types for these marketers to promote is because it is purely electronic, meaning that your customer could be anyone with a computer and an internet connection (compared with something like automobiles, which can only easily be purchased within a 50-100 mile range). Also there is a high profit margin on many forex products, and the ‘pitch pages’ usually have wild claims with high rates of return. Most of these are false claims, however the internet marketers can use Forex to create a compelling argument to ‘make a lot of money’.
Since many of these individuals are located online, they can live in any country and are not subject to regulations. In the future it may be an issue because while Forex has now become regulated, the internet still is not, so it is difficult to enforce regulations on domains registered
private, who are domiciled in foreign countries.
Propelled by the SEO community, Forex became viral. Forums such as Forex Factory, Forex-TSD, FX Street, and others, saw their memberships skyrocket. Retail investors searching for answers, started posting large amounts of questions in the forums and engaging in heated threaded debates. Since anyone can register for a forum, while moderated, the responses were questionably accurate. Most Forex professionals would not spend time answering questions in forums unless they were paid to do so. As there isn’t any official Forex knowledgebase, the average client is left to decide on his own of the accuracy of statements. Having noted the above, the overall community is self-moderating and education and knowledge has been
increasing. That means over time, the forums have become more accurate, and wild claims such as making 50% / month with no risk, have been filtered out as false.
What the forums did accomplish is popularizing Forex on the internet and giving retail customers a means of communicating with other retail customers. Now many brokers offer their own Forums to keep customers from using these uncontrolled, 3rd party forums.
2005 – 2007 Era
With the release of Meta Trader 4, retail Forex went viral globally. Since Meta Trader 4 was free and possible for anyone to download, develop and test a rule based automated trading system, millions downloaded the software. Tradestation, the industry standard for automated
trading systems development, failed to adapt to Forex quickly enough to provide a growing number of hobby developers free development tools. To this day, Tradestation doesn’t offer a free downloadable software development environment, although it is still considered by many
to be the only software to use when developing quantitative systems.
Brokers at the time such as Alpari and Interbank FX received a flood of clients who wanted to trade MQL based systems they had developed live in the Forex market, most of which had
relatively small deposits. Also, many of these hobby developers began selling their systems for use, as well as forming trading groups where they would exchange development ideas and improvements on their own trading strategies. The financial success of Forex brokerages such as Interbank FX and Oanda caught the attention of investors. In the case of Interbank FX, this resulted in a $40 Million investment in 2007 by venture group Spectrum Equity Investors. Oanda received $100 Million in investment capital in September, 2007ix. Earlier that year,
State Street purchased institutional trading platform Currenex for an astonishing $564 Million.
While this was going on, the NFA was raising the Net Capital Requirements for brokers, which meant that smaller firms were forced either to be acquired by larger ones or cease to exist. Forum threads called “Dealer Dead Pool” and “NFA Capital Requirements” were proliferated on forums, where users speculated on the fate of these firms. Subsequently, a number of firms that existed in 2006 did not exist in 2008.
Dead Firms Walking
Out of the following short list of US firms in trouble, only FXDD survived:
One World Capital ($1,105,000), Velocity4X ($1,587,000), Direct Forex LLC ($1,523,000), FiniFX($1,464,000), GFS Futures &Forex ($3,074,000), Nations Investments ($1,699,000), Royal Forex Trading ($1,102,000), SNC Investments ($1,565,000), FXOD ($78,000), I Trade FX (-$3,039,000! Close to Bankruptcy!) Money Garden ($3,399,844), United Global Markets (Bankrupt). In some cases, as with Velocity4x, which was shut down and customers were acquired by Forex. com – customers had to move their accounts but no losses occurred.
In other cases, such as One World Capital, customers’ capital was wiped out. One World Capital was finally determined to be a fraud.
Industry Consolidation & Regulation
While the US is not the only regulatory environment in the world, and there are many Forex
firms registered offshore, the US has always provided a framework for foreign regulators. In the case of retail Forex, many believe that regulation is needed. The argument may be different for Hedge Funds for example, where you have professional traders meeting sophisticated QEP investors who understand the complexities of Finance. The retail Forex investor may not be sophisticated (although many of them will spend hundreds of hours researching before opening their $1,000 account). Also fraud and unethical practices have been abundant in Forex. Of the major US based FCM’s/FDM’s offering Forex, only a few have escaped NFA complaints (Most notably, Oanda, GFT, and FXDD). Regulation is an important part of the discussion of retail Forex, because Forex by itself doesn’t have any official framework or standards. Each broker handles rollover charges differently, although many follow some rules established by common practice. In fact, Forex regulation without considering retail market is nearly irrelevant, as most participants in Forex on an institutional basis have already been regulated and mostly work with other institutions or QEP’s as they are defined by the CFTC.
It should also be noted that most of the problems plaguing the Forex industry were mostly on a retail level. Dealing Desks common in a retail environment are nearly unheard of in an institutional environment, such as Deutche Bank’s Autobahn.
Developmen t Trends
Expert Advisor development as proliferated by the MetaQuotes platform created a large global community of traders developing their own automated trading systems. These systems
were initially simplistic, some relying on simple indicator signals such as Moving Average crosses and RSI. Others called “Grid Trading” systems, simply bought and sold above and below the current price – while EUR/GBP was in a trading range, the system never lost money. As soon as EUR/GBP began trending, many accounts had severe losses. Now,
strategies are becoming increasingly more complex and robust. Some tools allow for the
importing and exporting of data between MT4 and other platforms such as Tradestation, MatLabs, and Microsoft Excel. Also, new platforms on the market are now competing with
MetaQuotes. While it is unlikely that any will replace MetaQuotes due to their wide proliferation, it is important to note the amount of new platforms that have been recently launched, catering to a growing number of automated Forex developers. Also, manual traders have discovered the use of automated tools. While many still trade manually (by deciding
themselves when to buy and sell) they heavily use automated assistants, such as opening order
scripts, dynamic indicators, and account monitors.
Current State of Retail Forex
The Forex industry is in a different state than it was years ago. A few trends that have emerged:
• Many traders are now aware of games brokers play, and are demanding real, instant execution
• The demographic of retail Forex has expanded beyond the hobbyist, and now includes many non- FX money managers (such as stock or bond traders), corporations, and high net worth individuals
• Brokers are more capitalized
• While the number of brokers due to consolidation has possibly decreased, the number of well capitalized brokers has increased, allowing more choices
• Brokers have become more competitive
• Ability to trade smaller lot sizes such as Micros
• Brokers offering more services, such as VPS included with accounts
• Established brokers such as Oanda have started offering Managed Accounts
• Plethora of 3rd party tools such as ZuluTrade and Currensee. One trend is the rebate is becoming smaller or even non-existent. Some CTA companies now offer an interbank feed with spreads as low as .4 EUR/USD to retail traders, with an LOD with 5% performance fee.
While this may sound strange, why would a client pay a % of his profits to the CTA, you actually are always paying the spread when you enter a trade, and if the broker has slippage, 5 pips is $50 on a 100,000 unit position. Also with the performance based model, if the
account is negative there is no fee, so over time they believe this will equal lower trading costs and provide a fairer, transparent trading environment. In initial testing, systems show greater profitability with the reduced spread and instant ECN style execution.
Of course as with many of these changes, these are things that should have existed in the first place. It’s not fair that dealers pray on retail customers that don’t have sophisticated knowledge of the markets. So for the first time we may have a situation with Forex that retail traders can have the same opportunities as large market players such as banks
and Hedge Funds. As the Forex markets themselves become more complicated, and as Central Banks engage in competitive devaluation of their respective currencies, retail Forex may become a new asset class in its own right: retail investors doing their own currency investing with the use of provided tools such as analysis, automated systems, and custom indicators.
Elite Forex Training
FX TRADER MAGAZINE July – September 2011
RETAIL FOREX:
Evolution, regulation, and current trends
The retail Forex market has evolved quickly, from being nearly non-existent 20 years
ago, to being a major Forex liquidity provider (about 5% of Forex volume is retail traders).
Unlike other more established financial markets, such as the Stock, Commodity,
and Bond markets, Forex trading didn’t start until the early 1970’s and the retail Forex
market didn’t begin until the early 1990’s. With the retail offering of forex brokers
such as Oanda, Saxo Bank, and others, retail traders had the same access as banks and
other large institutions. So retail Forex can be examined and defined by brokers offering retail trading, because without this market access, the retail Forex market would never have evolved.
Also, because Forex was an unregulated market, it allowed for many unethical practices and outright fraud. This has been approached by the regulator, the National Futures Association, although not explicitly a Forex regulator, they became the de-facto global Forex regulation model.
Defining Retail
Even the definition of what ‘retail’ has evolved. Retail used to be a 100,000 minimum, now at some brokers retail is 100. Generally, retail is considered to be individual traders opening accounts with relatively small deposits. The NFA defines retail as anyone who isn’t a QEP (Qualified Eligible Person).However, reading the regulatory definition precisely, one notes several categories that although QEP’s, would by industry standards be considered retail: “non-United States persons” and “Knowledgeable Employees”. The thinking here is that the NFA doesn’t regulate foreign persons and foreign markets, which is correct. However most would consider a non-US person from India with a $500 deposit retail.
Retail traders are – almost by definition- undercapitalized. Thus they are subject to the problem of gambler’s ruin. In a “Fair Game” (one with no information advantages) between two players that continues until one trader goes bankrupt, the player with the lower amount of capital has a higher probability of going bankrupt first. Since the retail speculator is effectively playing against the market as a whole- which has nearly infinite capital – he will almost certainly go bankrupt.
The retail trader always pays the bid/ask spread which makes his odds of winning less than those of a fair game.
Additional costs may include margin interest, or if a spot position is kept open for more than one day the trade may be “resettled” each day, each time costing the full bid/ask spread.
Defining Forex Industry
The Forex industry didn’t exist when Forex first started. Banks traded currencies on behalf of their customers and that was it. Now there are companies that specialize in providing services to Forex companies, such as technical services as provided by companies such as FX System Hosting, who offers dedicated servers and domain names specific to Forex companies. The Forex Industry can be defined as the growing number of companies offering Forex specific
products and services, and service providers to those companies. There is now a specific registration category in the NFA called RFED, or Registered Foreign Exchange Dealer. This is a new category that didn’t exist 5 years ago.
Problem obtaining data
Since Forex data is available on a survey & voluntary basis, data is difficult to analyze. For example, even for the entire Forex market, official BIS data used commonly “4 Trillion per day” is a mere survey. While most accept that it is accurate, the data is obtained by banks volunteering this information to the survey, which is unaudited. Retail Forex is even harder to quantify. Many brokers are private companies or based offshore. As no reporting of financial or customer data is required, it leaves researchers to only speculate. FXCM can provide a good model because they are considered to be the largest retail broker in the world, and as they are a public company they submit customer and financial data. According to Google Finance, FXCM has 165,000 customerS.
FXCM releases monthly metrics of their trading volumes on their Investor Relations website. See their latest release:
May 2011
Retail Trading Metrics:
• Retail customer trading volume of $328 billion in May 2011, 12% higher than April 2011 and 5% higher than May 2010.
• Average retail customer trading volume per day of $14.9 billion in May 2011, 7% higher than April 2011 and no change from May 2010.
• An average of 363,579 retail client trades per day in May 2011, 13% higher than April 2011 and 8% lower than May 2010.
• Active accounts of 155,592 as of May 31, 2011, a decrease of 2,410 or 2% from April 2011, and an increase of 26,465 or 20% from May 2010.
• Tradable accounts of 167,844 as of May 31, 2011, an increase of 1,696 or 1% from April 2011, and an increase of 6,635 or 4% from May 2010.
Institutional Trading Metrics:
• Institutional customer trading volume of $80 billion in May 2011, 28% higher than April 2011 and 4% higher than May 2010.
• Average institutional trading volume per day of $3.6 billion in May 2011, 22% higher than April 2011 and no change from May 2010.
• An average of 8,694 institutional client trades per day in May 2011, 28% higher than April 2011 and 95% higher than May 2010.
More information, including historical results for each of the above metrics, can be found on the investor relations page of the Company’s corporate web site.
White Labeling
Another phenomenon in Forex is the proliferation of White Labeling.
Private Labels exist in all industries; however in Forex it is very common. There are a few companies offering platforms and trading strategies, and 10x more who white label that
product and market it as their own. For example, Citibank uses a white label of Saxo Bank for their retail business.
The problem with this when analyzing data is that it is difficult to determine how many unique platforms or strategies there are in existence, compared to how many are simply a white label of another.
Forex attracts criminals
Since Forex was unregulated, the Forex market attracted a white collar criminal element that used Forex as a story to steal money from people. Unlike the rather sophisticated Madoff operation, many of these criminals simply take money from customers and spend it on lavish
life styles, sometimes not even trading 1 contract. Another factor is that Forex is unknown to many, and rather complex for someone who doesn’t have a mathematical or financial background. Thus when the criminals explain how big banks trade currencies and make billions, to the average person it sounds exciting. A good example is provided by the case of Joel N. Ward, currently serving a prison sentence for his crimes which he was convicted. Over his trading career, 110 people trusted Ward with $15 million of their money, with over $1 million was taken in the final weeks of the scheme. Ward and his employees traded only $2 million of this money, losing $1.84 million. Twenty-two of the 24 accounts traded incurred losses, with the profits in the other two accounts, amounting to less than $1,000 total. Ward used the rest of the money to pay himself a $180,000 annual salary, support his trading school business, stay at 5-star hotels at his “trading retreats,” and pay out $3.7 million in “lulling payments” to investors who demanded money from their supposedly profitable trades. He also created fictitious Merrill Lynch account statements to show that one investor had an account balance of $9.5 million. In August 2006, Washington Mutual Bank contacted the authorities with suspicions about Ward’s banking activities. In November 2006 Ward emailed his investors, “There are no funds left in JNF as all monies have been misappropriated.” In a handwritten confession that Ward gave his wife and that was later given to the FBI, Ward wrote of much personal distress and even the possibility of taking his own life over his guilt. In that context, he wrote that he “felt like a financial serial killer” and “just another scumbag con artist bilking old people out of their retirement money.” He was later divorced. In August 2007, Ward pleaded guilty to nine felony counts, including fraud and money laundering. The U.S. Attorney’s office claimed that Ward defrauded more than 100 clients out of more than $11 million. Separately,
Ward is alleged to have defrauded investors in a Mississippi real estate project.
These criminals have given Forex a bad reputation, as explained in the Wikipedia page Forex Scams.
Forex SEO
What made Forex very popular on the internet is a group of international internet marketers who picked up on Forex as something to promote. The reasons that Forex is one of the best product types for these marketers to promote is because it is purely electronic, meaning that your customer could be anyone with a computer and an internet connection (compared with something like automobiles, which can only easily be purchased within a 50-100 mile range). Also there is a high profit margin on many forex products, and the ‘pitch pages’ usually have wild claims with high rates of return. Most of these are false claims, however the internet marketers can use Forex to create a compelling argument to ‘make a lot of money’.
Since many of these individuals are located online, they can live in any country and are not subject to regulations. In the future it may be an issue because while Forex has now become regulated, the internet still is not, so it is difficult to enforce regulations on domains registered
private, who are domiciled in foreign countries.
Propelled by the SEO community, Forex became viral. Forums such as Forex Factory, Forex-TSD, FX Street, and others, saw their memberships skyrocket. Retail investors searching for answers, started posting large amounts of questions in the forums and engaging in heated threaded debates. Since anyone can register for a forum, while moderated, the responses were questionably accurate. Most Forex professionals would not spend time answering questions in forums unless they were paid to do so. As there isn’t any official Forex knowledgebase, the average client is left to decide on his own of the accuracy of statements. Having noted the above, the overall community is self-moderating and education and knowledge has been
increasing. That means over time, the forums have become more accurate, and wild claims such as making 50% / month with no risk, have been filtered out as false.
What the forums did accomplish is popularizing Forex on the internet and giving retail customers a means of communicating with other retail customers. Now many brokers offer their own Forums to keep customers from using these uncontrolled, 3rd party forums.
2005 – 2007 Era
With the release of Meta Trader 4, retail Forex went viral globally. Since Meta Trader 4 was free and possible for anyone to download, develop and test a rule based automated trading system, millions downloaded the software. Tradestation, the industry standard for automated
trading systems development, failed to adapt to Forex quickly enough to provide a growing number of hobby developers free development tools. To this day, Tradestation doesn’t offer a free downloadable software development environment, although it is still considered by many
to be the only software to use when developing quantitative systems.
Brokers at the time such as Alpari and Interbank FX received a flood of clients who wanted to trade MQL based systems they had developed live in the Forex market, most of which had
relatively small deposits. Also, many of these hobby developers began selling their systems for use, as well as forming trading groups where they would exchange development ideas and improvements on their own trading strategies. The financial success of Forex brokerages such as Interbank FX and Oanda caught the attention of investors. In the case of Interbank FX, this resulted in a $40 Million investment in 2007 by venture group Spectrum Equity Investors. Oanda received $100 Million in investment capital in September, 2007ix. Earlier that year,
State Street purchased institutional trading platform Currenex for an astonishing $564 Million.
While this was going on, the NFA was raising the Net Capital Requirements for brokers, which meant that smaller firms were forced either to be acquired by larger ones or cease to exist. Forum threads called “Dealer Dead Pool” and “NFA Capital Requirements” were proliferated on forums, where users speculated on the fate of these firms. Subsequently, a number of firms that existed in 2006 did not exist in 2008.
Dead Firms Walking
Out of the following short list of US firms in trouble, only FXDD survived:
One World Capital ($1,105,000), Velocity4X ($1,587,000), Direct Forex LLC ($1,523,000), FiniFX($1,464,000), GFS Futures &Forex ($3,074,000), Nations Investments ($1,699,000), Royal Forex Trading ($1,102,000), SNC Investments ($1,565,000), FXOD ($78,000), I Trade FX (-$3,039,000! Close to Bankruptcy!) Money Garden ($3,399,844), United Global Markets (Bankrupt). In some cases, as with Velocity4x, which was shut down and customers were acquired by Forex. com – customers had to move their accounts but no losses occurred.
In other cases, such as One World Capital, customers’ capital was wiped out. One World Capital was finally determined to be a fraud.
Industry Consolidation & Regulation
While the US is not the only regulatory environment in the world, and there are many Forex
firms registered offshore, the US has always provided a framework for foreign regulators. In the case of retail Forex, many believe that regulation is needed. The argument may be different for Hedge Funds for example, where you have professional traders meeting sophisticated QEP investors who understand the complexities of Finance. The retail Forex investor may not be sophisticated (although many of them will spend hundreds of hours researching before opening their $1,000 account). Also fraud and unethical practices have been abundant in Forex. Of the major US based FCM’s/FDM’s offering Forex, only a few have escaped NFA complaints (Most notably, Oanda, GFT, and FXDD). Regulation is an important part of the discussion of retail Forex, because Forex by itself doesn’t have any official framework or standards. Each broker handles rollover charges differently, although many follow some rules established by common practice. In fact, Forex regulation without considering retail market is nearly irrelevant, as most participants in Forex on an institutional basis have already been regulated and mostly work with other institutions or QEP’s as they are defined by the CFTC.
It should also be noted that most of the problems plaguing the Forex industry were mostly on a retail level. Dealing Desks common in a retail environment are nearly unheard of in an institutional environment, such as Deutche Bank’s Autobahn.
Developmen t Trends
Expert Advisor development as proliferated by the MetaQuotes platform created a large global community of traders developing their own automated trading systems. These systems
were initially simplistic, some relying on simple indicator signals such as Moving Average crosses and RSI. Others called “Grid Trading” systems, simply bought and sold above and below the current price – while EUR/GBP was in a trading range, the system never lost money. As soon as EUR/GBP began trending, many accounts had severe losses. Now,
strategies are becoming increasingly more complex and robust. Some tools allow for the
importing and exporting of data between MT4 and other platforms such as Tradestation, MatLabs, and Microsoft Excel. Also, new platforms on the market are now competing with
MetaQuotes. While it is unlikely that any will replace MetaQuotes due to their wide proliferation, it is important to note the amount of new platforms that have been recently launched, catering to a growing number of automated Forex developers. Also, manual traders have discovered the use of automated tools. While many still trade manually (by deciding
themselves when to buy and sell) they heavily use automated assistants, such as opening order
scripts, dynamic indicators, and account monitors.
Current State of Retail Forex
The Forex industry is in a different state than it was years ago. A few trends that have emerged:
• Many traders are now aware of games brokers play, and are demanding real, instant execution
• The demographic of retail Forex has expanded beyond the hobbyist, and now includes many non- FX money managers (such as stock or bond traders), corporations, and high net worth individuals
• Brokers are more capitalized
• While the number of brokers due to consolidation has possibly decreased, the number of well capitalized brokers has increased, allowing more choices
• Brokers have become more competitive
• Ability to trade smaller lot sizes such as Micros
• Brokers offering more services, such as VPS included with accounts
• Established brokers such as Oanda have started offering Managed Accounts
• Plethora of 3rd party tools such as ZuluTrade and Currensee. One trend is the rebate is becoming smaller or even non-existent. Some CTA companies now offer an interbank feed with spreads as low as .4 EUR/USD to retail traders, with an LOD with 5% performance fee.
While this may sound strange, why would a client pay a % of his profits to the CTA, you actually are always paying the spread when you enter a trade, and if the broker has slippage, 5 pips is $50 on a 100,000 unit position. Also with the performance based model, if the
account is negative there is no fee, so over time they believe this will equal lower trading costs and provide a fairer, transparent trading environment. In initial testing, systems show greater profitability with the reduced spread and instant ECN style execution.
Of course as with many of these changes, these are things that should have existed in the first place. It’s not fair that dealers pray on retail customers that don’t have sophisticated knowledge of the markets. So for the first time we may have a situation with Forex that retail traders can have the same opportunities as large market players such as banks
and Hedge Funds. As the Forex markets themselves become more complicated, and as Central Banks engage in competitive devaluation of their respective currencies, retail Forex may become a new asset class in its own right: retail investors doing their own currency investing with the use of provided tools such as analysis, automated systems, and custom indicators.
Elite Forex Training
FX TRADER MAGAZINE July – September 2011
Gold Extends Decline as U.S. Retail Sales Advance, Easing Economic Concern
Gold fell for the second straight day as a jump in U.S. retail sales helped temper concern that the recovery is faltering, eroding demand for the metal as a haven.
Retail sales climbed 0.5 percent in July, the most in four months, the government said today. Yesterday, a report showed that applications for jobless benefits were the lowest since early April. The Standard & Poor’s 500 Index was up more than 5 percent in two days. Gold has advanced 23 percent this year amid mounting sovereign debt in the U.S. and Europe. Yesterday, the metal reached a record $1,817.60 an ounce.
“The market is reacting to the reversal in risk trade,” Tom Pawlicki, a Chicago-based analyst at MF Global Holdings Ltd., said in a telephone interview. “People will want to wait on the sidelines for the prices to come down further.”
Gold futures for December delivery fell $8.90, or 0.5 percent, to close at $1,742.60 at 1:45 p.m. on the Comex in New York. This week, the metal jumped 5.5 percent, the most since February 2009 and the sixth straight gain.
CME Group Inc. (CME), owner of the world’s largest futures market, raised margins on gold contracts by 22 percent as of the close of business yesterday. The minimum amount of cash that speculators must keep on deposit for an initial account increased to $7,425 on a 100-ounce contract from $6,075.
Silver futures for September delivery rose 44.5 cents, or 1.2 percent, to $39.114 an ounce on the Comex. The metal, up 2.4 percent this week, has climbed 26 percent this year.
Platinum futures for October delivery rose $4.30, or 0.2 percent, to $1,796.70 an ounce on the New York Mercantile Exchange. This week, the price climbed 4.5 percent, the most since December. The price gained for the fifth straight day, the longest rally since March. The commodity has climbed 1 percent in 2011.
Palladium for September delivery gained $14.40, or 2 percent, to $748.20 an ounce. The metal, up 0.9 percent this week, has dropped 6.9 percent this year.
Retail sales climbed 0.5 percent in July, the most in four months, the government said today. Yesterday, a report showed that applications for jobless benefits were the lowest since early April. The Standard & Poor’s 500 Index was up more than 5 percent in two days. Gold has advanced 23 percent this year amid mounting sovereign debt in the U.S. and Europe. Yesterday, the metal reached a record $1,817.60 an ounce.
“The market is reacting to the reversal in risk trade,” Tom Pawlicki, a Chicago-based analyst at MF Global Holdings Ltd., said in a telephone interview. “People will want to wait on the sidelines for the prices to come down further.”
Gold futures for December delivery fell $8.90, or 0.5 percent, to close at $1,742.60 at 1:45 p.m. on the Comex in New York. This week, the metal jumped 5.5 percent, the most since February 2009 and the sixth straight gain.
CME Group Inc. (CME), owner of the world’s largest futures market, raised margins on gold contracts by 22 percent as of the close of business yesterday. The minimum amount of cash that speculators must keep on deposit for an initial account increased to $7,425 on a 100-ounce contract from $6,075.
Silver futures for September delivery rose 44.5 cents, or 1.2 percent, to $39.114 an ounce on the Comex. The metal, up 2.4 percent this week, has climbed 26 percent this year.
Platinum futures for October delivery rose $4.30, or 0.2 percent, to $1,796.70 an ounce on the New York Mercantile Exchange. This week, the price climbed 4.5 percent, the most since December. The price gained for the fifth straight day, the longest rally since March. The commodity has climbed 1 percent in 2011.
Palladium for September delivery gained $14.40, or 2 percent, to $748.20 an ounce. The metal, up 0.9 percent this week, has dropped 6.9 percent this year.
Sunday, July 17, 2011
Gold hits record high on U.S., Europe debt worries
(Reuters) -
Spot gold touched a record high on Monday, reflecting persistent worries about the euro zone debt crisis and a growing threat of a U.S. government default.
Spot gold rose to an all-time peak of $1,598.41 and U.S. gold hit a record high of $1,599.20.
The appetite for bullion as a safe storage of value increased, as investors feared that the stalemate in negotiations over U.S. deficit plan could lead to a default, which might wreak havoc in global markets and send the world's top economy back to recession.
Adding to worries about the economic growth, U.S. consumer confidence hit a near 2-1/2-year low in early July and manufacturing output stalled in June.
"The political uncertainties in the United States and Europe will be an ongoing theme and safe-haven demand will continue," said Natalie Robertson, a commodities analyst at ANZ.
Robertson expected gold to reach $1,650 in the short term on macro concerns and chart strength, but added that volatility may increase as the deadline for the U.S. debt ceiling talks on August 2 draws close.
Gold's early strength came under pressure as the dollar firmed up against a basket of currencies.
Spot gold pared early gains and was steady at $1,593.50, after rallying for a 10th straight session on Friday, matching a similar winning run in 1970.
U.S. gold edged up 0.2 percent to $1,592.50.
Results of stress tests of 90 banks across the European Union were better than expected, but failed to impress investors who continue to worry about the possibility of contagion of debt crisis in the region.
"This move in gold still has momentum, as Europe is burning to the ground," said a U.S.-based trader.
Technical analysis also pointed to a bullish picture. Spot gold has resumed its medium-term uptrend and would rise toward $1,613, said Reuters market analyst Wang Tao.
Indicating increased appetite in bullion, speculators sharply raised their bullish bets in U.S. gold futures and options last week as prices rallied, data from the U.S. Commodity Futures Trading Commission showed.
Holdings at the SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, rose nearly 1 percent to 1,236.013 tonnes, highest in since late January.
"Gold prices have hit fresh highs across several currencies on macro unease, the dollar weakening and the escalation of European sovereign debt uncertainty creating a favourable backdrop," said Barclays Capital in a research note.
"We expect prices to test new highs despite the seasonal weakness in demand."
Spot silver hit $39.75, its highest since May 4. It was trading at $39.61, up 0.9 percent.
U.S. silver gained 1.5 percent to $39.64.
The gold-silver ratio, used to measure how many ounces of silver can buy an ounce of gold, declined to 40.20, its lowest since end of May.
Precious metals prices 0212 GMT
Metal Last Change Pct chg YTD pct chg Volume
Spot Gold 1593.50 0.20 +0.01 12.26
Spot Silver 39.61 0.34 +0.87 28.35
Spot Platinum 1753.00 5.00 +0.29 -0.82
Spot Palladium 779.75 8.75 +1.13 -2.47
TOCOM Gold 4048.00 17.00 +0.42 8.55 17153
TOCOM Platinum 4508.00 11.00 +0.24 -4.00 1733
TOCOM Silver 98.30 1.20 +1.24 21.36 126
TOCOM Palladium 1993.00 13.00 +0.66 -4.96 78
COMEX GOLD AUG1 1592.50 2.40 +0.15 12.04 9455
COMEX SILVER SEP1 39.64 0.57 +1.46 28.12 6361
Euro/Dollar 1.4064
Dollar/Yen 79.01
TOCOM prices in yen per gram. Spot prices in $ per ounce.
COMEX gold and silver contracts show the most active months
(Editing by Himani Sarkar)
from http://www.reuters.com/article/2011/07/18/us-markets-precious-idUSTRE7592IU20110718?feedType=RSS&feedName=topNews&rpc=71
Spot gold touched a record high on Monday, reflecting persistent worries about the euro zone debt crisis and a growing threat of a U.S. government default.
Spot gold rose to an all-time peak of $1,598.41 and U.S. gold hit a record high of $1,599.20.
The appetite for bullion as a safe storage of value increased, as investors feared that the stalemate in negotiations over U.S. deficit plan could lead to a default, which might wreak havoc in global markets and send the world's top economy back to recession.
Adding to worries about the economic growth, U.S. consumer confidence hit a near 2-1/2-year low in early July and manufacturing output stalled in June.
"The political uncertainties in the United States and Europe will be an ongoing theme and safe-haven demand will continue," said Natalie Robertson, a commodities analyst at ANZ.
Robertson expected gold to reach $1,650 in the short term on macro concerns and chart strength, but added that volatility may increase as the deadline for the U.S. debt ceiling talks on August 2 draws close.
Gold's early strength came under pressure as the dollar firmed up against a basket of currencies.
Spot gold pared early gains and was steady at $1,593.50, after rallying for a 10th straight session on Friday, matching a similar winning run in 1970.
U.S. gold edged up 0.2 percent to $1,592.50.
Results of stress tests of 90 banks across the European Union were better than expected, but failed to impress investors who continue to worry about the possibility of contagion of debt crisis in the region.
"This move in gold still has momentum, as Europe is burning to the ground," said a U.S.-based trader.
Technical analysis also pointed to a bullish picture. Spot gold has resumed its medium-term uptrend and would rise toward $1,613, said Reuters market analyst Wang Tao.
Indicating increased appetite in bullion, speculators sharply raised their bullish bets in U.S. gold futures and options last week as prices rallied, data from the U.S. Commodity Futures Trading Commission showed.
Holdings at the SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, rose nearly 1 percent to 1,236.013 tonnes, highest in since late January.
"Gold prices have hit fresh highs across several currencies on macro unease, the dollar weakening and the escalation of European sovereign debt uncertainty creating a favourable backdrop," said Barclays Capital in a research note.
"We expect prices to test new highs despite the seasonal weakness in demand."
Spot silver hit $39.75, its highest since May 4. It was trading at $39.61, up 0.9 percent.
U.S. silver gained 1.5 percent to $39.64.
The gold-silver ratio, used to measure how many ounces of silver can buy an ounce of gold, declined to 40.20, its lowest since end of May.
Precious metals prices 0212 GMT
Metal Last Change Pct chg YTD pct chg Volume
Spot Gold 1593.50 0.20 +0.01 12.26
Spot Silver 39.61 0.34 +0.87 28.35
Spot Platinum 1753.00 5.00 +0.29 -0.82
Spot Palladium 779.75 8.75 +1.13 -2.47
TOCOM Gold 4048.00 17.00 +0.42 8.55 17153
TOCOM Platinum 4508.00 11.00 +0.24 -4.00 1733
TOCOM Silver 98.30 1.20 +1.24 21.36 126
TOCOM Palladium 1993.00 13.00 +0.66 -4.96 78
COMEX GOLD AUG1 1592.50 2.40 +0.15 12.04 9455
COMEX SILVER SEP1 39.64 0.57 +1.46 28.12 6361
Euro/Dollar 1.4064
Dollar/Yen 79.01
TOCOM prices in yen per gram. Spot prices in $ per ounce.
COMEX gold and silver contracts show the most active months
(Editing by Himani Sarkar)
from http://www.reuters.com/article/2011/07/18/us-markets-precious-idUSTRE7592IU20110718?feedType=RSS&feedName=topNews&rpc=71
Saturday, July 16, 2011
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