If you reach your daily goal and continue trading you may win some and you may lose some. After winning and losing you can end up where you were when you began the trading day. It is a good idea to have a target and stick to it. When you make x amount of profit for that day then you quit trading. The amount can be a percentage increase of your account or a set figure for that day. If you use an expert advisor most of them have an option to set a target. You should ensure this target reflects your daily goals.

There are many benefits to having a target and finishing for the day when you reach it. You should have a target for how much of an equity increase you will take for the day as well as an amount you are willing to lose for that particular day.

It takes strong mental discipline and controlled emotions to avoid overtrading. Many traders lose because they lack the discipline, concentration and focus. They are also driven by greed and fear which means they are more liable to overtrade. Forex robots can be used to automatically trade for you which helps for those who do not have the skill, knowledge, discipline or focus to trade manually.

Trading can be a stressful job if you let it be. Overtrading is a cause of this stress. Every day a trader should make a few trades at the most and have a plan of when to enter and exit these trades. It is very important to stick to the plan regardless of what happens. If the plan is not followed there is 95% chance the trader will fail.

About the Author

Link to the forex robot/expert advisor that I use and have had great success with so far http://www.forexluger.com.

If you have a little extra money on hand, you might want to consider investing in the Forex market. What is the Forex market? Forex, (which specifically stands for the Foreign Exchange Market), is an international exchange allowing people to invest money based on currency exchanges. If a currency increases in value, a person makes a profit, similar to how one can make a profit when stocks increase in value.

Since the Forex market is worldwide, it is offers more profit potential than even the New York Stock Exchange. In fact, the Forex market brings in over 1.5 trillion in U.S. dollars every day. Any serious investor needs to definitely consider getting into the Forex market at some point in their investment ventures.

The process of Forex trading is very similar to stock investing. A person can opt to get a Forex broker who will provide assistance in the trading process. If they have a broker, they will need to have a little money upfront to pay them. This is in addition to whatever money was going to be used in the process of Forex investing. If this is a problem, a person can try to start Forex trading themselves.

Numerous websites are available to assist in this process. Examples include FXCM.com and FXClub.com. With FXCM.com you'll need a minimum of $300, before being able to start with your Forex venture. On the other hand, FXClub.com can allow you to start Forex trading with as little as $10.

If you would prefer to trade as the professionals do with thousands instead of hundreds upfront, you may want to consider doing what is known as margin trading. Margin trading is when a person does Forex trading with capital that was obtained through a loan or some other type of borrowed source. The hope is that enough money will be earned through Forex trading that a person will still retain a profit even after their loan is paid off.

To be successful with Forex trading, one must do more than simply invest money. They need to be aware of all the economic trends associated with whatever currency they are looking into. This means evaluating both the currency itself and the economic climate of the country it is associated with. While the most successful Forex trades tend to be with the Euro or the U.S. dollar, this does not mean other currencies can't offer a good profit, especially if the country associated with them are progressing.

The best way to form an educated guess is by researching that particular country's news. It may not even hurt to network with citizens of that country through message boards. If language is an issue, a person can consider using an automated translator or paying a fee to a professional translator. The latter is preferable if a person has no knowledge of a particular language, since automated translators tend not to translate in the best way.

In conclusion, Forex trading can be an effective way at generating an income. Yet, to do Forex trading properly, one should not neglect the importance of research and statistical analysis of economic trends.

About the Author

The Top 03 Forex Profit Softwares Review.Visit: www.top-forex-softwares.co.cc

Currencies are priced in pairs, no single pair trades completely independently of the others. This makes the understanding of correlation very important.

For example, currency pair "A" moves in the same direction as pair "B" and we have been following up pair A's move very closely. We expect it to go up and we buy. We have not been following up pair "B" so closely and suddenly we look into that and the fundamentals or technical analysis suggests us that this pair may go down. We short sell. What eventually would happen that we would end up having profit on one pair and loss on the other as they moved in same direction. Similar case would happen if we simultaneously go long or short on two pairs which move in opposite directions.

Once we know about these correlations and their changes with time, we can take advantage of them to control our portfolio's exposure.
The correlation coefficient ranges between -1 and +1.

A correlation of +1 implies that the two currency pairs will move in the same direction 100% of the time. A correlation of -1 implies the two currency pairs will move in the opposite direction 100% of the time. A correlation of zero implies that the relationship between the currency pairs is completely random.

Positive Correlation:

A positive figure but less than +1 means that the currency pairs generally move in same direction but not always. A value closer to +1 means that most of the time they move in the same direction

Negative Correlation:

A negative figure but more than -1 means that the currency pairs generally move in opposite direction but not always. A value closer to -1 means that most of the time they move in opposite directions.

For calculating currency correlation and having a graphical representation, please visit http://www.forexabode.com/trading-tools

How to use currency correlation when you are trading Forex? Well, your slow speed because of an occasional traffic jam on the expressway does not really indicate that the average speed you would end up on the road will be same. The correlation is dynamic and change every moment. Take a note of the correlation of the past few days and compare it with the correlation value in the long term, say past one year. If the short term value is far different from the long term value, may be it's offering you a chance to place a trade... but how? Let's say that currency pairs A and B has a correlation value of 0.98 during past one year. It means that they both move in almost the same direction. When currency pair A moves up, currency pair B also moves up with the same speed. Suddenly you notice that during the past one month or one week the correlation value of the currency pairs A and B is 0.10 i.e. moving in the same direction but with a different speed. To clarify as an example let's say two cars are moving towards the same destination, one is moving at 100 miles/hr and another at 10 miles/hour. But we can assume that ultimately both may have to catch up on the speed (similar speeds). So what do we do? Well, we find out which one is slow and ride that.

When we convert this car example to currency trading, suppose two currency pairs move in the same direction and have been moving up with a correlation over 0.60 in the long-term and we find that suddenly the correlation value in during the past few days has become 0.20, we just see which currency pair's movement (increase is slow) and we could buy that. On the other hand we could short-see another currency pair.

Disclaimer: Trading has it's own risks and no analysis can assure you that it would prove to be correct 100%. We need to work innovatively to make strategies which have less risks and more gains.

About the Author

The author is a Forex Trader and also runs ForexAbode.com. By qualification a graduate mechanical engineer, with over 20 years of diversified international experience. The Involvement with Forex Trading started in the year 2000. Over the years Forex Trading not only became the greatest passion but evolved into a success which could replace the traditional successful consulting and business development career.

Do you believe me when I tell you guys that get out are also the best time to get in the market? Trust me, its true.

All trader of the world are trying to get the right time when to get out, so they can maximize the profit without losing any nickel of it. Fuckin greed.

Let’s say we’re in a Bull Market, A lot of trader including myself, when enter or get in the market, we just sitting on desk and thinking like some greedy fuckin idiots hoping the market will go to the moon. When we saw market doing some retracement, we just ignore it like it don’t really happen, now guess what? What if the market makes U-turn and now bear in control? I mean, what would you do? It’s nothing we can do. The market fucked us. The market did that because the trader are dreaming and hoping.

Most traders are like gamblers. Put their money on it and hoping the lady luck are on their side, well, I must say, sometimes, hope and luck are on our side, but mostly it didn’t.

One of biggest problem when exiting the trade is greed. It’s nothing wrong being greed, just make sure it worth for it. Being greedy just the first step to loose everything. When you’re greed, then come the hope, then come hoping for luck. Well, trust me; these three things are not good for you in your trading journey.

There a lot of trading system all over the internet if u asks Uncle Google. Hehe... Am I right? You will see different types of trading system.

The system focus on large time frame, moving averages, stoch, and so on.

Everybody claim their trading system makes money. Yeah... It’s true. (maybe)

All of the system shows how to trade with it. Screen shot included, every entry were mark good to make sure people understand where and when to jump in.

IF the system is free, I had no problem with it. Seriously, that means the owners are very kind to share their system to help other trader. I admire this type of trader. But, not all trader willing to do this.

I still remember when I was new in forex. I buy this trading system plus the template for usd100. Convert to RM it is RM 360.00 (at that time). Do you know what I get? Stupid system actually. Hahaha…

The system sucks, lots of false signal appears easily. Lets just say the result is 5-1, 5 is losing money and 1 is having money… well that sucks…

For those were new in forex, make sure you guys learn about forex trading system from forum such as;

International

1. www.forexfactory.com
2. www.babypips.com
3. www.fxfisherman.com

Local

1. www.carigold.com
2. www.nogold.com
3. www.onlinecafe.com.my

I’m not saying all paid system is sucks, but it’s better if you get to know forex from free forex forum, they’re willing to help without asking money.

For those who sell their useless system for money, you guys can go suck donkey dick.

Ok... how can start.... lets bla bla dulu....

People are always tried to look the best system or trading plan, I don’t blame ya’all bcoz we all are same… me also still looking for another great system. You want to know why? It’s because most of all trader OR think they are trader are just fucking greedy selfish arrogance and bla bla bla.. (Just fill it whatever you think)

People are intending to find the hard way. To them, there is no way to make money by easy way. The more complicated, it will make more money… they thought… hurmn….

Anyway, you get the idea. I did all of this stuff, and much more. Shit, I was really stupid. But that’s all over now (I hope). Once I turned the corner to profitability, I never looked back…

Since I’m using Price Action before takes any trades, it will all ended with smile and sometimes I said to my self, why am I so fucking stupid.. Why only now I discover this method, why not 2 years back... Shit…!!!

I already know that Price Action is one of the method they using for edges, I learn but I stop, why? Because it’s simple, so now comes to the human nature, how come simple way can make money? I made stupid mistake by go for another trading method; keep on searching the best method as they always say… The Holly Grail…

I spend almost 2 years to find the Holly Grail, I don’t know how much trading system I learned, and of course plus the money I spend all the way… during the trading or paying for the system. Fuck it…!!! Now I’m back using the Price Action System. What the fuck…!!! I throw my two years by studying other method…. Now I came back using one of my first knowledge about forex. The Price Action… arghh darn it…

Which one are you..?

Hello guys….

I’m Jack, and I’m professional forex trader….

Started around 2007 which means it’s about 3 years experience in Forex trading. I’m glad I’m still standing and still making money from it.

My 1rst year of trading experience mostly sucks! Haha, using a lot of trading method, wasting time and money, searching Holy Grail (dumb!), and many more stupid things happen.

My 2^nd year? Still struggle, but a lot of thing chance, I found Price Action plus a little bit help from candlestick formation is the best trading method, and I never left it behind when I’m doing analysis and of course, my trading setup based from it.

My 3rd year? How to describe huh..? well, I'm having fun eating all of it.

I think now is the right time for me to share my knowledge and my opinion to you guys about cycles, time and trading setup.

I will start posting my analysis and prediction but please be advised, do not follow everything i said, trade your chart because i don't want to be responsible for anything cost. Come on guys, I'm not God, just a simple human being and even top trader made mistake.. haha..

Now my blog is officially open for you guys and i hope you all will enjoy with whatever i posted in here.

regards

rocknrolla

First off, when making your trading decisions, stay away from your emotions. Decisions based on your emotions are hardly every right.

If you have a strong gut feeling that a certain stock will go up or down then, unless it’s based on your analysis, forget about it. And even if you have made your decision based on what you saw on the chart or based on what the fundamental analysis told you, at all times it’s your responsibility to keep yourself emotion-free.

Why? I guess it’s the most simple to explane it via poker. A good poker player might know exactly what to do, when to do and how to do and he may have decided also to act on only depending on his knowledge. However, if some other player starts to piss him off or if he needs money fast he might start to make decisions that are affected by his emotions and thus are not clear and right ones anymore. He might have started based on his knowledge and analysis of other players but after the flop he is starting to feel lucky and does a wrong move. It’s the same with trading stocks or forex. You might have made a right decisions when buying the stock and you might have set the right stop loss and take profit limits. However, due to emotional hopes that do not stem from any exact analysis anymore, you decide to move the stop loss lower for example. Just because you THINK this stock WILL go up very very soon.

Until long you notice the stock is still falling, you keep adjusting your stop loss limits to even lower and lower levels where eventually you are starting to think – wtf have I done? Everything was great, I would have taken a minor loss, so what...but instead I took a huge loss. And all that due to the adrenalin in my brain.

So, even though I am very well aware that keeping your emotions locked when playing poker or when trading is not a simple task, it IS a very important task in order to become a successful and profitable trader.

Price changes ARE emotional
While you yourself should not act on your emotions, you do need to keep in mind that the major crowd on the markets do act on emotions and this means that the price changes are caused by emotions. Trading for most people is emotional not rational. And because of that, when making our trading decisions, we must take rational approach to conquer emotionalism.

The main emotions that are causing price changes on the markets are fear and greed. And that’s also one reason why technical analysis works. Prices are somewhat predictable due to the market players, the people, their emotions, their fear and greed.

Imagine a bad news about a stock or a company that is published in Financial Times. You now make your analysis and get to the conclusion that actually there is nothing wrong with the stock and the news shouldn’t really affect the stock price. At least logically thinking. However, very many traders are searching for a reason to buy or sell a stock, many traders are counting on news on their trading decisions and if they see a bad news, they are starting to feel fear and they act on it. And because they are doing it and there’s lots of them you can’t anymore think that your analysis is correct and the stock price will not go down. Your analysis was correct from the rational perspective. However, if masses are starting to sell the stock then the price will go down – so your rational decision, especially if you’re a day trader, should be to rationally analyse what will people’s emotions do to the market.

Thanks to technical analysis you often do not even have to take a look at the news to see what’s happening. If you’re a good chart reader and interpretator you can see it all from the charts – the news, the fear, the greed.

Your Emotions
and Trading ...

By: Terry Ashman

Musashi, a legendary seventeenth century Japanese Samurai, formulated rules for warfare which are still used by Japanese business people today.

One rule is ...

Plan logically, but attack with emotion.



While this rule is suitable for a physical battle, if you use it while trading, you are at a supreme disadvantage. To apply it to trading, the rule should read ...

Plan logically, and attack (trade) WITHOUT emotion.

A number of psychologists have noted that normal human behavioral patterns are unsuited to trading the markets. Normal human responses to winning and losing will cause people to do exactly the wrong thing at the wrong time in the markets.

To illustrate ...

1. Take the situation where you have a long position and it immediately goes into profit. The normal human response is to want to take the profit quickly. This gives immediate gratification and removes any fear you may have had of losing the profit while the trade was on. This results in the situation called "cutting your profits short."

2. The opposite situation is when you put on a trade (again let's say it's a long position), and it goes against you. The normal human response is to hang on to the losing trade and hope it comes back and gives you a profit. But it keeps going down, so now you want it to come back so you can at least break even.

But it still goes down, so now you hope it will come back and give you a small loss. Down it goes further and you now have a big loss but you don't want to take the loss because it is emotionally painful to take losses. So you keep delaying the pain and losing more money.

If you are trading non-leveraged stocks, (that is, you have bought the shares outright and have paid for them in full), by now you may rationalize the loss by calling it a "long term investment" and just hang on to the shares. After all, if you sold now you'd lose heaps.

If you were trading in leveraged commodities you could be in real financial trouble at this point. This situation is called "letting your losses run."

You'll notice that cutting your profits short and letting your losses run is the exact opposite of what you are supposed to do, which is cutting your losses short and letting your profits run.

3. Now let's go back to the first situation where you've taken your profit quickly and you have your immediate gratification and removal of anxiety. You have a nice little profit but now the market is still going up. If you'd hung on you could have made even more! You get out your calculator, work out how much money you should have made by now, and think about what you could have done with that money. So you ring your broker and buy in again, noting with satisfaction that the front page news headline now reads ...

"Bulls Roar in Market Surge"

The market messes around for the next week or so and then starts to drift a bit lower, but you hang on because the broker says it's just a temporary reaction and anyhow, the media is still full of reasonably bullish news.

You hang on for a few more days but the market just keeps going down. Now the media has turned bearish.

What went wrong?
A number of things. Let's list them ...

1. Greed. You looked at all the money you thought you should have made and jumped back in - just as the market was topping.

2. You "spent" the money you thought you should have made. You must never do this.

3. You listened to the media. You used the media to back up your decision to get back in, not realizing that the media is not a predictor, it's a follower. It just reports what has happened, usually when it's all over. Never trade on the news. Once the bull market hits the front page news and you decide to buy in on the strength of this news, you are trading with the mob - not the smart money.

4. You listened to the broker. If you've got a properly researched and tested trading method that you know intimately and have confidence in, you don't need or want the broker's advice on specifically when to buy and sell. Remember - the buck stops with you.

5. You exited your original position based on emotion, not logic.

Let's see what Gann says about this aspect of trading ... On page 16 of "How to Make Profits in Commodities", Gann says ...

"WHAT TRADERS DON'T WANT TO KNOW. With all due respect to my readers, many traders when they are in the market don't want to know the facts and don't want to know the truth. They hope the market will go their way. They want it to go their way and want to be told that it will. When you are in the market you should be unbiased and try to determine whether you are in right or wrong. When you find you are in wrong, admit it quickly and get out. Our old rule is, when in doubt, get out. When you have nothing to hold on for but hope, sell out at the market quickly. Don't look for the man who will advise you that your position is right and that the market will soon start going your way. Look for the man that will tell you the truth and prove it to you. Better still, learn how to prove it to yourself whether you are right or wrong. Face the facts. Change your position. Change your mind. Change with the trend and you will make profits."

On page 17 of "How to Make Profits in Commodities", Gann says . "HOPE AND FEAR: ........ The average man or woman buys commodities because they hope they will go up or because somebody advises them they will go up. This is the most dangerous thing to do. Never trade on hope. Hope wrecks more people than anything else. Study the market and determine the trend. Face the facts, and when you trade, trade on facts, eliminate hope."

"Fear causes many losses. People sell out because they fear commodities are going lower, but they often wait until the decline has run its course and they sell near the bottom. Often when they have been out of the market for some time, they get in because they fear it is going higher. Never make a trade on fear. The Bible says, "Ye shall know the truth and the truth shall make you free." Know the facts and know the truth. When you do this, you will have no hope and no fear and you will trade on well defined rules and go with the trend and will make profits."

That last sentence is very important. "When you do this, you will have no hope and no fear (trade without emotion) and you will trade on well defined rules and go with the trend and will make profits."

Other quotes from Gann on this subject ... "You will never succeed buying or selling when you hope the market is going up or down. You will never succeed by making a trade because you fear the market is going up or down. Hope will ruin you because it is nothing more than wishful thinking and provides no basis for action. Fear will often save you if you act quickly when you see that you are wrong. "The fear of the market is the beginning of wisdom". Knowledge that you can only obtain by deep study will help you to make a success. The more you study past records the surer you are to be able to detect the trend in the future."

"Remember, never buck the trend : after you detect the trend, go with it regardless of what you think, hope or fear and you will make a success."

"People often write me and say "You were bearish on a certain stock on such and such a date; now .........you are bullish on it. My answer is "A wise man changes his mind, a fool never." ............ "Go into the market to make money and be ready to change sides when the occasion demands it."

Copyright © 2001
Terry Ashman

HotTrader, Australia

There has been much discussion of late regarding broker spreads and liquidity. Many assumptions are being made about why spreads are widened during news time that are built on an incomplete knowledge of the architecture of the forex market in general. The purpose of this article is to dissect the market and hopefully shed some light on the situation so that a more rational and productive discussion can be undertaken by the Forex Factory members.

We will begin with an explanation of the purpose of the Forex market and how it is utilized by its primary participants, expand into the structure and operation of the market, and conclude with the implications of this information for speculators. With that having been said, let us begin.

Unlike the various bond and equity markets, the Forex market is not generally utilized as an investment medium. While speculation has a critical role in its proper function, the lion’s share of Forex transactions are done as a function of international business.

The guy who buys a shiny new Eclipse more then likely will pay for it with US Dollars. Unfortunately Mitsubishi’s factory workers in Japan need to get their paychecks denominated in Yen, so at some point a conversion needs to be made. When one considers that companies like Exxon, Boeing, Sony, Dell, Honda, and thousands of other international businesses move nearly every dollar, real, yen, rubble, pound, and euro they make in a foreign country through the Forex market, it isn’t hard to understand how insignificant the speculative presence is; even in a $2tril per day market.

By and large, businesses don’t much care about the intricacies of exchange rates, they just want to make and sell their products. As a central repository of a company’s money, it was only natural that the banks would be the facilitators of these transactions. In the old days it was easy enough for a bank to call a foreign bank (or a foreign branch of ones own bank) and swap the stockpiles of currency each had accumulated from their many customers.

Just as any business would, the banks bought the foreign currency at one rate and marked it up before selling it to the customer. With that the foreign exchange spread was born. This was (and still is) a reasonable cost of doing business. Mitsubishi can pay its customers and the banks make a nice little profit for the hassle and risks associated with moving around the currency.

As a byproduct of transacting all this business, bank traders developed the ability to speculate on the future of currency rates. Utilizing a better understanding of the market, a bank could quote a business a spread on the current rate but hold off hedging until a better one came along. This process allowed the banks to expand their net income dramatically. The unfortunate consequence was that liquidity was redistributed in a way that made certain transactions impossible to complete.

It was for this reason and this reason alone that the market was eventually opened up to non-bank participants. The banks wanted more orders in the market so that a) they could profit from the less experienced participants, and b) the less experienced participants could provide a better liquidity distribution for execution of international business hedge orders. Initially only megacap hedge funds (such as Soros’s and others) were permitted, but it has since grown to include the retail brokerages and ECNs.

Market Structure:

Now that we have established why the market exists, let’s take a look at how the transactions are facilitated:

The top tier of the Forex market is transacted on what is collectively known as the Interbank. Contrary to popular belief the Interbank is not an exchange; it is a collection of communication agreements between the world’s largest money center banks.

To understand the structure of the Interbank market, it may be easier to grasp by way of analogy. Consider that in an office (or maybe even someone’s home) there are multiple computers connected via a network cable. Each computer operates independently of the others until it needs a resource that another computer possesses. At that point it will contact the other computer and request access to the necessary resource. If the computer is working properly and its owner has given the requestor authorization to do so, the resource can be accessed and the initiating computers request can be fulfilled. By substituting computers for banks and resources for currency, you can easily grasp the relationships that exist on the Interbank.

Anyone who has ever tried to find resources on a computer network without a server can appreciate how difficult it can be to keep track of who has what resources. The same issue exists on the Interbank market with regard to prices and currency inventory. A bank in Singapore may only rarely transact business with a company that needs to exchange some Brazilian Real and it can be very difficult to establish what a proper exchange rate should be. It is for this purpose that EBS and Reuters (hereafter EBS) established their services.

Layered on top (in a manner of speaking) of the Interbank communication links, the EBS service enables banks to see how much and at what prices all the Interbank members are willing to transact. Pains should be taken to express that EBS is not a market or a market maker; it is an application used to see bids and offers from the various banks.

The second tier of the market exists essential within each bank. By calling your local Bank of America branch you can exchange any foreign currency you would like. More then likely they will just move some excess currency from one branch to another. Since this is a micro-exchange with a single counterparty, you are basically at their mercy as to what exchange rate they will quote you. Your choice is to accept their offer or shop a different bank. Everyone who trades the forex market should visit their bank at least once to get a few quotes. It would be very enlightening to see how lucrative these transactions really are.

Branching off of this second tier is the third tier retail market. When brokers like Oanda, Forex.com, FXCM, etc. desire to establish a retail operation the first thing they need is a liquidity provider. Nine in ten of these brokers will sign an agreement with just one bank. This bank will agree to provide liquidity if and only if they can hedge it on EBS inclusive of their desired spread. Because the volume will be significantly higher a single bank patron will transact, the spreads will be much more competitive. By no means should it be expected these tier 3 providers will be quoted precisely what exists on the Interbank. Remember the bank is in the business of collecting spreads and no agreement is going to suspend that priority.

Retail forex is almost akin to running a casino. The majority of its participants have zero understanding how to trade effectively and as a result are consistent losers. The spread system combined with a standard probability distribution of returns gives the broker a built in house advantage of a few percentage points. As a result, they have all built internal order matching systems that play one loser off against a winner and collect the spread. On the occasions when disequilibrium exists within the internal order book, the broker hedges any exposure with their tier 2 liquidity provider.

As bad as this may sound, there are some significant advantages for speculators that deal with them. Because it is an internal order book, many features can be provided which are otherwise unavailable through other means. Non-standard contract sizes, high leverage on tiny account balances, and the ability to transact in a commission free environment are just a few of them…

An ECN operates similar to a Tier 2 bank, but still exists on the third tier. An ECN will generally establish agreements with several tier 2 banks for liquidity. However instead of matching orders internally, it will just pass through the quotes from the banks, as is, to be traded on. It’s sort of an EBS for little guys. There are many advantages to the model, but it is still not the Interbank. The banks are going to make their spread or their not go to waste their time. Depending on the bank this will take the form of price shading or widened spreads depending on market conditions. The ECN, for its trouble, collects a commission on each transaction.

Aside from the commission factor, there are some other disadvantages a speculator should consider before making the leap to an ECN. Most offer much lower leverage and only allow full lot transactions. During certain market conditions, the banks may also pull their liquidity leaving traders without an opportunity to enter or exit positions at their desired price.

Trade Mechanics:

It is convenient to believe that in a $2tril per day market there is always enough liquidity to do what needs to be done. Unfortunately belief does not negate the reality that for every buyer there MUST be a seller or no transaction can occur. When an order is too large to transact at the current price, the price moves to the point where open interest is abundant enough to cover it. Every time you see price move a single pip, it means that an order was executed that consumed (or otherwise removed) the open interest at the current price. There is no other way that prices can move.

As we covered earlier, each bank lists on EBS how much and at what price they are willing to transact a currency. It is important to note that no Interbank participant is under any obligation to make a transaction if they do not feel it is in their best interest. There are no “market makers” on the Interbank; only speculators and hedgers.

Looking at an ECN platform or Level II data on the stock market, one can get a feel for what the orders on EBS look like. The following is a sample representation:

You’ll notice that there is open interest (Level II Vol figures) of various sizes at different price points. Each one of those units represents existing limit orders and in this example, each unit is $1mil in currency.

Using this information, if a market sell order was placed for 38.4mil, the spread would instantly widen from 2.5 pips to 4.5 pips because there would no longer be any orders between 1.56300 and 1.56345. No broker, market maker, bank, or thief in the night widened the spread; it was the natural byproduct of the order that was placed. If no additional orders entered the market, the spread would remain this large forever. Fortunately, someone somewhere will deem a price point between those 2 figures an appropriate opportunity to do something and place an order. That order will either consume more interest or add to it, depending whether it is a market or limit order respectively.

What would have happened if someone placed a market sell order for 2mil just 1 millisecond after that 38.4 mil order hit? They would have been filled at 1.5630 Why were they “slipped”? Because there was no one to take the other side of the transaction at 1.56320 any longer. Again, nobody was out screwing the trader; it was the natural byproduct of the order flow.

A more interesting question is, what would happen if all the listed orders where suddenly canceled? The spread would widen to a point at which there were existing bids and offers. That may be 5,7,9, or even 100 pips; it is going to widen to whatever the difference between a bid and an offer are. Notice that nobody came in and “set” the spread, they just refused to transact at anything between it.

Nothing can be done to force orders into existence that don’t exist. Regardless what market is being examined or what broker is facilitating transactions, it is impossible to avoid spreads and slippage. They are a fact of life in the realm of trading.

Implications for speculators:

Trading has been characterized as a zero sum game, and rightly so. If trader A sells a security to trader B and the price goes up, trader A lost money that they otherwise could have made. If it goes down, Trader A made money from trader B’s mistake. Even in a huge market like the Forex, each transaction must have a buyer and a seller to make a trade and one of them is going to lose. In the general realm of trading, this is materially irrelevant to each participant. But there are certain situations where it becomes of significant importance. One of those situations is a news event.

Much has been made of late about how it is immoral, illegal, or downright evil for a broker, bank, or other liquidity provider to withdraw their order (increasing the spread) and slip orders (as though it was a conscious decision on their part to do so) more then normal during these events. These things occur for very specific reasons which have nothing to do with screwing anyone. Let us examine why:

Leading up to an economic report for example, certain traders will enter into positions expecting the news to go a certain way. As the event becomes immanent, the banks on the Interbank will remove their speculative orders for fear of taking unnecessary losses. Technical traders will pull their orders as well since it is common practice for them to avoid the news. Hedge funds and other macro traders are either already positioned or waiting until after the news hits to make decisions dependent on the result.

Knowing what we now know, where is the liquidity necessary to maintain a tight spread coming from?

Moving down the food chain to Tier 2; a bank will only provide liquidity to an ECN or retail broker if they can instantly hedge (plus their requisite spread) the positions on Interbank. If the Interbank spreads are widening due to lower liquidity, the bank is going to have to widen the spreads on the downstream players as well.

At tier 3 the ECN’s are simply passing the banks offers on, so spreads widen up to their customers. The retailers that guarantee spreads of 2 to 5 pips have just opened a gaping hole in their risk profile since they can no longer hedge their net exposure (ever wonder why they always seem to shut down or requote until its over?). The variable spread retailers in turn open up their spreads to match what is happening at the bank or they run into the same problems fixed spreads broker are dealing with.

Now think about this situation for a second. What is going to happen when a number misses expectations? How many traders going into the event with positions chose wrong and need to get out ASAP? How many hedge funds are going to instantly drop their macro orders? How many retail traders’ straddle orders just executed? How many of them were waiting to hear a miss and executed market orders?

With the technical traders on the sidelines, who is going to be stupid enough to take the other side of all these orders?

The answer is no one. Between 1 and 5 seconds after the news hits it is a purely a 1 way market. That big long pin bar that occurs is a grand total of 2 prices; the one before the news hit and the one after. The 10, 20, or 30 pips between them is called a gap.

Is it any wonder that slippage is in evidence at this time?

Conclusions:

Each tier of the Forex market has its own inherent advantages and disadvantages. Depending on your priorities you have to make a choice between what restrictions you can live with and those you cant. Unfortunately, you can’t always get what you want.

By focusing on slippage and spreads, which are the natural byproduct of order flow, one is not only pursuing a futile ideal, they are passing up an enormous opportunity to capitalize on true inefficiencies. News events are one of the few times where a large number of players are positioned inappropriately and it is fairly easy to profit from their foolishness. If a trader truly wants to make the leap to the next level of profitability they should be spending their time figuring out how identify these positions and trading with the goal of capturing the price movement they inevitably will cause.

Nobody is going to make the argument that a broker is a trader’s best friend, but they still provide a valuable service and should be compensated for their efforts. By accepting a broker for what it is and learning how to work within the limitations of the relationship, traders have access to a world of opportunity that they otherwise could never dream of capturing. Let us all remember that simple truth.


“Originally posted by Darkstar at Forex Factory.”

KUALA LUMPUR: Bank Negara Malaysia (BNM) menasihati orang ramai supaya tidak menyertai mana-mana pelaburan haram atau program latihan dagangan mata wang asing yang ditawarkan oleh individu atau syarikat.

Di dalam satu kenyataan di sini hari ini, BNM berkata, orang ramai biasanya tertarik untuk menghadiri program pelaburan atau latihan yang menjanjikan pulangan yang segera dan besar.
Katanya, modus operandi program sedemikian telah menawarkan latihan, seminar, bengkel percuma untuk menarik para pelabur, sebelum menjemput mereka mewujudkan satu akaun dagangan mata wang asing dengan sebuah syarikat utama.

Syarikat itu dikatakan mempunyai lesen sah untuk berdagang mata wang asing di seberang laut.

Ia juga termasuk menyediakan akses mudah ke laman web syarikat utama dan memudahkan dagangan mata wang asing secara online oleh para pelabur serta bagi mengambil siswazah baharu sebagai eksekutif pamasaran.
Para siswazah juga digalakkan untuk menarik ahli keluarga dan rakan-rakan untuk berdagang mata wang asing.

Program sedemikian turut menghendaki para pelabur mendeposit sejumlah wang ke dalam akaun bank untuk memulakan dagangan mata wang asing dan seterusnya meminta ditambah bagi mencukupkan jumlah yang berkurangan berikutan pelaburan awal masing-masing (penggilan margin) bagi mengelakkan kehilangan modal.

Di bawah Akta Kawalan Pertukaran Asing 1953 (ECA), adalah menjadi satu kesalahan bagi seseorang untuk membeli atau menjual mata wang asing atau terlibat di dalam sebarang perbuatan atau mempunyai kaitan atau membuatpersediaan di dalam membeli atau menjual mata wang asing dengan sebarang orang atau selain daripada peniaga yang dibenarkan.
Adalah juga menjadi kesalahan bagi seseorang untuk membantu atau bersubahat dengan seseorang yang lain untuk membeli atau menjual mata wang asing dengan seseorang, kecuali individu itu adalah seorang peniaga yang dibenarkan.

Senarai peniaga dan institusi kewangan yang dibenarkan oleh Pengawal Pertukaran Asing untuk membeli atau menjual mata wang asing boleh diperolehi dari laman web BNM (http://www.bnm.gov.my/fxadmin).
Bagi mendapatkan maklumat lanjut, orang ramai boleh menghubungi BNM di talian 1-300-88-5465 atau e-mel (bnmtelelink@bnm.gov.my). - BERNAMA