Beginners Guide to Forex Trading

[Edward]

Hi friends,

I invite all beginners to post their questions here, I assure all questions will be answered, questions with genuine interest to learn and not to stir up some controversy or put some one down.

I also invite other veterans here in this lovely forum to give their valuable inputs to the questions put forth by the beginners. Remember we too were once like them.


Friends start shooting

 

[BIJU ABRAHAM]

A beginner.How does forex trading differ from stocks or commo trading

 

[Edward]

A beginner.How does forex trading differ from stocks or commo trading

In commodity and Stock there is only one variable and in Forex there are two variables that drive the Price Action. Let me elaborate.

When you go out to buy Stock or commodity, you pay say 1000 Rs for RIL and then the valuation depends upon mainly on the health of RIL's business and the news surrounding RIL. So the variable here is the perception of the market or traders regarding RIL and RIL's future.

Now take for e.g the scenario 2, you want to send say 1000 $ to your brother in USA. So you go to western union and ask for 1000 $, they give you thousand dollars and in turn will take 47,000 Rs. from you.

In one aspect you 'Bought' US dollars and in one aspect you 'Sold' indian rupees.

Here you bought US dollars as a commodity, you bought a currency with another currency right? That means, you Bought one currency selling another currency.

If you ask 'what's the value of dollar today?'. The answer you will receive depends on whom you ask.
If you ask it to an Indian, the answer would be 47 rupees, an european it would be in terms of euro, a japanese, it would be in terms of yen.

So in Forex trading, you trade pairs, unlike in stocks and commodities.

As you are trading in pairs, the 'Variables' here are two. E.g in USD/INR, the fundamentals and news affecting USD will also effect the pairs valuation and the fundamentals of India economy will also effect the pairs valuation.

(And don't forget the forex market is interdependent like other markets, so you can see ripples of what is happening with euro too in the USD/INR pair. )

Now that's the major difference. The other advantages of Forex markets is as follows.

1. It's a huge market 3-4 trillion dollars per day, that's 2 crore crores compare that to indian market which is 70 k crores per day ( fig I am not sure to be verified)

2. It's a 24 hours market... trade in leisure, 24 x 5

3. Leverage of 1:100 to 1:500 that means, with a 1000 dollar contribution from your side, you can get to trade for 500 times of it, which is half a million dollars, which is 2.4 crore rupees position. That makes it quite easy for you to double your money in 5 min or go empty handed in 3 min :lol:

4. Metatrader 4 which is the platform on which 70 % of trading happens is an open source kind of a thing. so you get the indicators and systems developed by so many people across the world. Also gives you the ability to create your own systems and robots.

Now talking about disadvantages.

1. Vulnerable guys fall for the marketing hype and enter the market without any knowledge or any inclination to gain it. Losing money in no time.

2. The leverage of 100 - 500, yes it too is the disadvantage in the initial stages, as people find it to tempting to resist and end up losing their account in no time. Finally quiting Forex trading before actually starting it.

Hope I have made some sense here. If your question was not related to this, or you already had an understanding of this, please forgive me...

Take care Biju

 

[sumitdasjoshi]

hello edverd as a bigner i have a question which broker should we go far to open a n account so i we find out which one is good as a new to forex we nerver deposite or fund over acount so what we look for a broker to geta legitimate and best out of it.

 

[desifxtrader]

hello edverd as a bigner i have a question which broker should we go far to open a n account so i we find out which one is good as a new to forex we nerver deposite or fund over acount so what we look for a broker to geta legitimate and best out of it.

Read:

http://www.traderji.com/forex/40262-indian-forex-brokers.html#post429766

 

[desifxtrader]

DesiFxtrader,

No Wrong Intents, But I found your stratergies pretty much uesless and senseless. Trendlines , S/R's & Pivots can never determine trends up to an accurate extent. Please don't give calls, People lose cash taking your signals. I havent been a victim of your signals, But .. I have crossed some and many have failed miserably. I advise you to shift to an alternate strategy. Moreover, If you are pretty confident about your calls, Could you please give me your Live Account or Demo Account Statement for the past one month?! ..

Harsh124

Yes, you are absolutely correct Mr. George Soros. People like you are born one in zillion. No Wrong Intents.

 

[Edward]

Choosing a Forex broker -

hello edverd as a bigner i have a question which broker should we go far to open a n account so i we find out which one is good as a new to forex we nerver deposite or fund over acount so what we look for a broker to geta legitimate and best out of it.

There has been some serious, high funda and heavy discussions going here in traderji on what kind of broker to choose, Bucket shop, STP, ECN, etc etc...
Don't get overwhelmed by the technicalities. We will see here what are the factors that we need to consider before we choose the broker.

Looks like in India we have started favoring those brokers who have some sort of back office or at least a telephone no. to contact. This gives us some kind of pseudo security to our anxious mind. That if something goes wrong, at least I have someone to call and talk to. We also feel that our money is safe with them as they are registered and operating in India.

If you guys are also feeling the same way, then look no further, there are two options to choose from (brief me if we have more options).

One is pure Market maker, bucket shop (i will explain later), second is an ECN broker ( that's what they claim )

Choose one of these two brokers depending upon your trading style.

1. If your trading style is scalping, i.e. you exit with 3-6 pips in profit then:

In my opinion I will suggest you to go with a Market maker, their pips are low, anything between 1 to 1.6 for Euro UsD, so that gives you enough elbow room to scalp minor trends. If you go with ECN then they will charge you a commission, something like 2.4 pips plus they will also have spread, which normally is lower than the Market Makers, but when you total the commission and the spread, it will certainly be in the range of 3 to 3.5 pips for euro usd, which is not conducive for scalping.

So go with a Market Maker. (Ok how to find a market maker - Any broker who doesnt claim to be an ECN or STP are basically market makers)

Advantages of Market Makers:

1. Low initial investment, you can start with 250 $ (honestly, not the right thing to do.
2. 100 to 500 leverage
3 Low spreads

Disadvantages:

1. They trade against you, its a bucket shop, all the action happens on the screen of your MT4. So they lose money when you make money. Their logic is simple, 90% people lose money in forex, frustrate the remaining 10%, that way they are in profit 100% of the time.

2. Remember Trade context busy? they will not allow you to exit the trade in profit. will try to minimize the profit as much as they can.

3. EA's or robots are not welcome, particularly the successful ones. they track you down with the Magic nos. & comment.

If your trading style is on higher time frames and you target anything more than 20 pips per trade then:

Go with ECN brokers.

Advantages:

1. They don't trade against you, they pass on your orders to the interbanks.

2. No manipulation (at least that's what we all believe as of now)

3. Transparency, quick order execution

4. EA's are welcome, they just want commission.

Disadvantages:

1. Commission plus spread (even though low) is higher than MM

2. High initial investment

3. Some of them don't give high leverage


The Market makers allow the introducing broker to mark up one to two pips on the spread. So don't be fooled. If your demo account is having a lesser spread than your live, then your IB has taken you for a ride. Watch out.

Will cover more points as it comes to my mind. Hope this gives you some idea.
The ideas presented here are my own personal opinions, so it can a be a little biased based on my trading experiences. Check out yourself by reading more on baby pips as suggested by desifxtrader.

Take care and happy trading

 

[cooldudeRE]

DesiFxtrader,

No Wrong Intents, But I found your stratergies pretty much uesless and senseless. Trendlines , S/R's & Pivots can never determine trends up to an accurate extent. Please don't give calls, People lose cash taking your signals. I havent been a victim of your signals, But .. I have crossed some and many have failed miserably. I advise you to shift to an alternate strategy. Moreover, If you are pretty confident about your calls, Could you please give me your Live Account or Demo Account Statement for the past one month?! ..

Harsh124

Sir,
Could you please shed some light on what indicators or patterns should be followed?

 

[ag_fx]

Re: Choosing a Forex broker -

In my opinion I will suggest you to go with a Market maker, their pips are low, anything between 1 to 1.6 for Euro UsD, so that gives you enough elbow room to scalp minor trends. If you go with ECN then they will charge you a commission, something like 2.4 pips plus they will also have spread, which normally is lower than the Market Makers, but when you total the commission and the spread, it will certainly be in the range of 3 to 3.5 pips for euro usd, which is not conducive for scalping.

I would beg to differ from you on this front. Here is what my experience is regarding the same:

1. The market maker broker's pips are highest in the industry. The spread of 1-1.6 pips on EU that you talk about is RARE. I can quote Oanda offering 0.9 and Fxpro offering 1.6 on EU as the tightest market maker spreads. For almost rest all of the market makers have 1.5-3 pips of spread on EU.

2. ECN commissions do not amount to 2.5 pips per trade. Even the highest commissions in ECNs amount to close to 1 pip per trade. Plus, the spreads you get at ECNs are much much better than market makers. If you select good ECN, you can get a spread of 0.4-0.5 on EU very easily. Even after you add 1 pip of commission cost, it comes to 1.4-1.5 pip.


In my opinion, in terms of cost, trading at ECNs or market makers is the same. There are many other issues and concerns that needs to be taken care of while selecting a broker. Your remaining post does give a good insight into it.

 

[scalperfx]

@Edward

Having traded with both market makers in the past and currently with an ECN broker, i would like to share my experience/views.

I agree with Ankit and disagree with your post about ECN's commission being 2.5 pips, it is usually around the region of 0.3-0.5 pips (and not more than 1 pip). I think the ECN that you are referring to are white labels who pad up extra commission on top of the brokers commission.

I also disagree on your view that
For scalping (3-5 pips) go with a market maker and for longer time frames/bigger target (15-20 pips) go with a ECN.

I would advise on the contrary- go with a market maker if you trade higher targets and with an ECN if you are a scalper.

It is easy for a Market Maker to stop you out or slip your profits if they profile you as a scalper. They might requote, put you on manual execution etc The advantage they wield is much higher when your target point is lesser.

The higher your target point/time frame-the lesser the chances the market maker can play dirty tricks without being branded a scam/cheat.

For example-if your target is 15-20 pips, they might not be able to spike 20 pips to hit your stops, at the worst case they might ensure it might not hit your target point of 20 pips.
But the advantage they have for higher target points and higher time frame is much lesser than what they have against a scalper.
Add to it, some of them outrightly mention that they don't encourage scalping.

So to summarize,
if you have the 1.starting capital ($10k or above) 2.Happy with a 1:100 leverage 3.Are a scalper wherein commission/spread needs to be tight and
4.Don't want to worry about dirty broker tricks
go with an ECN broker.

If your 1.Starting capital is lesser (1k-5k) 2.Want higher leverage of 1:200-1:500 3.Trade higher time frames and target 20 pips or higher 4.Not impacted by the deliberate slippage in execution and other tactics by the broker.
5.Need mt4 and charting resources, then go with a market maker.

Please note that points 1 and 2 will ensure your capital will go to the market makers account sooner rather than later.

A big applause for Edward for starting this thread and i hope the rest of us can contribute our views and not start flaming/fighting with each other regarding who's bigger and better.

Regards,
Scalper