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As to recommending a good FX broker, I cannot help since I recently had
negative experience with FXDD (FX Direct Dealer in N.Y.), including, but not
limited to inaccurate, tardy responses, or the lack of thereof, not keeping
verbal or/and contractual obligations, etc.
Instead, let me tell you a few specifics that you should look at in case of
any FX dealer:
- Order entry limitation in terms of resting orders: For a long time I have
been using a long-term trend following system with wide stops, but I started
to face difficulties when attempting to enter limit orders close to the
market. By definition, buy limit order may be entered below current ask
price and sell limit order may be entered above current bid price. However,
I experienced that for some reason, I was not allowed to enter limit orders
close to the market price, only around 5-10 points (pips) away from the
corresponding market price, depending on the particular market. They
confirmed that such limitation do exists but only to the extent of the
spread of the specific market (I my reading), but my experience shows that
the limitation was larger (though I did not try out each pair.) Since I was
willing to apply a short term strategy, this not very apparent limitation
prohibited the application of the system. (As you know, in case of short
term systems it may be necessary to modify resting orders every 15 or thirty
minute or to whatever time frame or tick group your system is applied to;
and often, the market price is close to your entry/exit order be
modified/entered). I also experienced that new entry orders were allowed to
be set somewhat closer to the current market price than the resting exit
orders, but nonetheless, about 50 % of order entry/modification requests
have been refused.
- Fill of limit orders: when applying system with limit orders, you must
consider whether or to what extent limit orders are filled when touched by
the corresponding market price. If not, your system will not function as
expected. Once I managed to enter a limit order, one or two times I
experienced that the order was hit but there was no fill generated. I know
it for the reason because the system indicated that it has reversed the
position at the price the market touched, but the fill failed to materialize
at the exact same price, while of course, giving consideration to the
spread. In my experience, there is no guarantee for a limit order to get
filled when touched, sometimes only when price "walks through" it. I have
heard that individual forex brokers might guarantee fills on stop orders (at
the specified stop level), so I assume that some fx dealers may guarantee
limit orders as well. (or there are further type of contingency orders to
facilitate this, as MIT, etc.)
- Market orders: You would assume that you get the market price you see on
the screen for sure if you hit the button. I thought too, but it is not
always the case. Since it was often not possible to modify the exit limit
order, I had to cancel the order and enter a market order instead.
Sometimes, however, I experienced that no fill was carried out, just an
error message that price changed appeared or something like that, although
the price remained virtually at the same level (requote?). Both second and
third attempts failed, but I think the forth succeeded (at least around
20-30 seconds later).
- Market spread: I have seen, though not often, that market spread has been
widened a bit during lower volatility periods, maybe it is a general (and
also undocumented) practice, but I have heard that some dealers may
guarantee a fixed spread.
- Signal and order automation opportunity. On the other side, they have a
good platform (I do not mention its name to avoid any association to making
ad), it is similar to TS regarding the fact the its language is comparable
to EL and it allows you to automate both signals AND order entry, so for
those who have TS200i and do not have automatic order entry it may be of
interest in particular in terms of following short term systems (after all,
you have to sleep sometimes). It has a back testing capability, reportedly
it can provide automatic order signals and order management for demo
accounts as well, but I have been never able to make it work (only on the
live account). I am aware that there are add-ons for order automation, but
often it is another link in the chain and a cost factor (one-time or per
trade).
I guess most of what I said (shady practices) has been already known for the
majority of you; if not, I hope it has a worth of 2 cents, as on occasion it
is annoying when a broker platform does not allow you to enter specific
orders (which might be possible somewhere else), or allows to follow a
particular system only on historical data.
Kind regards,
Zoltan
-----Original Message-----
From: Kirk Walker [mailto:traderkirk7@xxxxxxxxx]
Sent: Tuesday, January 10, 2006 02:26
To: h.amand@xxxxxxxxx; Omega
Subject: Re: Any good recommendations for a Forex Broker????
Quote:
"Depending on the size of your account, I thought that
1 PIP is just that, one PIP. On FXCM, a $300 account
gives you a PIP value of $1.00. If the account size
is $2000, then each PIP is worth $10. On up to a
$10,000 to $20,000 account (I am not quite certain of
the actual minimum amount in this category) and your
PIPs are worth $100 each."
Its not account size, but lot size that determines pip
value. The $300 account with FXCM is their "mini"
account and trades $10,000 lots, so a move of one pip,
or .0001 = $1. An account that trades standard $100k
lots would = $10 per pip ($100,000 * .0001). Whatever
the lot size you trade, multiply it by .0001 to get
the dollar value (or whatever the base currency is) of
a pip.
Quote:
"I also understood that the PIP spread is only on the
purchase side; if you buy at, say 1.1780, you would
pay 1.1782 (not 1.17802 and that is only on the
purchase. When you sell, you get the actual quoted
price with no PIP spread."
That just means that you are trading off the bid
portion of the quote. Your broker should be quoting
you both a bid (the price you can sell at) and an
offer (the price you can buy at). If the spread is 2
pips then you would buy for 1.1782 or sell for 1.1780
at the instant of that quote.
I would recommend that you look at Oanda for forex.
They allow you to trade any lot size you want (so for
learning you could trade a single $1 (pip value would
equal 1/100th of a cent). It also allows you to use
very precise positon sizing. If your system calls for
a $73,345 position, you can trade exactly that much,
rather than 7 or 8 mini lots or one full 100k lot that
would not be optimal to risk. In addition to sizing,
they also have the tightest spreads I have seen, with
the EUR/USD usually around 1-1.5 pips (yes, they offer
fractional pips).
Overall, if you are new to forex, then be very
careful. Forex brokers amount to nothing more than
bucket shops since there is no central marketplace or
exchange. This can lead to a lot of shady practices
(requotes, big slippage, stop running, etc). So ask a
lot of questions and do your homework before you trade
big money with anyone.
Best of luck.
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