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December 7, 1997
Hello RT,
I have been trading Forex for a couple of years. This is in response to Mr. Ashif's description of Forex. I hope it doesn't annoys anyone as it's a bit longer than normal posts.
1: Yes, Forex is VERY liquid. A quality which can quickly become annoying for small investors ($20,000 or less). Unlike futures, there is NO daily limit. So the market can plunge to the pits of hell or climb to high heaven, sometimes jumping 100 points in ONE move.
2: I have used very little limit or stop orders (mostly to get out), but most of the times I would ask for a quote and that leaves almost no room for slippage.
3: There may or may not be a commission involved. We have been paying five points spread and $50 commission. The commission covers the cost of a VERY expensive Reuters Money2000 + RFTV, Bridge Information's ProfitCenter, telecommunication and office. If you go directly to a market maker, you have to take into account these factor since they will effect your per trade cost. The volatility, sometimes, is so much that you won't last one hour without a live news and price feed. And they are expensive.
4: The execution may take a few seconds, but the quotes can take a while, specially if the market is moving. To make things worse, sometimes the broker can cancel the quote quickly after he gives it to you because he may no longer be able to 'hold' it. So you have to ask again. When you're trying to get out, or in, and the market is MOVING, it can be very annoying.
5: Bid and ask spread varies according to your account size, round turns and your broker. We have been offered three point spread with no commission (with certain conditions).
6: Yes, you can trade Forex from anywhere in the world. BUT. If your broker does not have a branch in your country, be prepared to pay long distance phone charges. Depending on Internet for trading, entirely, in my opinion is a bad idea. Internet can be slow, unreliable and sometimes just inaccessible (very unfortunate if the market is in a hurry). Its OK if you trade with limit orders only.
7: The market is 24 hours, which is both good and bad. Its good because there can be volatility to take you out regardless of when you entered the trade. And bad, if the volatility goes down and you are stuck in the market which is not going up or down from the point where you entered (and you don't want to put a stop). We usually work in team, two shifts of twelve hours so if we're stuck we can cover. But you have to take brakes, otherwise it gets to you after a month or two. Also, there is so much activity to watch. A move in the fundamentals of one currency may effect some other more than the one you're expecting. Forex can jump a mile just because someone sneezed in the wrong place at the wrong time.
8: Margin requirements vary from broker to broker. But margin can be, and certainly is, a double edged sword. It can also work against you if the market decides not to agree with your trading.
9: You do get interest on the unused part of the equity. Check with your broker on this one though.
10: Again, the broker may provide free real-time quotes, but what method are they offering? Trust me, Internet is not always a good idea.
11: You can trade any amount of currency, depending upon margin requirements and your account size.
12: You can hedge, but in my opinion - IT IS DANGEROUS. If you are long and at the same time short 100,000 Marks and the market starts to MOVE, it will take a guy with nerves of STEEL and a healthy account size to get out in profit on both sides. There are different strategies you can use, but they ALL require PERFECT market judgment.
13: Your account is adjusted on daily bases for interest rate differentials. You pay or take interest depending whether you are long or short in a currency. Since in Forex you are swapping one currency for another (buying one means you're selling the other simultaneously), you're paying interest on one while receiving on the other. You eventually end up paying or receiving the difference. People have used this, sometimes, to earn huge interests while their trades are also in profit.
14: I am sorry I didn't understand what Mr. Ashif meant by "no close"? The technical software works fine without any modification (at least the software I have used). The 'open' and 'close' prices come from the period's open and close. Example: a five minute chart will open at next five minute period and close at current 4:99. The day open and close is taken from 00:00 GMT. All the usual indicators work with Forex (to the best of my knowledge).
Hope this helps. Regards,
Mubashir Nabi
Financial Intermarket Research & Management.
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