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Carl:
FX can be a good market to trade. I have just over 20 years
of trading experience in the cash FX markets. That being
said, you are vastly underestimating the 'cost' of entry and
exit to most smaller traders that trade FX, especially cash
FX.
First, there's a notion that 4 or 5 pips in the cash market,
with no other commissions being charged, is very low
commission. Have you actually looked at what it would cost
you, relative to your style of trading, if you were charged
4 or 5 pips on top of every price for entry and then 4 or 5
pips again at the exit? I suggest you do the math. And do
the math to learn what a commission on the IMM or any other
exchange would cost--compare them.
Second problem: When you call one of these shops for a cash
FX price, the dealer there is going to 'shade' the price he
gives you. If the place you are using gives you two way
prices [meaning a price where you can buy and a price where
you can sell and the spread between those is relatively
narrow], the dealer won't be able to shade you too much, but
he's still going to do it. That's another cost. You're going
to have to factor that in. Here's an example: If cash yen is
trading 109 50-52 in the electronic brokerage that the
dealer sees, he might make you 109 45-50. He might make you
109 52-57. The relative position of that price, if you have
no other alternative, increases or decreases your costs and
net profits.
Third problem: If the dealer is making you a two sided
price, the spread between the two prices will also make a
difference. The more narrow the spread, the better for you.
But again, if you are captive, meaning you can only deal
with the one cash FX trader or desk, you have to take what
they give you.
There's something about being held captive that you just
can't understand until you face it, eye to eye. Let's say
you are long D-Marks and there is sudden news out--something
went crazy in Russia and the FX market panics, thinking this
will really hit the D-Mark hard. You are long D-Marks at 198
25 and the screen says the last quote is 206 25-75. You want
out! You call your cash FX broker. The dealer that answers
asks you to hold a minute. The screen says that prices are
now at 208 50-00. The dealer comes back on the line and
makes you a price of 210 00-05. You cannot buy any more
D-Marks--you are as leveraged as you can be with these
folks. You know it. The dealer knows it. You pay the offer
at 210 05, even though the screen price is still below this.
And of course, the deal then tacks on the 4 or 5 pips...
I'm not suggesting that cash FX is not a good place to
trade. I am merely suggesting you should do homework and
think all of the hidden costs through before choosing where
you are going to trade.
Best,
Tim Morge
Carl Vanhaesendonck wrote:
>
> As I am a new RT subscriber, it is possible/probable that the subject was
> already discussed earlier.
> After having traded stocks and options on stocks and index for years, I
> consider now to jump on the currency trading, as in my opinion the
> overvalued stocks market will be too volatile in the coming months.
> What about forex trading ? To be more precise, I feel attracted by this
> market for several reasons:
> 1. very high liquidity
> 2. no commissions, only 4/5 pip bid-offer spread
> 3. low margin (2 to 4%)
>
> Is really like this in real Forex trading ? I would be interested by knowing
> more from experienced Fx traders. Especially, is it better to open an
> account in UK (no commission, but trader funds are not segregated) or US
> (small commission but funds are protected) ?
> I have 2 names in mind: CMC for UK and Matchbook in US. According to what I
> read nother discussion groups, CMC is sometimes told to have bad order
> execution, resulting in much higher spreads than the 4 to 5 pips announced.
> Is it true ? Any other Fx broker recommended ? Or Fx is it too dangerous ??
>
> Thanks for your time
>
> Carl
>
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