The 5 Steps to becoming a trader - where are you on the trading ladder?

( Note: This comes from another website (un-named here- so as not to promote.) It is also quite long, but I hope you’ll agree worth it. This post was very influential when I first started down the fx trail. It is presently unknown whom penned this originally, but I am glad they did. Even though it is a long post, I think that it is worth reading if for no other reason than to help ourselves gage where we are in our individual trading. I hope that it at least provokes some thought as to how and why we place a trade.

I’ve seen this a number of places, so if you do know who posted the original please credit them here.

Note: I believe this is Jared Martinez that wrote this. He teaches it even if he didn't write it. )




The 5 Steps to becoming a trader
 


Step One: Unconscious Incompetence.
 

This is the first step you take when starting to look into trading. You know that its a good way of making money because you've heard so many things about it and heard of so many millionaires. Unfortunately, just like when you first desire to drive a car you think it will be easy - after all, how hard can it be? Price either moves up or down - what's the big secret to that then - let's get cracking! Unfortunately, just as when you first take your place in front of a steering wheel you find very quickly that you haven't got the first clue about what you're trying to do. You take lots of trades and lots of risks. When you enter a trade it turns against you so you reverse and it turns again.. and again, and again. You may have initial success, and that's even worse - cuz it tells your brain that this really is simple and you start to risk more money.

You try to turn around your losses by doubling up every time you trade. Sometimes you'll get away with it but more often than not you will come away scathed and bruised You are totally oblivious to your incompetence at trading.

This step can last for a week or two of trading but the market is usually swift and you move onto the next stage.

 

Step Two - Conscious Incompetence


Step two is where you realize that there is more work involved in trading and that you might actually have to work a few things out. You consciously realize that you are an incompetent trader - you don't have the skills or the insight to turn a regular profit. You now set about buying systems and e-books galore, read websites based everywhere from USA to the Ukraine and begin your search for the holy grail. During this time you will be a system nomad - you will flick from method to method day by day and week by week never sticking with one long enough to actually see if it does work. Every time you come upon a new indicator you'll be ecstatic that this is the one that will make all the difference.

You will test out automated systems on Metatrader, you'll play with moving averages, Fibonacci lines, support & resistance, Pivots, Fractals, Divergence, DMI, ADX, and a hundred other things all in the vein hope that your 'magic system' starts today. You'll be a top and bottom picker, trying to find the exact point of reversal with your indicators and you'll find yourself chasing losing trades and even adding to them because you are so sure you are right.

You'll go into the live chat room and see other traders making pips and you want to know why it's not you -you'll ask a million questions, some of which are so dumb that looking back you feel a bit silly. You'll then reach the point where you think all the ones who are calling pips after pips are liars - they cant be making that amount because you've studied and you don't make that, you know as much as they do and they must be lying. But they're in there day after day and their account just grows whilst yours falls.

You will be like a teenager - the traders that make money will freely give you advice but you're stubborn and think that you know best - you take no notice and overtrade your account even though everyone says you are mad to - but you know better. You'll consider following the calls that others make but even then it won’t work so you try paying for signals from someone else - they don't work for you either.

You might even approach a 'guru' like Rob Booker or someone on a chat board who promises to make you into a trader(usually for a fee of course). Whether the guru is good or not you wont win because there is no replacement for screen time and you still think you know best. This step can last ages and ages - in fact in reality talking with other traders as well as personal experience confirms that it can easily last well over a year and more nearer 3 years. This is also the step when you are most likely to give up through sheer frustration.

Around 60% of new traders die out in the first 3 months - they give up and this is good - think about it – if trading was easy we would all be millionaires. Another 20% keep going for a year and then in desperation take risks guaranteed to blow their account which of course it does. What may surprise you is that of the remaining 20% all of them will last around 3 years - and they will think they are safe in the water - but even at 3 years only a further 5-10% will continue and go on to actually make money consistently.

By the way - they are real figures, not just some I've picked out of my head - so when you get to 3 years in the game don't think its plain sailing from there.

I've had many people argue with me about these timescales - funny enough none of them have been trading for more than 3 years - if you think you know better then ask on a board for someone who's been trading 5years and ask them how long it takes to become fully 100% proficient. Sure I guess there will be exceptions to the rule - but I haven't met any yet. Eventually you do begin to come out of this phase. You've probably committed more time and money than you ever thought you would, lost 2 or 3 loaded accounts and all but given up maybe 3 or 4 times but now its in your blood.

One day - in a split second moment you will enter stage 3.

 

Step 3 - The Eureka Moment


Towards the end of stage two you begin to realize that it's not the system that is making the difference. You realize that its actually possible to make money with a simple moving average and nothing else IF you can get your head and money management right You start to read books on the psychology of trading and identify with the characters portrayed in those books and finally comes the eureka moment. The eureka moment causes a new connection to be made in your brain. You suddenly realize that neither you, nor anyone else can accurately predict what the market will do in the next ten seconds, never mind the next 20 mins. Because of this revelation you stop taking any notice of what anyone thinks - what this news item will do, and what that event will do to the markets. You become an individual with your own method of trading You start to work just one system that you mould to your own way of trading, you're starting to get happy and you define your risk threshold. You start to take every trade that your 'edge' shows has a good probability of winning with. When the trade turns bad you don't get angry or even because you know in your head that as you couldn't possibly predict it, it isn't your fault - as soon as you realize that the trade is bad you close it. The next trade or the one after it or the one after that will have higher odds of success because you know your system works. You stop looking at trading results from a trade-to-trade perspective and start to look at weekly figures knowing that one bad trade does not a poor system make. You have realized in an instant that the trading game is about one thing - consistency of your 'edge' and your discipline to take all the trades no matter what as you know the probabilities stack in your favour. You learn about proper money management and leverage - risk of account etc etc - and this time it actually soaks in and you think back to those who advised the same thing a year ago with a smile. You weren't ready then, but you are now. The eureka moment came the moment that you truly accepted that you cannot predict the market.

 

Step 4 - Conscious Competence


You are making trades whenever your system tells you to. You take losses just as easily as you take wins. You now let your winners run to their conclusion fully accepting the risk and knowing that your system makes more money than it looses and when you're on a loser you close it swiftly with little pain to your account. You are now at a point where you break even most of the time - day in day out, you will have weeks where you make 100 pips and weeks where you lose 100 pips - generally you are breaking even and not losing money. You are now conscious of the fact that you are making calls that are generally good and you are getting respect from other traders as you chat the day away. You still have to work at it and think about your trades but as this continues you begin to make more money than you lose consistently. You'll start the day on a 20 pip win, take a 35 pip loss and have no feelings that you've given those pips back because you know that it will come back again. You will now begin to make consistent pips week in and week out 25 pips one week, 50 the next and so on. This lasts about 6 months.

 

Step Five - Unconscious Competence


Now we're cooking - just like driving a car, every day you get in your seat and trade - you do everything now on an unconscious level. You are running on autopilot. You start to pick the really big trades and getting 200 pips in a day doesn’t make you any more excited that getting 1 pips. You see the newbies in the forum shouting 'go dollar go' as if they are urging on a horse to win in the grand national and you see yourself - but many years ago now. This is trading utopia - you have mastered your emotions and you are now a trader with a rapidly growing account. You're a star in the trading chat room and people listen to what you say. You recognize yourself in their questions from about two years ago. You pass on your advice but you know most of it is futile because they're teenagers - some of them will get to where you are - some will do it fast and others will be slower -literally dozens and dozens will never get past stage two, but a few will. Trading is no longer exciting - in fact it's probably boring you to bits - like everything in life when you get good at it or do it for your job - it gets boring - you're doing your job and that's that. Finally you grow out of the chat rooms and find a few choice people who you converse with about the markets without being influenced at all. All the time you are honing your methods to extract the maximum profit from the market without increasing risk. Your method of trading doesn't change - it just gets better - you now have what women call 'intuition' You can now say with your head held high - I'm a currency trader, but to be honest you don't even bother telling anyone - it's a job like any other. I hope you've enjoyed reading this journey into a traders mind and that hopefully you've identified with some points in here. Remember that only 5% will actually make it - but the reason for that isn't ability, its staying power and the ability to change your perceptions and paradigms as new information comes available. The losers are those who wanted to 'get rich quick' but approached the market and within 6 months put one pair of blinkers so they couldn't see the obvious - a kind of this is the way I see it and that's that scenario- refusing to assimilate new information that changes that perception. I'm happy to tell you that the reason I started trading was because of the 'get rich quick' mindset. Just that now I see it as 'get rich slow' If you're thinking about giving up i have one piece of advice for you ....Ask yourself the question - how many years would you go to college if you knew for a fact that there was a million dollars a year job at the end of it?


Take care and good trading to you all.

Turtle Background Story

It all started with a bet between Richard Dennis and Bill Eckhardt.

The Turtle Traders’ legend began with a bet between American multi-millionaire commodities trader, Richard Dennis and his business partner, William Eckhardt. Dennis believed that traders could be taught to be great; Eckhardt disagreed asserting that genetics were the determining factor and that skilled traders were born with an innate sense of timing and a gift for reading market trends.

What transpired in 1983-1984 became one of the most famous experiments (nature versus nurture) in trading history. Averaging 80% per year, the program was a success, showing that anyone with a good set of rules and sufficient funds could be a successful trader.

System Rules:

The Turtles followed a clearly defined set of trading rules. For the complete rules, visit: http://www.originalturtletrader.com

Forex Trading Rules: No Excuses, Ever

by Boris Schlossberg and Kathy Lien

Our boss once invited us into his office to discuss a trading program that he wanted to set up. "I have one rule only," he noted. Looking us straight in the eye, he said, "no excuses."

Instantly we understood what he meant. Our boss wasn't concerned about traders booking losses. Losses are a given part of trading and anyone who engages in this enterprise understands and accepts that fact. What our boss wanted to avoid were the mistakes made by traders who deviated from their trading plans. It was perfectly acceptable to sustain a drawdown of 10% if it was the result of five consecutive losing trades that were stopped out at a 2% loss each. However, it was inexcusable to lose 10% on one trade because the trader refused to cut his losses, or worse yet, added to a position beyond his risk limits. Our boss knew that the first scenario was just a regular part of business, while the second one could ultimately blow up of the entire account.


The Need For Rationalization

In the quintessential '80s movie, "The Big Chill", Jeff Goldblum's character tells Kevin Kline's that "rationalization is the most powerful thing on earth. As human beings we can go for a long time without food or water, but we can't go a day without a rationalization."

This quote has strikes a chord with us because it captures the ethos behind the "no excuses" rule. As traders, we must take responsibility for our mistakes. In a business where you either adapt or die, the refusal to acknowledge and correct your shortcomings will ultimately lead to disaster.


Case In Point

Markets can and will do anything. Witness the blowup of Long Term Capital Management (LTCM). At one time, it was one of the most prestigious hedge funds in the world, whose partners included several Nobel Prize winners. In 1998, LTCM went bankrupt, nearly bringing the global financial markets to its knees when a series of complicated interest rate plays generated billions of dollars worth of losses in a matter of days. Instead of accepting the fact that they were wrong, LTCM traders continued to double up on their positions, believing that the markets would eventually turn their way.

It took the Federal Reserve Bank of New York and a series of top-tier investment banks to step in and stem the tide of losses until the portfolio positions could be unwound without further damage. In post-debacle interviews, most LTCM traders refused to acknowledge their mistakes, stating that the LTCM blowup was the result of extremely unusual circumstances unlikely to ever happen again. LTCM traders never learned the "no excuses" rule, and it cost them their capital. (To find out more, see Massive Hedge Fund Failures.)


No Excuses

The "no excuses" rule is most applicable to those times when the trader does not understand the price action of the markets. If, for example, you are short a currency because you anticipate negative fundamental news and that news occurs, but the currency rallies instead, you must get out right away. If you do not understand what is going on in the market, it is always better to step aside and not trade. That way, you will not have to come up with excuses for why you blew up your account. No excuses. Ever. That's the rule professional traders live by.

Courtesy: http://www.investopedia.com/university/forex-rules/rule10.asp

Forex Trading Rules: Never Risk More Than 2% Per Trade

by Boris Schlossberg and Kathy Lien

Never risk more than 2% per trade. This is the most common - and yet also the most violated - rule in trading and goes a long way toward explaining why most traders lose money. Trading books are littered with stories of traders losing one, two, even five years' worth of profits in a single trade gone terribly wrong. This is the primary reason why the 2% stop-loss rule can never be violated. No matter how certain the trader may be about a particular outcome, the market, as the well known economist John Maynard Keynes,  said, "can stay irrational far longer that you can remain solvent." (For more on "stop-loss" read the article The Stop Loss Order - Make Sure You Use It.)


Swinging for the Fences

Most traders begin their trading careers, whether consciously or subconsciously, by visualizing "The Big One" - the one trade that will make them millions and allow them to retire young and live carefree for the rest of their lives. In FX, this fantasy is further reinforced by the folklore of the markets. Who can forget the time that George Soros "broke the Bank of England" by shorting the pound and walked away with a cool $1 billion profit in a single day! But the cold hard truth of the markets is that instead of winning "The Big One", most traders fall victim to a single catastrophic loss that knocks them out of the game forever. (To learn more about George Soros and other great investors, read the Greatest Investors Tutorial.)

Large losses, as the following table demonstrates, are extremely difficult to overcome.

Amount of Equity Loss     Amount of Return Necessary to Restore to Original
25%     33%
50%     100%
75%     400%
90%     1000%

Just imagine that you started trading with $1,000 and lost 50%, or $500. It now takes a 100% gain, or a profit of $500, to bring you back to breakeven. A loss of 75% of your equity demands a 400% return - an almost impossible feat - just to bring your account back to its initial level. Getting into this kind of trouble as a trader means that, most likely, you have reached the point of no return and are at risk for blowing your account.


Why the 2% Rule?

The best way to avoid such a fate is to never suffer a large loss. That is why the 2% rule is so important in trading. Losing only 2% per trade means that you would have to sustain 10 consecutive losing trades in a row to lose 20% of your account. Even if you sustained 20 consecutive losses - and you would have to trade extraordinarily badly to hit such a long losing streak - the total drawdown would still leave you with 60% of your capital intact. While that is certainly not a pleasant position to find yourself in, it means that you need to earn 80% to get back to breakeven - a tough goal but far better than the 400% target for the trader who lost 75% of his capital. (to get a better understanding check out Limiting Losses.)

The art of trading is not about winning as much as it is about not losing. By controlling your losses, much like a business that contains its costs, you can withstand the tough market environment and will be ready and able to take advantage of profitable opportunities once they appear. That's why the 2% rule is the one of the most important rules of trading.

Courtesy: http://www.investopedia.com/university/forex-rules/rule3.asp

Forex Trading Rules: What Is Mathematically Optimal Is Psychologically Impossible

by Boris Schlossberg and Kathy Lien

Novice traders who first approach the markets will often design very elegant, very profitable strategies that appear to generate millions of dollars on a computer backtest. The majority of such strategies have extremely impressive win-loss and profit ratios, often demonstrating $3 of wins for just $1 of losses. Armed with such stellar research, these newbies fund their FX trading accounts and promptly proceed to lose all of their money. Why? Because trading is not logical but psychological in nature, and emotion will always overwhelm the intellect in the end, typically forcing the worst possible move out of the trader at the wrong time.

Trading Is More Art Than Science
As E. Derman, head of quantitative strategies at Goldman Sachs, a leading investment banking firm, once noted, "In physics you are playing against God, who does not change his mind very often. In finance, you are playing against God's creatures, whose feelings are ephemeral, at best unstable, and the news on which they are based keeps streaming in."

This is the fundamental flaw of most beginning traders. They believe that they can "engineer" a solution to trading and set in motion a machine that will harvest profits out of the market. But trading is less of a science than it is an art; and the sooner traders realize that they must compensate for their own humanity, the sooner they will begin to master the intricacies of trading.

Textbook Vs. Real World
Here is one example of why in trading what is mathematically optimal is often psychologically impossible.

The conventional wisdom in the markets is that traders should always trade with a 2:1 reward-to-risk ratio. On the surface this appears to be a good idea. After all, if the trader is only correct 50% of the time, over the long run she or he will be enormously successful with such odds. In fact, with a 2:1 reward-to-risk ratio, the trader can be wrong 6.5 times out of 10 and still make money. In practice this is quite difficult to achieve. (for related readings, see Using Pivot Points In FX.)

Imagine the following scenario: You place a trade in GBP/USD. Let's say you decide to short the pair at 1.7500 with a 1.7600 stop and a target of 1.7300. At first, the trade is doing well. The price moves in your direction, as GBP/USD first drops to 1.7400, then to 1.7360 and begins to approach 1.7300. At 1.7320, the GBP/USD decline slows and starts to turn back up. Price is now 1.7340, then 1.7360, then 1.7370. But you remain calm. You are seeking a 2:1 reward to risk. Unfortunately, the turn in the GBP/USD has picked up steam; before you know it, the pair not only climbs back to your entry level but then swiftly rises higher and stops you at 1.7600.

You just let a 180-point profit turn into a 100-point loss. In effect, you created a -280-point swing in your account. This is trading in the real world, not the idealized version presented in textbooks. This is why many professional traders will often scale out of their positions, taking partial profits far sooner than two times risk, a practice that often reduces their reward-to-risk ratio to 1.5 or even lower. Clearly that's a mathematically inferior strategy, but in trading, what's mathematically optimal is not necessarily psychologically possible.

Courtesy: http://www.investopedia.com/university/forex-rules/rule8.asp

Send money via Secure Wire Bank Wire transfers

SEND MONEY TO INDIA, BANGLADESH, PAKISTAN, WORLDWIDE BY WIRE TRANSFERS

Money transfer overseas using Bank Wires:

A wire transfer is the moving of money from one bank account to another directly and in a secure transfer.

The main advantage of a wire transfer is that it is very secure. You just need to send money from one bank account to another. Once recieved, the money can be retrieved by the recipient from his bank account. The money is sent over highly encrypted banking networks which make it very difficult fo fraudsters. Your money is totally secure as it is insured and guaranteed.

You need to know the following before initiating a bank wire to transfer money overseas.

1) The amount of money you are going to transfer overseas. Take care to see that you have enough money in your bank account or you will have to pay steep fees for overdrawing.

2) Name of the recipient of the money.

3) The bank account number of the recipient.

4) The routing number of the financial institution of the recipient. The routing number is also referred to as ABA routing number. Note that Routing numbers are used in America and Europe only.

For the Asian and other countries you should ask for the swift code. Swift code is same as routing number but transferring money is a bit different. Swift code takes a bit of time, around 24 hours for a bank to transfer and transferring through a routing number doesn’t require much time.

5) The bank account number and routing number of the sending account.

After you have the details and you have the money to send, contact the bank for sending money using wires. After furnishing all details and the sending part, ask them for a reciept. You can also get in touch with bank’s customer care helpline for more information but you need to have the basic information as above.

Note that a wire transfer may take as many as 2 to 3 days. If the money to be sent is smaller, the fee may set you back by around $25 however it may vary depending upon the amount of the money you want to send. So you can complete your cash or bank wire money transfer this way.

Your local bank can help you send money anywhere in the world if it has the required facilities. Check your bank’s website or ask them personally whether they can send your money overseas or not. Most international bank have the facility of transfering money by wire transfers. Also the recieving institution must have the facility to get money by wires from other banks.

International banks have the facility of transfering money by internet using your bank account too. They allow you to “wire transfer” by internet. Check out if your bank has this facility and whether the reciever’s bank has this facility.

Wire transfers are reliable and easy way to transfer money to your service provider or for other business or personal purposes. Bank wire transfers are preferred by corporates for transfering money due to their cost effectiveness and hassle free nature.

Courtesy: http://ginpost.com/86/send-money-via-secure-wire-bank-wire-transfers/

Understanding Lot Size and Risk in Forex

I thought I would outline how lot sizing works in Forex as you need to consider this when assessing your trade risk when using the robot if you are turning off money management. FAPTurbo money management does a good job of determining lot size based on your account balance and available margin, but many people are turning this off and manually setting lot sizes.

Lot sizes are shown as a percentage of a full lot. 1 full lot in forex is equal to $100,000.00 of the underlying currency so 1.0 lot of USDCAD equals $100,000.00 USD. If the USD appreciates versus the CAD you will have more than $100,000.00 (profit) if you went long (bought the USDCAD contract) and less than $100,000.00 (loss) if you went short (sold the USDCAD contract).
If the USD depreciates versus the CAD you will have less than $100,000.00 (loss) if you went long (bought the USDCAD contract) and more
than $100,000.00 (profit) if you went short (sold the USDCAD contract).

The amount of the profit or loss from a contract purchase are related to the lot size and the number of pips the underlying moved. Here is
how it works:

1.0 lot = $10.00 per pip, you are trading a full lot, or $100,000.00 of the underlying currency
0.9 lot = $9.00 per pip, you are trading a .9 lot, or $90,000.00 of the underlying currency
0.8 lot = $8.00 per pip, you are trading a .8 lot, or $80,000.00 of the underlying currency
etc….
0.1 lot = $1.00 per pip, you are trading a .1 lot, or $10,000.00 of the underlying currency
0.09 lot = 0.90 cents per pip, you are trading a .09 lot, or $9,000.00 of the underlying currency
0.08 lot = 0.80 cents per pip, you are trading a .09 lot, or $8,000.00 of the underlying currency
etc….
0.01 lot = 0.10 cents per pip, you are trading a .01 lot, or $1,000.00 of the underlying currency

**note: some currencies are not exactly $10.00 per pip or a fraction thereof but for our needs assuming so is fine.

Remember, recommended risk levels are no more than 1-2% of your account balance per trade.

So if you trade 0.1 lots, you are risking $1.00 per pip. If the underlying moves against you, and your stop loss is at 60 pips, you are risking $60.00. If your account is $500.00 you are risking 60/500 = 12% of your account on this one trade.

So with a $500.00 account what lot size should I be trading to only risk 1-2% of my account?
$500.00 X .01 = $5.00 risk per trade at 1%, $10.00 risk per trade at 2%

Now lets say our stop loss is 50 pips, so with $5.00 at risk (we have determined our comfort level is risking 1% of our account per trade), we need to be trading a lot size that only risks 0.10 cents per pip ($5.00/50=0.10) so to manage our risk we should set our lot size to 0.01 lots per trade. If your comfort level is 2% risk per trade, then 500.00 x .02 = $10.00 per trade. So $10.00/50=0.20 cents per pip risk which means we should set our lot size to 0.02. FAPTurbo’s Lot Risk Reductor does something similar, but it also decreases lot size as more and more trades are opened, thus decreasing risk as your account balance and margin change. When you manually set the lot size, each trade would be opened with the same lot size, even if your account balance is lower due to some losses.
If you are manually setting your lot sizes you need to revisit them regularly, they are not a set and forget item

Lot risk reductor (LRR)

The Scalper Lot Risk Reductor (LRR) in FAPTurbo works in conjunction with money management (MM). If you turn off MM, then the LRR will
have no effect. How does the LRR work? Basically it is used by FAPTurbo in the calculation of what size lot to open for a given trade. If you set the LRR to 5.0 you are telling FAPTurbo to use 5% of your available margin to open each trade. The amount of margin allocated determines the lot size FAPTurbo can open in conjunction with your accounts leverage and balance.
The first trade FAPTurbo opens will use 5% of your available margin and open a trade with the calculated lot size. The second trade FAPTurbo opens will use 5% of the remaining margin in your account to determine the appropriate lot size.
For example, if you have $500.00 available margin, FAPTurbo will use $25.00 of your margin to open it’s trade. You now have $475.00 in
available margin (excluding 1st trade profit/loss at time). If FAPTurbo needs to open a second trade, while the first trade is still running it will use 5% of the $475.00 to open this second trade, which would be $23.75 of your available margin, now leaving you with $451.25 of available margin. Due to this smaller margin amount the second trade may open a smaller lot size.
This lot sizing is dynamic, and is calculated at the time of the trade opening. As the calculation takes into account your current available margin, it is affected by current open positions. Open positions that are showing a loss decrease available margin in real time, and those at a profit increase available margin.
Also, margin is calculated using the underlying currency versus the currency of your account. If your account is in USD, and you want to trade the EURUSD pair, to buy 0.1 lots or $10,000.00 of the currency your broker will use the current rate of the underlying. In the EURUSD pair that is the EUR, so to buy $10,000.00 or 0.1 lots of EUR with a USD account you take the $10,000.00 and multiply it by the current EUR rate, say it is 1.3000, and the amount used to determine needed margin by your broker to make the trade is based on $13,000.00 USD.

Effect of 2% account balance risk versus 10% account balance risk

Assuming worst case scenario, here is the difference in your account if you risk 2% of your account balance versus 10%

Risking 2% of total account per trade

Trades – Account balance –
1 Start — $5000 – 100
2 $4900 — 98
3 $4802 — 96
4 $4706 — 94
5 $4612 — 92
6 $4520 — 90
7 $4430 — 89
8 $4341 — 87
9 $4254 — 85
10 $4169 — 17% of the account has been lost

Risking 10% of total account per trade

Trades — Account balance –
1 Start — $5000 — 500
2 $4500 — 450
3 $4050 — 405
4 $3645 — 364
5 $3281 — 328
6 $2953 — 295
7 $2658 — 265
8 $2392 — 239
9 $2153 — 215
10 $1938 — over 60% of the account has been lost

Stop loss level in FAPTurbo

Basically the SL in FAPTurbo, from what we have seen on the forum is around the 110 pip mark. Although each pair could be different and may also change with market conditions.

Leverage

Leverage in forex is like margin in stock and option trading. You are using the houses money to trade larger positions than you otherwise could.
Leverage in Forex comes in 1:25, 1:50, 1:100, 1:200, 1:300, 1:400, and 1:500. Leverage determines what amount of margin is needed to open a given lot size.
For example, to determine the margin needed to open a 0.1 lot on a $1000.00 account you divide the lot size in dollars by the leverage amount (see lot size and risk section for lot size to dollar conversion). So for a $10,000.00 lot size (0.1) with an account at 1:100
leverage and a balance in your account of $1000.00 you need $100.00 of available margin (10,000 / 100 = $100) (lotsize / margin = required
account margin).
If we change the margin from 1:100 to 1:200 then ($10,000 / 200 = $50.00) so you need $50.00 of available margin to buy 0.1 lots.
So leverage allows you to use less of your money, depending on the level your broker gives you, to buy the same amount of underlying currency.

Money management

Margin required has absolutely ZERO to do with risk. Here is why:

Same trader, same size account, same money management technique, two brokers, different margin requirement:

Say broker A’s margin requirement is 1% (1:100), Broker B’s margin requirement = 0.5% (1:200), account value is $5,000.00.

Trader decides to do a maximum trade (for him, following his MM) (10% of margin) at both brokers.

Broker A = buy $5,000 X 10% = $500 = at 1% of 10K (0.1 lot size) = 5 x 0.1 lots (or .5 lots). Notional transactional value = EUR 50,000 and value per pip $5.00.

Broker B = buy $5,000 X 10% = $500 = at 0.5% of 10K (0.1 lot size) = 10 x 0.1 lots (or 1.0 lots). Notional transactional value = EUR 100,000 and value per pip $10.00.

Let’s say the trade was not such a good idea. The eurusd moves 100 points in the wrong direction. With broker A he loses $500, with broker
B, $1000.

The solution is that you must calculate your risk not by using your margin required percentage but by looking at your leverage ratio:

Say broker A’s margin requirement is 1% (1:100), Broker B’s margin requirement = 0.5% (1:200)., account value is $5,000.00

Broker A = EUR50,000 (5 x 10K lots (5 x 0.1 lots or 1 x 0.5 lots))/ $5,000 (total capital) = leverage of 10:1. I.e. you take your capital, wish it is EUR50,000 (for which you give the broker some measily security of 1%) and off you go. Risking not 10% of what you have but risking what you have 10 times.

Broker B = EUR100,000 (10 x 10K lots (10 x 0.1 lots or 1 x 1.0 lots))/ $5,000 (total capital) = leverage of 20:1. I.e. you take your capital, wish it is EUR100,000 (for which you give the broker some measily security of 0.5%) and off you go. Risking not 10% of what you have but risking what you have 20 times.

Basically, higher leverage ratio = higher risk.

Because margin required is a variable it can not be used to judge the risk where the other properties of the transaction are all fixed (non-variable): Margin = $5000, lot size = EUR10,000 and pip value = $1.00/ per 10K. That is why you should look at the transaction from the notional value angle and not the variable margin requirement angle like most do.

Many traders say as part of “money management” that they will risk only say, 10% of their capital at any given time. What they mean is that they will do transactions to the value of 10% of their margin based on the margin requirement. This is WRONG. When assessing risk, you need to look at how much of your account balance (read as YOUR MONEY) you are risking with each trade.

Here is my approach - I keep my leverage down at 1:100, then I determine what lot size I am comfortable with based on the Stop Loss in use.

With FAPTurbo’s assumed SL at 110 pips, if I trade 0.1 lots, am I prepared to lose $110.00 on a trade gone bad? If the $110.00 is less than 2% of my account balance, then the answer is yes. If the $110.00 is more than 2%, then the answer is no, and I decrease my lot size to something that fits the maximum 2% risk of my account balance on any trade (see lot size and risk section for more detail).
For new or inexperienced traders I would recommend using FAPTurbo’s built in money management.

Hope this helps.

Regards and good trading,

Wayne

Courtesy: http://www.mymoneyblog.info/archives/56

Best CFD Broker In Australia

by Jeff Cartridge

Choosing the Best CFD Broker for you will depend on finding a broker that provides the services that you require for your trading. It will depend on the instruments you want to trade, the size of your trading account, the frequency of your trading and the trading platform you want to use. But market trends can give an insight into which CFD Broker is best meeting the needs of their traders. The following information is based on an annual report compiled by Investment Trends at the end of 2008.

Biggest Is Best

If biggest is best then according to a survey from Investment Trends CMC Markets comes out at the top of the list as the largest CFD Broker in terms of market share in 2008 with 32% of the market share. IG Markets follows closely behind with 27% and MF Global is number three at 18%. ASX CFDs only account for 1% of the CFD market share, despite the Australian Stock Exchange being behind this new product.

The second tier of CFD brokers with market share all at 10% or less is made up of the following companies. Macquarie Prime holds a market share of 9%, followed by First Prudential Markets, E*Trade, Commsec, City Index, Sonray and Tricom to make up the top 10, in that order.

But Can They Keep It Up

But remember size is not everything and there have been some significant changes in rankings from the previous year. Most notably E*Trade dropped from third place back to 6th and CMC Markets' market share dropped sharply from 60% in 2007 down to 32% in 2008. Falling market share is probably not a good indication of client satisfaction.

Size Is Not Everything

So if you believe that the opposite, rising market share, is a good measure to assess the best CFD Broker then check out IG Markets, Macquarie Prime, MF Global, Commsec and First Prudential Markets who all have increased market share. GFT are a relatively new comer on the scene and are also making strong inroads into the CFD market as well.

It Comes Down To Personal Satisfaction

When choosing the best CFD Provider in Australia for you to trade Contracts for Difference with it will depend on exactly what you want to trade, but Investment Trends suggest that many CFD traders are choosing IG Markets and MF Global as the best CFD Broker in Australia for 2008.

Discover the 7 most Critical CFD trading tips and 2 of the most common CFD Trading Strategies.
Learn more about the CFD revolution by going to CFD Trading Tips

About the Author

Jeff Cartridge is a private trader and investor with a wide variety of investments in shares, CFDs and property. Jeff is the author of the book Supercharge your Trading with CFDs published by John Wiley and Sons.

Jeff has educated tens of thousands of people in Australia and New Zealand presenting for E*TRADE, CMC Markets, Cube Financial, Trading and Investing Expo and Pavilion Securities. Jeff has co created the website LearnCFDs.com

Courtesy: http://www.goarticles.com/cgi-bin/showa.cgi?C=1404946

Don't confuse a limit with a stop order...

You have previously opened a position buying £10/point of the December FTSE at 5650. Several days after opening the position the December FTSE is trading at 5563. You place an order to close your position by selling £10/point should the December FTSE reach 5610.

Is this a Limit or a Stop?

This is a Limit.

A Limit is an instruction to deal at a more favourable level than the current price. The current price is 5563 and you are leaving an order to sell at 5610. Selling at 5610 is more favourable than selling at 5563, and so it must be a Limit.

A common mistake for people unfamiliar with Stops and Limits is to look at the opening level of the position, 5650, and to view selling at 5610 as a Stop (as it is a worse level than the opening level). Had the order been left when the position was opened, when 5650 was the current price, then it would be a Stop. In the problem described, however, the opening level is actually irrelevant to determining whether the order is a Limit or a Stop, as it is not the current price.

Spread Betting Risks - Disasters to Avoid

Spread betting is like every other form of gambling, there are do's and don'ts. Here are some pitfalls to avoid....

   1. Over confidence. Get over confident in a bet and you may lose the ability to think rationally. This may cause you to bet more than you should and do yourself some financial harm.
   2. Emotional betting. Bet with logic, not your heart. Resist the urge to have bets on teams or markets you like, instead bet on what the prices and stats say. Also, do not enter trades based purely on fantastic news!! Basically, again you get emotional, spot an opportunity to make some 'easy' money and jump in without any plan. No idea of where to exit to take profits or where to place your stop.
   3. Betting against the trend. Many novice traders will look at some charts, decide this is as low as it can go, and place a trade going long. This is a common mistake, the chart can always go lower and you are placing a bet against the trend. Always have a reson other than acting on impulse. Intuition is just a hunch; it has no bearing on trading the world markets. Ok, it might work once or twice, but in the end it could cost you far more.
   4. Failure to stick to a staking system. A staking system tells you how much you should bet on each event and gives you a maximum loss for each set period of time. Failure to stick to this could result in you "chasing" and losing money.
   5. Impatience. Great bets do not come up every day or week. Sometimes you will have to bide your time and wait for an opportunity to present itself. Better to have one great spread bet than 5 bad ones. I've seen many people say things like 'I've just bought £10k in BARC's, it may go lower, but I just couldn't wait any longer'. Things like that is just not the way to do it. If Barclays share price fell another 10%, then you are 10% away from making a profit compared to what you would have been if you had waited.
   6. Over-leverage - The first thing any trader learns along the painful journey of trading is not to get too highly leveraged in the first place. £100 a point is just a ridiculous amount of leverage if you only have £10,000 or so in your bank. It's this 'greed for cash' that is more akin to gambling than trading and how many gamblers win long term...not many. The thing is if you have £10,000 in your bank and you buy the FTSE 100 at £100 a point, and by some chance you guess correctly and it goes up 50 points you sell having made £5,000. The next day you do the same at 200 a point and so on...it only takes one black day when you guess the market wrong and you're wiped out. Some time ago I was at a 'free seminar' sponsored by CMC, and their guy told an amusing anecdote about some muppet who'd blown up in a big way, and he added parenthetically that they were still pursuing him through the courts to reclaim the full extent of the losses he incurred (i.e. above and beyond his deposit/margin with them).

Courtesy: http://www.financial-spread-betting.com/Spread-Betting-Risks.html

Quick Spread Betting Tips for 2009

   1. Spread betting is more accessible for new investors than CFDs, but less cost-effective due to the wider spreads (which is usually more than compensated by its tax-advantaged status).
   2. Open up a DEMO ACCOUNT with a spread betting firm such as Capital Spreads (£10,000 to practice with) or ETX Capital ('Player account'/simulator, using £20k 'virtual money', plus free 'beginners guide' book)
   3. You will get £10,000 to play with. Trade with that virtual £10,000 as if it was your hard earned cash, and do so for at least 2-4 months with your theoretically 'winning' strategy.
   4. Start with slow paced UK FTSE 100 stocks, preferably expensive blue chip stocks that are very liquid. Indices are too random for newbies to guess, US stocks (most) are too volatile and will wipe you out in no time, and also Forex is too volatile beginners.
   5. When ready to start spread trading for real money do keep in mind that companies can let you open an account with £200, but I would suggest a minimum of £1000. This will then enable you absorb more losses than with £200 or £500, if you keep your bet size to a small fraction, 2% max risk is ideal but with a small account I would use 5%.
   6. Use a financial bookmaker that quotes firm prices on a screen. Start initially with a maximum of five companies. Absolutely no shorting at this stage (shorting companies is harder psychologically).
   7. Don't make any 'in-running' bets (i.e. identify opportunities while the market is closed). Decide in advance the level you will trade at and try not to give into temptation and buy too early.
   8. Before you open each spread bet, write down your plan: why you've taken the decision, and what your exit strategy is. If you decide not to open a position after you've been considering it closely, write down the reasons for that, too.
   9. Place your bet only when you think that the underlying financial instrument will move up or down sharply.

Courtesy: http://www.financial-spread-betting.com/Spreadbetters.html

Rise and Fall of Share Price Indices

In just one day in March 2002 the DOW index rose by over 200 points, another example in April 2002 saw the German DAX index fall by over 100 points in just a few hours. In May 2002 the FTSE index fell 65 points during an afternoon's trading. July 2002 saw the French CAC index fall over 400 points in just 4 days. More recently, in January 2003, the DOW fell over 700 points in just six days and in March 2003, the DAX rose by more than 300 points in just a few days.

Golden Rule of Winning a Trade

If you want to be a consistent winner there are some golden rules for you to learn. You must be able to read the signals that the market is showing you, and you must discipline yourself to bet only when the risk / reward ratios are in your favour. It can be great fun, and very profitable.

History and the CFD revolution!

CFDs were originally developed in the early 1990's by the derivative desk of Smith New Court - a London based trading firm. CFDs enabled the firm's hedge-fund clients to easily sell short in the market (the London Stock Exchange) with the benefit of leverage, and to benefit from stamp duty exemptions that were not available to outright share transactions. By using CFDs, these large clients no longer needed to physically settle their equity/share transactions. They were also able to avoid the need to borrow stock when they wanted to sell short.

In the late 1990's CFDS were introduced to private clients and the retail market by Gerrard & National Intercommodities (GNI - now part of the Man Group plc) via its online trading arm - GNI Touch. GNI offered its clients CFD products and an innovative trading system that allowed private clients to trade via the internet directly into the London Stock Exchange - the CFD revolution was born!

Individuals trading their own accounts, small fund managers and institutions were now able to trade directly into the London Stock Exchange for the first time. These clients were now on a level playing field with the large institutions. They were able to take leveraged long (bought) positions and short (sold) positions without having to take delivery of the underlying shares.

CFDs are currently available in listed [i.e. mini-warrants and ASX CFDs listed on the Australian Securities Exchange] and/or over-the-counter markets in the United Kingdom, Germany, Switzerland, Italy, Singapore, Thailand, South Africa, Australia, Canada, New Zealand, Hong Kong, Sweden, Norway, Belgium, Denmark, Netherlands, France and Spain and the US (to non-residents only), with expansion into new markets occurring virtually every year. CFDs are also referred to as swaps, waves, turbo certificates, and callable bull/bear contracts (CBBCs).CFDs are not permitted in the United States, due to restrictions by the U.S. Securities and Exchange Commission on OTC financial instruments.

The explosion in the use of this product is one of the reasons why London, as opposed to New York, is becoming the financial location of preference for many financial managers and hedge funds. Contracts for differences are not allowed in the U.S. due to legal restrictions imposed by the American Regulators.

Introduction to Contracts for Difference

Contracts for Difference (CFDs) have caught the imagination of the active private investor over the last four years since their introduction to the retail marketplace. A growing number of individuals have sought to gain financial independence and in the process embraced innovative financial instruments.

CFD stands for Contract For Difference.

The term "Contract for Difference" means that the product is a cash-settled product. There is no receipt or delivery of an underlying instrument, such as a share certificate.

The result of the trade is the cash difference between the bought and sold price.

A CFD is also described as a Derivative. The term derivative is a very common and is used to describe any product that that is based on an underlying instrument -- a derivative of an underlying instrument.

CFDs are available on numerous instruments, from individual equities to stock indices to foreign exchange and commodities.

The most popular use of CFDs is in Equity CFDs -- Contracts for Difference on individual equities or shares. Equity CFDs are available on shares traded on all European, North American and Asian Stock Markets.

The UK's (CFD market) has been around since the '80s and been traded more aggressively since the mid-'90s, with the introduction of the internet. The CFD market exploded in Britain as the bear market of 2000 - 2002 set in and investors demanded more leverage and better ways to short stocks. Since then CFDs have become a mainstay in the UK for both professional and private investors looking to participate in just about any market imaginable.

The volume of Equity CFD trades has grown significantly over the last few years. Recent data suggest that, excluding the trading between professional firms such as Investment Banks and Brokers, Equity CFDs account for approximately 30% of all share trading in the UK. There are a number of benefits in trading CFDs

CFD demand is also growing on continental Europe, especially in Germany and Belgium. The institutions there have been big users for years utilizing them mainly for hedging purposes, but at the retail level, development is just beginning. Apparently continental investors tend toward skepticism when it comes to new product developments preferring more traditional investment vehicles such as warrants and certificates. Tarken Bulut, Market Analyst at CMC Markets in Germany, says "At first people just don't believe us when we tell them about the advantages CFDs offer over other instruments - they think its too good to be true". But eventually people see the light. Bulut says in Germany alone CMC Markets is looking to grow their customer base to 25,000 investors this year.

The instrument was introduced to South Africa in 2001 by online financial derivatives business Global Trader.

Four significant events in the last few years have combined to accelerate the process of disintermediation, the removal of the 'middle man' and a significant shifting of financial power from the investment banks and financial institutions to the individual. In no particular order, these are the introduction of SETs in October 1997, the evolution of new financial and derivative instruments, the total visibility of the marketplace through Level II and the impact of the internet both as a means of resource and execution.

CFDs entered the retail market in 1998, nearly ten years after becoming established as a legitimate alternative to traditional share trading in the institutional arena. The driving force behind their evolution was a combination of the prohibitive stamp duty regime in the UK and the difficulty in establishing and maintaining short positions in individual stocks. CFDs are ideally suited to short-term trading. They are neither a substitute for, nor alternative means of long term investment such as ISAs or contributory pension schemes. However, as a cost-effective means of short-term trading, they are second to none.

As the UK's fastest growing instrument, CFDs have increased in popularity by 25% in recent years. They allow you to trade on the same terms as many large institutions and are one of the most exciting products around.
Definition

A CFD is an agreement between two parties to exchange, at the close of the contract, the difference between the opening price and the closing price of the contract, with reference to the underlying share, multiplied by the number of shares specified within the contract. In some ways it can be compared with an equity swap or single-stock non-expiring futures contract. The principal advantages are, that under current legislation, no stamp duty is payable on CFD transactions, participants can go 'short' as easily as long and that the product is margined like a futures contract. In other words the user only has to 'put up' a percentage of the underlying value of the contract, typically 10%. CFDs are now established as the preferred primary instrument of equity execution in the UK among hedge funds and other proprietary traders who do not enjoy stamp-duty exemption like market makers. There are currently around a dozen retail providers of CFDs and it is important at this point to understand the mechanics behind their execution.

The majority of CFD providers structure their product in the traditional way and may offer a dealing service by telephone or on-line. In other words, they are not risk takers, but hedge their CFD transactions in the underlying 'cash' market. The term 'cash' market is often used to describe the everyday stock market. So if a client were to submit an order to buy 10,000 CFDs in Vodafone, the provider would simultaneously enter the market, buy 10,000 shares in Vodafone as a hedge, and write a CFD to the client at the same price. The client establishes the position that he wants, i.e. long 10,000 Vodafone CFDs and the provider has hedged his short CFD contract with the client by buying stock in the market, utilizing his stamp duty exemption, and earns commission on the trade as well as charging the client for the funds he has lent him to complete the transaction. Margin rates are typically 10%, so the client only has to maintain a balance on his account of 10% of the underlying contract value together with any running losses. The CFD provider lends the client the other 90% at an agreed rate over base rates, typically 3%. There is a common misconception, that, like the options market, the CFD marketplace is a parallel market, where before buying CFDs in Vodafone, a seller must be found. This isn't what happens, the hedging transactions take place in the underlying market. Therefore if the liquidity exists in the cash market, the CFD can be executed. Liquidity in one market is easily reflected in the other.

At this point it is useful to calculate the cross-over point between the cost of stamp duty in a traditional transaction and the funding charge associated with running the CFD position. In other words, how many days need to elapse before the saving in stamp duty is exceeded by the higher cost of buying the CFD and borrowing 90% of the funds? This is easily calculated by finding the crossing point between the stamp duty cost incurred up front in a traditional transaction and the incremental daily funding cost of a CFD, typically 3% over base rates on 90% of the value of the transaction. This is calculated as ((50/300)*365)/0.9 = 67.6 days, just less than 10 weeks.

Costs of holding a CFD

In other words, comparing financing costs with the saving in stamp duty, we find that economically it is more beneficial to hold the CFD for a short-term trade, however if the investment is held for longer than about ten weeks, it will probably be more efficient to pay the stamp duty. There is one other intangible factor, in that the stock may offer several quick trading opportunities or reach its target price much faster than initially anticipated and this would suit the CFD trader more as he only pays the funding for each day the position is held overnight, whereas stamp duty has to be paid up front regardless of how long the position is held. This reinforces the assertion that CFDs are more suited to short-term trading than long-term investment.

A more accessible marketplace

As mentioned above, four quite significant events have converged recently to make the UK stock market more accessible, visible, cost effective and user-friendly.

In October 1997, the London Stock Exchange introduced SETs, the computerized order-driven system, replacing the traditional market-making system for the top 200 or so stocks. Although initially treated with scepticism, SETs has now firmly established itself as the primary source of price discovery and liquidity with latest LSE figures showing that well in excess of 60% of all transactions take place on SETs. SETs is also used to determine official closing prices and pre-, intra- and post-market auctions are also providing CFD users with many trading opportunities. The ability to become pricemaker than just price taker and be able to submit limit orders within the market spread is a key feature of the modern market.

CFDs are not the only financial instrument to have experienced recent strong growth. The popularity of financial spreadbetting, the introduction by LIFFE of Universal Stock Futures and increasing use of the traded options market are all indications of the individual's appetite for alternative means of trading. A brief comparison between CFDs and spreadbetting is discussed later. Needless to say, actively trading the UK stock market and paying 0.5% each time for the privilege simply isn't economically feasible.

Level II, or the ability to view the full market depth has now become essential viewing. A number of websites offer this service, and being able to see all bids and offers submitted to the market can provide a picture of how well a stock is supported or if there is an overwhelming imbalance of sellers. However such information should also be regarded with caution, as market makers and other participants are not immune from 'loading' up the book with several orders to give the appearance that a stock is well supported, for those orders to magically disappear when there appears a risk that those orders may be filled. Full market depth places the individual on a level footing with the bigger institutions, but it should only be regarded as an aid to trading and not relied on as a sole source of information.

The fourth event of significance is the growth and proliferation of the Internet, both as a resource and a means of execution. The fact that online spreadbetting has enjoyed such strong growth cannot be completely unrelated to the fact that it is anonymous and can be conducted with little human contact. Some people find it intimidating to close positions at a steep loss and admit to such a loss both to themselves and others. The Internet has played a major role in bringing the markets closer, increasing their visibility, reducing the cost of trading and allowing an almost 'straight-through' type of trade processing. In the UK, unlike the US, price sensitive information is often released during the trading day traditionally giving an inherent advantage to investment banks and market makers who could adjust their prices accordingly. Now, with an order book and direct access, individuals can also act swiftly to take advantage of inaccurate pricing.

Courtesy: http://www.contracts-for-difference.com/contracts-for-differences.html

EBay accepts Moneybookers USA

Source: Moneybookers, 05 February 2009

Moneybookers USA Inc., part of the Moneybookers group, one of the world's largest online payments systems, is pleased to announce its integration on eBay.com as an official payment provider starting in February.

The Moneybookers payment platform offers a wide range of local and international payment options worldwide, with both merchants and customers benefiting from its ultra-secure payments system and high conversion rates. The system protects auction buyers' personal data from identity theft and fraud, whilst enabling sellers to offer their customers one of the easiest ways to pay online.

The Moneybookers partnership is part of eBay's efforts towards making its own online checkout process a more consistent and secure experience, providing a better choice to its sellers and buyers. A system like Moneybookers directly integrated on eBay.com will allow for a more efficient and reliable service, increasing the safety of both buyers and sellers in every single transaction as well as ensuring the best possible conversion rates during the checkout process.

Items totalling almost $60 billion in value were traded on eBay globally in 2007 and the auction site currently has over 86 million active users worldwide. Moneybookers will be available for all eBay.com users in February.

Markus Kroeger, Managing Director, Moneybookers USA, Inc., said:

"We are delighted that our platform has been chosen by eBay as an approved and directly integrated accepted payment provider. Moneybookers will offer all eBay sellers and buyers more choice, higher security and a high performance checkout process. Our system keeps data safe and makes sure that sellers receive their money in the quickest and most convenient way. This is a significant step in the continued success of Moneybookers. eBay is the biggest and most successful online marketplace in the world. Our new partnership with them positions us for sustained rapid growth, following on from a highly successful 2008."

Proof that forex brokers cheat you

You’ve probably heard of Forex brokers ripping off their clients by using various dirty tricks. Some of the most common ones are: stop hunting, requoting, widening the spread to some ridiculous number, software disconnects, lagging/fraudulent price quotes, unfilled orders, and account banning. Yes, they will politely (sometimes not so politely) tell you to bugger off if you’re consistently profitable.

I bet you’d like to know what tools brokers use to accomplish their nefarious deeds. Well, I’ve got just the thing for you! Check out the screenshots below:

metaquotesvirtualdealer1.jpg

metaquotesvirtualdealer2.jpg

Yep, your eyes are not deceiving you. They actually have very specialized and advanced software that they use on their trading servers to make sure that YOU end up losing. In most cases the majority of these so called brokers don’t even deserve that title. Technically speaking a broker is only an agent who executes orders on behalf of clients, whereas a dealer acts as a principal and trades for his or her own account.

Someone asked on MetaQuotes forum “What is the Virtual Dealer plugin used for? Many pepople want to know.” and guess what happened:

virtualy_banned.JPG

Here is more:

dealer.PNG

deletedpost.PNG

Lovely, isn’t it? I very much doubt that only MetaTrader4 based brokers have this type of software installed on their trade server. I often hear brokers touting that they have “no dealing desk” and whatnot, but to me this is just exploiting the vagueness of language. When they say that they have no dealing desk they really mean it, BUT what they really mean is that they have no HUMAN operated dealing desk, and instead they use software dealing desk applications such as the one you see in the screenshots here.

Experienced trades already know the games dealing desk forex brokers play so this post is mainly geared towards beginning traders. Having said that my advice is this:.

1) Stick to only so called “reputable” brokers. Do your research before you open an account with any broker. It may also be helpful to ask them if they use virtual dealing desk software. Ask them to send you a written statement saying that they do not. If they refuse or do not answer then simply move on and DO NOT open an account with them.

2) DO NOT open up a large account with dealing desk brokers. I’ve come to learn that the majority of brokers have software routines that specifically flag large accounts. They will target you and incrementally erode your account balance using their dirty tricks.

3 ) If you can avoid this stay away from trading before/during/or immediately after important news releases.

4) Take money out of your brokerage account on a regular basis!

5) Learn learn and learn some more. Practice in a demo account until you are consistently profitable. When you are then I suggest you look to open an account with an ECN broker.

That about does it for this post. If you wish to discuss this topic you can either visit my forum or the forex factory forum thread.

Thread on The Money Guru Forum (my own forum):

http://www.moneyguruforum.com/forex-brokers/7050-proof-forex-brokers-cheat-you.html

Thread on the Forex Factory Forum:

http://www.forexfactory.com/showthread.php?p=1855072#post1855072

Happy trading everyone, and I hope you don’t end up being victimized. If you do please see me with your proof/evidence and I will gladly publish it on my blogs.


Author:
alan
Time:
Sunday, April 20th, 2008 at 4:37 pm
Category:
Scam Warnings, Forex News, Forex Scams, General News

Source: http://alansforexblog.com/2008/04/20/proof-that-forex-brokers-cheat-you/

Connecting MetaTrader 4 to an ECN Broker

Let’s face it, the majority if not all forex brokers that support the MetaTrader 4 platform are pure bucketshops. I have yet to find ONE MT4 broker which offers a true non-dealing desk trading environment. A lot of them claim this, but it is all pure bullshit, if you’ll pardon my french. If they have fixed spreads they CANNOT be a non-dealing desk broker! Any broker that offers fixed spreads by definition can’t be offering a no dealing desk trading platform. Just be aware that when there is a trading desk involved (be it human or computer operated) you are not trading in a true market environment but instead are in a “sandbox” type of trading environment where the broker has full control over your position. So how do you get around this? The solution is simple, use ECN brokers.

The thing is that some of us are somewhat attached to the MetaTrader 4 platform. I personally think it is a pretty neat and functional trading platform. The scripting abilities are excellent, and there are just so many free indicators and expert advisors available for this platform that it has become wildly popular with retail traders. However, most ECN brokers do NOT support the MT4 platform. One of the main reasons is that MT4 server/client software was never meant to operate in an ECN trading environment. Many brokers have tried to adapt it to an pure ECN trading environment and failed. So can we have our cake and eat it too? Yes, you can, but it involves a bit more work.

I’m going to tell you about some possible solutions which you can use to get MT4 to work more or less reasonably well with some ECN brokers. By the use of a specialized API (programming interface) it is possible to setup a virtual bridge between MT4 and the ECN platform. This will give you a more accurate, reliable, and less “doctored” price feed along with SPT (straight pass through) execution so your trades get routed directly into the interbank environment.

So far I know of 3 ways you can get this done:

1 - Some ECN providers offer their own custom API you can use. I only of one ECN broker that offers this solution and they’re called HotspotFX. For more details check out this link:

http://eu.hotspotfx.com/trading-software/connectivity/api-for-metatrader/

2 - You can use commercial software. I scoured the net and forex forums and there just isn’t that much relevant software out there. One that I did come across is called TradeBullet. See their homepage for more details.

http://www.tradebullet.com/

3 - The free route - always my favorite. However the disadvantage to this solution is that it may not have all the capabilities or bells and whistles of commercial alternatives. The only free solution that I’ve found is called TWSLink. This solution is free, so no hand holding for you! You’re just going to have to figure out things for yourself using the documentation available. Visit this website for more details:

http://www.trade-commander.org/twslink/twslink.htm

If anyone else knows other solutions please feel free to contact me and I will gladly add it to this article with links to your site(s) and everything.

Until next time, many pips to you all!

Courtesy: Alan (http://alansforexblog.com/2008/04/23/connecting-metatrader-4-to-an-ecn-broker/)

ECN Forex Brokers - Why Are They Better Than Other Brokers?

Exactly what is an ECN broker? An ECN broker stands for Electronic Communications Network broker. ECN forex brokers are not comprised of having a dealing desk. Instead they provide a market place that is networked with other market makers and financial institutions. What this type of broker allows is the trader can enter bids into their trading software inside or outside the market spreads. This gives the advantage of getting better spreads.

By using ECN forex brokers, the trader will get into a trader at a better price than a trader that is entering using a market maker broker. An order by the trader is sent to the best bid/ask offer there it. Spreads usually are in range of .5 pips to 3 pips. Compare this to market mover spreads, which can sometimes be as high as 8 pips. ECN forex brokers do however charge small commission fees. This is actually how the broker actually makes their money since the spread they offer is extremely low. This does not harm the trader much though since they are able to benefit at getting in at a better price. They will only match your offer and send it to the best bid/ask in the computer network market.

Now since we are comparing this broker with others, I will explain what the market maker broker does.

Market makers in the forex market are the ones that provide liquidity in the markets. They are the ones that will quote both a buy and sell price on a financial instrument. The way they make their earnings is through their spreads on the bid/ask prices. They are important in that they keep the market moving as they take the opposite positions the traders placing orders on. The makes sure that there is constant liquidity in the markets.

By taking on the other side of the trade, market makers do take on some risk but still look to profit from the bid/ask spreads. They will often widen their spreads during fast moving markets. The appeal most traders get out of these types of brokers is that they are advertised not to take on any commission fee. One still should remember however that you make up for this in the price you get in at when your trades are executed. Weighing the benefits would be the best option before deciding.

Courtesy: http://www.associatedcontent.com/article/403679/ecn_forex_brokers_why_are_they_better.html

Forex Tips: Loss of opportunity is preferable to loss of capital

1) Identify highest probability, ignore the others.
2)Never ever rush into or chase a trade,Loss of opportunity is preferable to loss of capital.
3) Always look for most obvious charts patterns, same as the big boys will be looking at.
4) Dont Overtrade , its the same as gambling.
5) Have a plan - Set targets
6)Study Trader Pschology
7)Treat it as a business , start small ,use the method of compounding

Forex Trading Tips

It is recommended that when starting you only trade 2% of your trading
account on each trade. As you get confident with the market and your
skills get it up to 3-5%.

The Best Times to Trade the Forex Market

The forex markets are great because they are open almost all of the
time and there are a wide range of currencies to choose from. This
brings up an important question.

What are the most active hours for forex trading?

Generally speaking, the most active hours all around are between the
London markets opening around 8:00 GMT and end with the markets in the
US closing around 22:00 GMT. The absolute busiest time in the forex
markets are during the London to US overlap between 13:00 GMT to 16:00
GMT. These are the hours that are the most liquid or when the most
traders are in the markets making trades. If your intention is to do daytrading, these are key hours!

What are the major sessions for forex trading?

There are 3 major sessions each day in the forex markets. They are the London session, the US session, and the Asian Session.

The London Session

The London session starts around 8:00 GMT and winds down around 1600
GMT. The currencies that are the most active during these hours are
EUR, GBP, and USD.



The US Session

The US session starts around 1300 GMT and winds down around 22:00 GMT.
The currencies that are the most active during these hours are AUD,
EUR, GBP, JPY, and USD.



The Asian Session

The Asian session is a reasonable quiet session on most days. All pairs
are pretty slow moving and it is not a good time to day trade. The only
real currency that has noteworthy activity is the JPY and the activity
is slow unless a major financial event happens.

Summary

The best hours for trading the forex markets, no matter your method,
are during the London and US session overlap. The markets are full of
active participants during these hours and the currencies really move.
For the most part, even the larger fundamental
news comes out during these times. Trading during these hours is your
best chance to get in while the market is making decisive moves and it
will be your best chance to score quick profits.

Related Articles

• What Are the Best Trading Hours
• Currency Markets - Forex Markets - Currency Futures Markets - Currency Trad...
• The Best Time to Trade The USD
• Holiday Trading - Reasons to Avoid Holiday Trading
• Where do Commodities Trade?

Source: http://forextrading.about.com/od/forexbasics/a/trading_times.htm

Mistakes That Forex Traders Make

When getting started in forex trading, there are common mistakes to be avoided. This is a list of common forex trading mistakes.

1. Using Too Much Leverage
One of the biggest advantages of forex trading is the ability to use leverage or trading on margin. One of the most common mistakes that forex traders make is using too much leverage. Using too much leverage is when you have a small account balance, but make a big trade. If the market moves against your position by just a small amount, it can result in large losses. Commonly, the beginning forex trader will get emotional and nervous and close the trade for a sizable loss.

2. Over Trading
Over Trading occurs when traders try to look for trading opportunities that are not really there. It happens to new traders very often, because they just want to trade. The result is usually a poorly executed trade that results in an eventual loss. Over trading can also result in traders making too many trades at once and using too much margin.

3. Picking Tops and Bottoms
Many new traders attempt to try to pinpoint where a currency pair will turn around and start moving the opposite direction. This is something that is difficult even for professional traders.

Courtesy: http://forextrading.about.com/od/forexfaqs/tp/Forex-Mistakes.htm

Forex Technical vs Real Leverage - It is REAL leverage which is dangerous!

If leverage is dangerous, then using a very small one - or none -
should protect a trader against any danger resulting from trading large
positions, right? WRONG!



This confusion is caused by a misunderstanding of the word ‘leverage’, which can have at least two different meanings.



First, leverage has a purely technical meaning and refers to the
instrument offered by a broker in order to boost a trader’s power to
make profit (or suffer losses). Broker X can offer a 50:1 maximum
leverage for trading on its platform, while broker Y may offer a 400:1
maximum leverage.



When we are talking about leverage in its technical aspect, there is
nothing wrong with using the highest leverage allowed by the broker. It
is not the use of this instrument per se that places us in a risky
situation, and in what follows we will explain why.



Leverage also has a more direct meaning, referring to the actual size of a trader’s position in the market.



We often hear traders ask: “what leverage are you using?”. In this
case, they rarely refer to the technical aspect of this instrument.
What they are interested in is the effective leverage, namely to what
extent the respective trader is using money that is not his own in
order to boost his trading beyond the limits of his account. This is
what really matters, this is the big bad wolf… Let us first give an
example, then draw our conclusions.



Let’s consider 2 traders, with two similar accounts of, say, 10.000$.



* Trader A is trading with broker X, and has a 50:1 maximum leverage available on his platform.

* Trader B is trading with broker Y and has a much higher leverage available: 400:1.



We are talking in both cases about a technical leverage. Trader A
decides to use only 10:1 leverage for his trades, while trader B goes
for the maximum possible leverage, 400:1.



Let’s assume for the sake of simplicity that both traders use a fixed
amount margin: trader A will be asked to deposit 10000$ as margin for
each standard lot he trades (100.000$), while trader B will be asked
for only 250$ margin deposit per standard lot.



Now, both our traders decide to go into the market with a position of,
say, 50.000$ (0.5 SL). Effectively, both of them are trading 5 times
the amount of money available in their accounts, so their real leverage
is the same.



Technically, the situation is very different (50:1 vs 400:1 leverage),
however both traders hold a similar position in the market, and each
pip up and down affects them in the same way. We can easily understand
that - for equal position sizes - a higher technical leverage does NOT
increase the overall risk for the trade.



Moreover, there is another aspect we should take into account: trader B
enjoys a slightly more favorable position than trader A, as his margin
requirement is lower and thus he could hold a possibly losing position
for a longer period of time before reaching a margin call than trader
A. Trader A may have thought that his 10:1 technical leverage would
protect him, still he is at least as exposed to risk as trader B and he
may not even be aware of that…



From the above, we can draw some interesting conclusions.



It is not technical leverage that is dangerous, but the REAL leverage,
corresponding to a position larger than one can afford to trade.



One could trade on a very high technical leverage, and still open very
small positions - which of course will still keep him on the safe side.



Professionals repeat it over and over: ‘don’t use high leverage’. They
refer to the REAL leverage, the size of the position, the money a
trader does not have in his account. Whether we use a higher or a lower
technical leverage for our trading - that is a secondary issue.



My personal advice is: use the highest technical leverage available
(this will keep your unused funds to the highest level and you may even
make small profits from interest earned on these funds), but ALWAYS
KEEP THE REAL LEVERAGE AT THE LOWEST POSSIBLE LEVEL.



Watch carefully the size of your positions, your pip value and how much
you can lose from each trade, then place this information in the
context of your account. Keep your position size small, and you will be
able to have a good control over your account.

Courtesy: http://forum.fxopen.com/archive/index.php?t-8683.html

Forex Leverage is the Killer

What leverage does, it allows a trader to trade money he/she doesn't possess. We may call it virtual money trading. While making profits with virtual money is possible, it is absolutely impossible to lose virtual money, instead traders lose only real money they have invested or earned as a result of profitable trading."

Let's take an example.
Invested capital = 1000 US dollars.
Leverage 200:1
Buying/selling capability = $1000 * 200 = $200 000

This enables a trader to buy/sell a regular trading lot size of 100 000 units, which looks good and feels good (when think about potential profits). But is it safe?

Leverage allows to trade larger positions on the market. Larger positions mean larger profits when a trader wins a trade, but also larger losses if a trader was wrong on the trade.

In our case (with 100 000 units lot size) each pip a trader earns brings him $10 profit, but each pip he loses cost him -$10.

Leverage concerns are all about losses. So let's focus on the simple math.
A normal regular situation: the market moves 20 pips against an open position and our trader loses 20 pips.

20 times $10 equals -$200.

Those $200 dollars will be subtracted from initial $1000 account balance, which will bring it down to $800. (Buying/selling capability will now match $800 * 200 = $160 000)

What we actually have is that 1/5 of traders' initial investment has been lost in just one trade(!) — a trade where conditions were moderate, e.g. losing 20 pips is not a big deal for currency trading; traders on average may lose 50-70 pips on each trade. No need to mention that in two consecutive losing trades of -50 pips each, our trader would lose his/her entire account, it is so quick!

-50pips * $10 = -$500
-$500 * 2 = -$1000

That's why you hear traders calling high leverage "leverage the killer".

Conclusion: one cannot trade with large virtual money having invested little real money. Highly leveraged account and high buying/selling capability doesn't mean one should be trading away with large trading lots.

In our case, having invested 1000 US dollars no matter at what leverage, a trader can only trade reasonably with a lot size of 10 000 units (or less) where each pip would cost $1 (or less). Hence, losing 20 pips would mean losing only $20 on one  trade. We advice trading with pip cost smaller or equal to $1 for accounts smaller than $1000 dollars. (1 pip = $1 when trader open 1 lot of 10 000 units)

If we cannot use our buying/selling capability provided by leveraged account, how can we use leverage then? What difference would it make if we take lower or higher leverage?

We need higher leverage to have lower margin. But before we have have to learn what margin in Forex is.

Courtesy: http://www.forex-money-management.com

About Leverage on FOREX: A Dangerous Game

If you are a forex trader considering one of these '400-1 leverage' offers, you should first know:

1. The rules of the game you are about to play.

2. About leverage on Forex and how it works, not for you, but for the broker.
Here is how it works:

Leverage can be beneficial but it can be your worst enemy. 400-1 means that US$1000 can control a $400,000 position say against the Yen. This is great but it also means that even a small move against your position can wipe your account clean. This is obviously very bad news for you but great news for the broker!

Why Is It Great News For Them?

Well, the first thing that traders must realise is that Forex firms make their own markets - they make the bid-offer price to clients. They use the assumption (just like casinos) that as most highly leveraged speculators lose then it's good business to take the opposite position to them.

This is done automatically, so when a client buys Dollars against the Yen, the broker sells short the Dollar. When the client covers the position (either for a profit or loss) the broker is taken out also. If the client wins the broker loses and vice-versa. This is how the leverage game is played.
So, who do you think usually wins in this game? No, not you. It’s the broker. It’s a statistics game and the statistics say highly leveraged speculators lose.
   
Ok then. If the brokers stand to gain when a client loses, what is the best way to make sure that the clients lose Bigtime?

Easy, let them trade huge positions on a limited amount of capital so that the odds even for the best and most talented traders are pretty much - ZERO.

Why do you think that the ads of '400-1 leverage' are splashed all over the brokers websites? They are selling you the supposed ‘benefit’ when in turn, the reality is that the only ‘benefit’ is to them.


Conclusion:

If you want to play the leverage on forex game, understand how the game works. The game basically works this way: The broker is the shark. The retail trader is shark food. If you are serious in your quest to make money currency trading – educate yourself. Learn how the game works and get a good forex trading system.

Jovan Vucetic - Indepenent Forex Trader and Editor of http://www.margin-strategies.info/ Margin Strategies is about educating traders: Trading is both mind and method. Read our reviews of forex trading systems including Peter Bain ForexMentor.

Copyright (c) Searchwrap.com

Gold soars as anxiety over financials remains high

By SARA LEPRO, AP Business Writer Sara Lepro, Ap Business Writer

–
Wed Feb 11, 2009 4:34 pm ET

Gold soars as anxiety over financials remains
NEW YORK – Gold prices continued their ascent Wednesday, logging a two-day advance of nearly 6 percent, amid lingering concerns over the health of the country's banks.

Oil prices and agriculture futures fell.

Gold prices have soared this week as anxiety on Wall Street remains high. Investors are largely disappointed in the Treasury Department's overhaul of the financial bailout package passed last fall. As a result, the market is losing faith in the government's ability to restore the ailing industry, as well as the economy, to health.

In times of economic distress, investors often move to gold for safety as its value holds up much better than many other investments.

There is also an increasing concern that the government's efforts to revive the economy will trigger inflation over the long term. The market is awaiting a resolution on a nearly $800 billion economic stimulus package. Key lawmakers announced agreement Wednesday on a bill that reconciles differences between the House and Senate versions, and President Barack Obama could sign it within days.

The bill centers on the creation of millions of jobs as well as the devotion of billions of dollars to a vast public works program. As a result of so much money being pumped into the system, economists warn that inflationary pressures may return. Gold is often used as a hedge against inflation.

Gold for April delivery jumped $30.30 to settle at $944.50 an ounce on the New York Mercantile Exchange — its highest close since last July.

Other precious metals prices were mixed. March silver rose 39 cents to $13.52 an ounce, while March copper futures fell 3.6 cents to $1.54 a pound.

On Wall Street, stocks fluctuated in and out of positive territory for much of the day. The Dow Jones industrials ended up 50 points at 7,939. Broader stock indexes rose less than 1 percent.

The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 2.75 percent from 2.82 percent late Tuesday.

Oil prices plunged following a government report showing another huge jump in crude inventories.

Light, sweet crude for March delivery dropped $1.99 to settle at $35.94 a barrel.

In other Nymex trading, gasoline futures jumped 3.7 cents to $1.28 a gallon, and heating oil gained 2.1 cents to $1.32 a gallon.

Grain prices fell on the Chicago Board of Trade. March wheat futures lost 12.75 cents to $5.4325 a bushel, while corn for March delivery fell 8.25 cents to $3.6850 a bushel.

March soybeans fell 16 cents to $9.78 a bushel.

Forex Bigben Strategy

1. The GBP/USD pair makes a new range low at least 25 pips (a pip is the forex equivalent of a tick, or minimum price fluctuation) below the opening price after the early Frankfurt/London trading in the GBP/USD rate begins around 1 a.m. ET.
2. The pair then reverses and trades 25 pips or more above the opening price.
3. The pair then reverses once again to trade back below the intraday low established in step 1.
4. Sell a breakout (at least seven pips) below the London low.
5. Once filled, place an initial protective stop no more than 40 pips above the entry price.
6. After the market moves lower by the distance between the entry price and the stop, cover half the position and trail a stop on the remainder.

These simple rules position you to profit from common behavior that can occur in the pound/dollar when the London/European market opens.

200 EMA Forex Strategy

Are you a relatively new trader looking for a solid forex strategy?

A
challenge facing many new traders when developing their forex strategy
is the ability to identify the overall trend for intra-day trading.

The 200 EMA (Exponential Moving Average) can solve the problem.

The
200 EMA is one of the most popular indicators of all time with Forex
traders the world over, and for that reason alone is worth noting due
to the psychological effect on the market place price can have when
hovering around the 200 EMA.

Using The 200EMA Strategy

To use this very powerful Forex strategy, create charts on 3 time frames:

• 4 hour
• 1 hour
• 15 minute

Now plot a 200 EMA indicator on each chart and, as a suggestion, color it red, for easy visual impact.

Preferably
tile the 3 windows containing your 3 charts into a vertical fashion so
you can see the 3 time frames next to each other. It will squeeze up
the information on the charts somewhat but for the purpose of this
strategy that doesn't matter.

Now scroll through the various currency pairs you like to trade.

If you prefer to trade only pairs with a smaller pip spread, they amount to about 9.

They are:

• EUR/USD
• GBP/USD
• USD/CHF
• USD/JPY
• EUR/JPY
• USD/CAD
• AUD/USD
• NZD/USD
• EUR/CHF

What you are looking for is any currency pair that bucks the 200 EMA on the 15 minute chart.

So for example, look at the EUR/USD pair and note the position of price relative to the 200 EMA on the 3 time frames.

If
price is well above the 200 EMA on the 4 hour chart, well above the 200
EMA on the 1 hour chart, but BELOW the 200 EMA on the 15 minute chart,
price is bucking the trend.

The overall trend is up, price has temporarily gone against the trend and is currently in a retracement.

Using
the fundamental trading principle of "buy the dips in an uptrend",
"sell the rallies in a downtrend", look for a suitable entry point.

In
the example given above you would look for an opportunity to buy the
EUR/USD, perhaps watching for a candle signal that price has exhausted
it's downward momentum, bucking the 15 minute chart 200 EMA and will
soon resume it's upward momentum.

This is an easy exercise and it can be done once or twice a day, taking just a few minutes.

Watch For Price Bucking The Trend

Once
you see price bucking the 200 EMA on the 15 minute chart, whereas it is
on the opposite side on the 4 hour and 1 hour charts, sit up and take
note. Watch carefully and grab the opportunity to get in and make some
pips.

After a little practice you will see how extremely powerful
this simple Forex strategy is - certainly deserving a place in your
trading tool kit.