Jump to content

Welcome to the new Traders Laboratory! Please bear with us as we finish the migration over the next few days. If you find any issues, want to leave feedback, get in touch with us, or offer suggestions please post to the Support forum here.

  • Welcome Guests

    Welcome. You are currently viewing the forum as a guest which does not give you access to all the great features at Traders Laboratory such as interacting with members, access to all forums, downloading attachments, and eligibility to win free giveaways. Registration is fast, simple and absolutely free. Create a FREE Traders Laboratory account here.

brownsfan019

Open ECry Wish List Thread

Recommended Posts

I think I've mentioned before that I write up some reviews for Open ECry about ideas for improvements on their software - charts, dom's and the main trader window.

 

Since there are a few other OEC users on the board, I thought I'd create an OEC Wish List thread where you can list ideas for improvements, large or small. I cannot promise that any will be implemented, but I will be sure to pass the suggestions on. I usually write up a review quarterly or so for them.

 

So post any ideas or suggestions here or PM me if you'd prefer to keep them private. No names will be given to OEC (unless you ask me to) with any ideas or suggestions.

 

And for anyone wondering why I do this, it's simple - the better and stronger that OEC trader is, the better for all of us using the product. OEC has been good to me, so I have no problem doing this for them. It's a 'scratch my back and I'll scratch yours' kind of thing.

Share this post


Link to post
Share on other sites

A few things I wrote down and have questions about...

 

1 - internals would be nice.

2 - Some people may like to see MP. I might eventually want that option, but don't need it.

 

On TS I can type in @YM and get the YM contract over several years or whatever. I'm sure you can do this with OEC based from your charts, but I'm not sure how?

 

Are the fibonacci retracement lines customizable? For example on TS I can decide what %s I want to plot and that was convenient. If they don't offer that, then that would be something I would like to see on my wish list.

 

Other than that I like it so far. I like how it has it's own feel as well and the fact that it isn't nearly as CPU intensive as TS. I will use the platform more this week and come back with more questions/requests for you.

 

Thanks! :cheers:

Share this post


Link to post
Share on other sites
A few things I wrote down and have questions about...

 

1 - internals would be nice.

 

Please detail what exactly you want to see here.

 

2 - Some people may like to see MP. I might eventually want that option, but don't need it.

 

Again, please detail. Since I do not use MP, not sure what to ask for here.

 

On TS I can type in @YM and get the YM contract over several years or whatever. I'm sure you can do this with OEC based from your charts, but I'm not sure how?

 

What you want is a continuous contract which is not yet available on OEC. It's on my list AND theirs.

 

Are the fibonacci retracement lines customizable? For example on TS I can decide what %s I want to plot and that was convenient. If they don't offer that, then that would be something I would like to see on my wish list.

 

I believe they are but will have to play around with here to see for sure.

Share this post


Link to post
Share on other sites

Hi BF and James - thanks very much BF, great idea,

 

I have an idea/request - might be a bit "out there" and might have to be a longer-term project (although tomorrow would be good :) )

 

It is for a simple trading keyboard that links in with OEC software. "Buy" button, "Bid" button, "Sell"/"Offer" etc. This might be too much wishful thinking, but a dedicated, small trading keyboard, specifically linked in to the broker software is so much easier to use than a regular keyboard/mouse combination. I can post a picture of the sort of thing I would like if you think it is a good potential suggestion - again, might be a bit over the top?

 

I am thinking along the lines of an EBS keyboard/screen combo (used in spot FX).

Share this post


Link to post
Share on other sites

Market internals: I want to see ticks, trin, trinq, ticki, put/call ratio. I want to be able to plot the trin on a graph, same with the ricks. This is my "internals screen". Note that I have the ADX up instead of the put/call but I'm getting that sorted out with TS right now, but that's where the put/call would normally be. As you can see, I have a spot for the trin, and ticks. This is helpful for me throughout the day so I can gauge market sentiment.

 

attachment.php?attachmentid=4821&stc=1&d=1200899285

 

This also brings up time and sales. I believe we talked about this already, but I would like the ability to watch time and sales like on the screen shot. The ability to watch sectors like the banking and semiconductor sector would be convenient, but not something I need and I wouldn't really notice if I didn't have it. It's basically there to fill space right now, but some may like that.

 

As far as MP goes, I'm really not sure what to ask for since I don't use it either. MP is something I would want to use in the future, so the only thing I can think of is to be able to view it like in all of SoulTraders videos and charts. Even the ability to import it from marketdelta.com would be nice. But like I said, since I'm still unfamiliar with it I don't know what to really ask for (or if I should even be asking, but I can't learn how to use it without seeing it in real time). I will look into this more and get back to you.

internals.thumb.jpg.234b9461486b495b84c02b52564baa4b.jpg

Share this post


Link to post
Share on other sites
Hi BF and James - thanks very much BF, great idea,

 

I have an idea/request - might be a bit "out there" and might have to be a longer-term project (although tomorrow would be good :) )

 

It is for a simple trading keyboard that links in with OEC software. "Buy" button, "Bid" button, "Sell"/"Offer" etc. This might be too much wishful thinking, but a dedicated, small trading keyboard, specifically linked in to the broker software is so much easier to use than a regular keyboard/mouse combination. I can post a picture of the sort of thing I would like if you think it is a good potential suggestion - again, might be a bit over the top?

 

I am thinking along the lines of an EBS keyboard/screen combo (used in spot FX).

 

Give me some actual examples Mr. Ed. Much easier to say - here, look at this! ;)

Share this post


Link to post
Share on other sites

I am not currently with Open E Cry, but I will be moving over to them in the next few weeks. It is great they have charting, but my big hang up is that they dont offer MP.

 

Due to this, I am going to have to get a charting package as if they did not have charting at all.

Share this post


Link to post
Share on other sites
I am not currently with Open E Cry, but I will be moving over to them in the next few weeks. It is great they have charting, but my big hang up is that they dont offer MP.

 

Due to this, I am going to have to get a charting package as if they did not have charting at all.

 

Again - I need specifics. Just saying "MP" does not mean anything to OEC and people like me that do not use MP. I need SPECIFICS.

Share this post


Link to post
Share on other sites

BF - here are some examples. The EBS screen/keyboard is used in the interbank FX market, it is a dedicated dealing system hence a the keyboard and screen are stand-alone units, working together.

 

The first screenshot is of the screen

The second screenshot is a zoom of two of the price panels on the screen with some explanation

The third screenshot is the keyboard

 

All the screenshots are from the EBS website and hence a lot of the annotations are theirs, but I have added my annotations to (theirs are the professional-looking annotations!).

 

The fourth screenshot (on next post) is a suggestion for the basics that would probably need to be on an OEC screen - it is similar to their current DOM trading screen, with a couple of differences, biggest being the DOM does not scroll, the best price remains fixed in the centre at all times. (This could be a starting point for suggestions to them for improvement).

5aa70e3500099_1.EBSscreen.png.6284033d2c604b8a0cf6e2f52243423f.png

5aa70e3508951_2.panelexplanation.png.425d8bc16f6084ee9ab73daeab7a6fc7.png

5aa70e350ea49_4.keypad.png.baeb7c240156e556b6914ff82ad3a439.png

Share this post


Link to post
Share on other sites
Fourth screenshot (explanation in my prior post)

 

I already know that a 'static' dom is not available in futures due to patent infringements with another well-known product. I've asked for a static dom numerous times but OEC's stand is to have a somewhat static dom to avoid patent infringements. In order to have a static dom, an additional cost would have to be passed on to the customer.

Share this post


Link to post
Share on other sites
I already know that a 'static' dom is not available in futures due to patent infringements with another well-known product. I've asked for a static dom numerous times but OEC's stand is to have a somewhat static dom to avoid patent infringements. In order to have a static dom, an additional cost would have to be passed on to the customer.

 

Thanks BF - that was going to be my 'easy' request - we are obviously thinking along the same lines, I find that moving DOM very frustrating indeed...be good to get an indication of what the extra cost would be, could be worth it?

Share this post


Link to post
Share on other sites
Thanks BF - that was going to be my 'easy' request - we are obviously thinking along the same lines, I find that moving DOM very frustrating indeed...be good to get an indication of what the extra cost would be, could be worth it?

 

Honestly, I don't think OEC even wants to go there. I'll ask again to see if they would consider allowing the customer to decide for the extra cost. I know I'd pay it for a reasonable fee. If I recall (all from memory) it would be an added cost, per round trip, per contract - example: an extra 10 cents round trip, per contract. Doesn't sound like a lot when broken down to pennies, but it can add up quickly.

Share this post


Link to post
Share on other sites
added cost, per round trip, per contract - example: an extra 10 cents round trip, per contract. Doesn't sound like a lot when broken down to pennies, but it can add up quickly.

 

True ... but then again I pay for a bottle of Fly Spray cause I am not adept at swatting them...:haha:

Share this post


Link to post
Share on other sites

BF - while you say that a static DOM is probably not a go - what are your thoughts on the chances of getting one-line static DOM, just the best bid and offer that change without scrolling - see attachment.

5aa70e35d673f_NoDOMjustbestprices.png.0af90fd69b8c1241d8ec645c24984f5b.png

Share this post


Link to post
Share on other sites
BF - while you say that a static DOM is probably not a go - what are your thoughts on the chances of getting one-line static DOM, just the best bid and offer that change without scrolling - see attachment.

 

Good idea Mr Ed, will put it in my review! This might be a way around the patent thing.

 

The only issue will be for traders that use limit and/or stop orders... For example, if you want to place a limit order to buy 5 ticks below current price, how could you do that? Or place a stop order once filled? Or a buy/sell stop to enter an order?

 

What do you think?

Share this post


Link to post
Share on other sites
Good idea Mr Ed, will put it in my review! This might be a way around the patent thing.

 

The only issue will be for traders that use limit and/or stop orders... For example, if you want to place a limit order to buy 5 ticks below current price, how could you do that? Or place a stop order once filled? Or a buy/sell stop to enter an order?

 

What do you think?

 

OK - will have a think about those and be back.

Share this post


Link to post
Share on other sites

Hey BF:

 

I am test driving OEC and overall like what I see. But it's still surprising that some basic infrastructure systems are not in place.

 

How about an ACH setup for account funding transactions? After all, primary functions of a trading account are to put money in or take money out. It is not a convenient thing for me to head down to a bank during banking hours (also RTH). The $25 wire fee is a miniscule but annoying bit as well. I may not visit my mailing address for months at a time, so checks are also not convenient.

 

I'll make this suggestion directly to OEC. The inclusion of this request in your review would be apprepriated,

 

Thank you,

 

Bam-Bam

Share this post


Link to post
Share on other sites

mostly wishful thinking, I had a chance to talk to the 'top' guy asking him for displaying of volume in 2 just 2 colors, he said thanked for suggestion that is what he looked for in feed back. Guess what? that was about 2 months ago and don't even think about sending in any suggestion, it is like a bottomless pit, I never get any reply for any suggestion.

Share this post


Link to post
Share on other sites
mostly wishful thinking, I had a chance to talk to the 'top' guy asking him for displaying of volume in 2 just 2 colors, he said thanked for suggestion that is what he looked for in feed back. Guess what? that was about 2 months ago and don't even think about sending in any suggestion, it is like a bottomless pit, I never get any reply for any suggestion.

 

Just b/c your ONE suggestion was not immediately implemented does not mean OEC does not listen. A new update was installed today and a few things I have provided to them have been implemented. So far, I have seen:

 

1) Snap mode on lines

2) Text on lines (custom and value display)

3) Weekly pivots

4) Monthly pivots

 

That's what I saw just glancing through the update that came through today.

 

So, yes, OEC does in fact listen. Perhaps your request was the ONLY one asking for this; therefore, the level of importance is one customer. If other customers are requesting features, majority will win most of the time.

Share this post


Link to post
Share on other sites
I already know that a 'static' dom is not available in futures due to patent infringements with another well-known product. I've asked for a static dom numerous times but OEC's stand is to have a somewhat static dom to avoid patent infringements. In order to have a static dom, an additional cost would have to be passed on to the customer.

 

There are people that have successfully challenged TT (e.g. E-SPeed) . Personally I think how they tried to strong arm the industry was shabby in the extreme. For smaller guys its easier just to roll over I guess. Seems clear to me that it is patent misuse (though as things stand this has not been ruled).

Edited by BlowFish

Share this post


Link to post
Share on other sites
There are people that have successfully challenged TT (e.g. E-SPeed) . Personally I think how they tried to strong arm the industry was shabby in the extreme. For smaller guys its easier just to roll over I guess. Seems clear to me that it is patent misuse (though as things stand this has not been ruled).

 

I agree BF. Currently OEC offers a 'delayed' static dom where the dom does stay centered but only recenters every few seconds vs. constantly static. I guess that's there way of getting around this issue.

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.
Note: Your post will require moderator approval before it will be visible.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.


  • Topics

  • Posts

    • good news!! It seems you can make good money at forex Why Do Many Forex Traders Lose Money? Here is the Number 1 Mistake David Rodriguez 11-14 minutes We look through 43 million real trades to measure trader performance Majority of trades are successful and yet traders are losing Reward to Risk ratios play a vital role in capital preservation Why do major currency moves bring increased trader losses? To find out, the DailyFX research team has looked through over 40 million real trades placed via a major FX broker's trading platforms. In this article, we look at the biggest mistake that forex traders make, and a way to trade appropriately. Why Does the Average Forex Trader Lose Money? The average forex trader loses money, which is in itself a very discouraging fact. But why? Put simply, human psychology makes trading difficult. We looked at over 43 million real trades placed on a major FX broker's trading servers from Q2, 2014 – Q1, 2015 and came to some very interesting conclusions. The first is encouraging: traders make money most of the time as over 50% of trades are closed out at a gain. Percent of All Trades Closed Out at a Gain and Loss per Currency Pair   Data source: Derived from data from a major FX broker* across 15 most traded currency pairs from 3/1/2014 to 3/31/2015. The above chart shows results of over 43 million trades conducted by these traders worldwide from Q2, 2014 through Q1, 2015 across the 15 most popular currency pairs. The blue bar shows the percentage of trades that ended with a profit for the trader. Red shows the percentage of trades that ended in loss. For example, the Euro saw an impressive 61% of all trades closed out at a gain. And indeed every single one of these instruments saw the majority of traders turned a profit more than 50 percent of the time. If traders were right more than half of the time, why did most lose money? Average Profit/Loss per Winning and Losing Trades per Currency Pair Data source: Derived from data from a major FX broker* across 15 most traded currency pairs from 3/1/2014 to 3/31/2015. The above chart says it all. In blue, it shows the average number of pips traders earned on profitable trades. In red, it shows the average number of pips lost in losing trades. We can now clearly see why traders lose money despite being right more than half the time. They lose more money on their losing trades than they make on their winning trades. Let’s use EUR/USD as an example. We see that EUR/USD trades were closed out at a profit 61% of the time, but the average losing trade was worth 83 pips while the average winner was only 48 pips. Traders were correct more than half the time, but they lost over 70% more on their losing trades as they won on winning trades. The track record for the volatile GBP/USD pair was even worse. Traders captured profits on 59% of all GBP/USD trades. Yet they overall lost money as they turned an average 43 pip profit on each winner and lost 83 pips on losing trades. What gives? Identifying that there is a problem is important in itself, but we’ll need to understand the reasons behind it in order to look for a solution. Cut Losses, Let Profits Run – Why is this So Difficult to Do? In our study we saw that traders were very good at identifying profitable trading opportunities--closing trades out at a profit over 50 percent of the time. They utlimately lost, however, as the average loss far outweighed the gain. Open nearly any book on trading and the advice is the same: cut your losses early and let your profits run. When your trade goes against you, close it out. Take the small loss and then try again later, if appropriate. It is better to take a small loss early than a big loss later. If a trade is in your favor, let it run. It is often tempting to close out at a small gain in order to protect profits, but oftentimes we see that patience can result in greater gains. But if the solution is so simple, why is the issue so common? The simple answer: human nature. In fact this is not at all limited to trading. To further illustrate the point we draw on significant findings in psychology. A Simple Wager – Understanding Human Behavior Towards Winning and Losing What if I offered you a simple wager on a coin flip? You have two choices. Choice A means you have a 50% chance of winning 1000 dollars and 50% chance of winning nothing. Choice B is a flat 450 point gain. Which would you choose?         Expected Return Gains Choice A 50% chance to Win 1000 50% chance to Win 0 Expect to win $500 over time   Choice B Win 450   Win $450 Over time it makes sense to take Choice A—the expected gain of $500 is greater than the fixed $450. Yet many studies have shown that most people will consistently choose Choice B. Let’s flip the wager and run it again.         Expected Return Losses Choice A 50% chance to Lose 1000 50% chance to Lose 0 Expect to lose $500 over time   Choice B Lose 450   Lose $450 In this case we can expect to lose less money via Choice B, but in fact studies have shown that the majority of people will pick choice A every single time. Here we see the issue. Most people avoid risk when it comes to taking profits but then actively seek it if it means avoiding a loss. Why? Losses Hurt Psychologically far more than Gains Give Pleasure – Prospect Theory Nobel prize-winning clinical psychologist Daniel Kahneman based on his research on decision making. His work wasn’t on trading per se but clear implications for trade management and is quite relevant to FX trading. His study on Prospect Theory attempted to model and predict choices people would make between scenarios involving known risks and rewards. The findings showed something remarkably simple yet profound: most people took more pain from losses than pleasure from gains. It feels “good enough” to make $450 versus $500, but accepting a $500 loss hurts too much and many are willing to gamble that the trade turns around. This doesn’t make any sense from a trading perspective—500 dollars lost are equivalent to 500 dollars gained; one is not worth more than the other. Why should we then act so differently? Prospect Theory: Losses Typically Hurt Far More than Gains Give Pleasure Taking a purely rational approach to markets means treating a 50 point gain as morally equivalent to a 50 point loss. Unfortunately our data on real trader behavior suggests that the majority can’t do this. We need to think more systematically to improve our chances at success. Avoid the Common Pitfall Avoiding the loss-making problem described above is very simple in theory: gain more in each winning trade than you give back in each losing trade. But how might we do it concretely? When trading, always follow one simple rule: always seek a bigger reward than the loss you are risking. This is a valuable piece of advice that can be found in almost every trading book. Typically, this is called a “reward/risk ratio”. If you risk losing the same number of pips as you hope to gain, then your reward/risk ratio is 1-to-1 (also written 1:1). If you target a profit of 80 pips with a risk of 40 pips, then you have a 2:1 reward/risk ratio. If you follow this simple rule, you can be right on the direction of only half of your trades and still make money because you will earn more profits on your winning trades than losses on your losing trades. What ratio should you use? It depends on the type of trade you are making. We recommend to always use a minimum 1:1 ratio. That way, if you are right only half the time, you will at least break even. Certain strategies and trading techniques tend to produce high winning percentages as we saw with real trader data. If this is the case, it is possible to use a lower reward/risk ratio—such as between 1:1 and 2:1. For lower probability trading, a higher reward/risk ratio is recommended, such as 2:1, 3:1, or even 4:1. Remember, the higher the reward/risk ratio you choose, the less often you need to correctly predict market direction in order to make money trading. We will discuss different trading techniques in further detail in subsequent installments of this series. Stick to Your Plan: Use Stops and Limits Once you have a trading plan that uses a proper reward/risk ratio, the next challenge is to stick to the plan. Remember, it is natural for humans to want to hold on to losses and take profits early, but it makes for bad trading. We must overcome this natural tendency and remove our emotions from trading. The best way to do this is to set up your trade with Stop-Loss and Limit orders from the beginning. This will allow you to use the proper reward/risk ratio (1:1 or higher) from the outset, and to stick to it. Once you set them, don’t touch them (One exception: you can move your stop in your favor to lock in profits as the market moves in your favor). Managing your risk in this way is a part of what many traders call “money management”. Many of the most successful forex traders are right about the market’s direction less than half the time. Since they practice good money management, they cut their losses quickly and let their profits run, so they are still profitable in their overall trading. Does Using 1:1 Reward to Risk Really Work? Our data certainly suggest it does. We use our data on our top 15 currency pairs to determine which trader accounts closed their Average Gain at least as large as their Average Loss—or a minimum Reward:Risk of 1:1. Were traders ultimately profitable if they stuck to this rule? Past performance is not indicative of future results, but the results certainly support it. Our data shows that 53 percent of all accounts which operated on at least a 1:1 Reward to Risk ratio turned a net-profit in our 12-month sample period. Those under 1:1? A mere 17 percent. Traders who adhered to this rule were 3 times more likely to turn a profit over the course of these 12 months—a substantial difference. Data source: Derived from data from a major FX broker* across 15 most traded currency pairs from 3/1/2014 to 3/31/2015. Game Plan: What Strategy Can I Use? Trade forex with stops and limits set to a risk/reward ratio of 1:1 or higher Whenever you place a trade, make sure that you use a stop-loss order. Always make sure that your profit target is at least as far away from your entry price as your stop-loss is. You can certainly set your price target higher, and probably should aim for at least 1:1 regardless of strategy, potentially 2:1 or more in certain circumstances. Then you can choose the market direction correctly only half the time and still make money in your account. The actual distance you place your stops and limits will depend on the conditions in the market at the time, such as volatility, currency pair, and where you see support and resistance. You can apply the same reward/risk ratio to any trade. If you have a stop level 40 pips away from entry, you should have a profit target 40 pips or more away. If you have a stop level 500 pips away, your profit target should be at least 500 pips away. We will use this as a basis for further study on real trader behavior as we look to uncover the traits of successful traders. *Data is drawn from FXCM Inc. accounts excluding Eligible Contract Participants, Clearing Accounts, Hong Kong, and Japan subsidiaries from 3/1/2014 to 3/31/2015. Interested in developing your own strategy? On page 2 of our Building Confidence in Trading Guide, we help you identify your trading style and create your own trading plan. Why Do Many Forex Traders Lose Money? Here is the Number 1 Mistake David Rodriguez 11-14 minutes We look through 43 million real trades to measure trader performance Majority of trades are successful and yet traders are losing Reward to Risk ratios play a vital role in capital preservation Why do major currency moves bring increased trader losses? To find out, the DailyFX research team has looked through over 40 million real trades placed via a major FX broker's trading platforms. In this article, we look at the biggest mistake that forex traders make, and a way to trade appropriately. Why Does the Average Forex Trader Lose Money? The average forex trader loses money, which is in itself a very discouraging fact. But why? Put simply, human psychology makes trading difficult. We looked at over 43 million real trades placed on a major FX broker's trading servers from Q2, 2014 – Q1, 2015 and came to some very interesting conclusions. The first is encouraging: traders make money most of the time as over 50% of trades are closed out at a gain. Percent of All Trades Closed Out at a Gain and Loss per Currency Pair     Data source: Derived from data from a major FX broker* across 15 most traded currency pairs from 3/1/2014 to 3/31/2015. The above chart shows results of over 43 million trades conducted by these traders worldwide from Q2, 2014 through Q1, 2015 across the 15 most popular currency pairs. The blue bar shows the percentage of trades that ended with a profit for the trader. Red shows the percentage of trades that ended in loss. For example, the Euro saw an impressive 61% of all trades closed out at a gain. And indeed every single one of these instruments saw the majority of traders turned a profit more than 50 percent of the time. If traders were right more than half of the time, why did most lose money? Average Profit/Loss per Winning and Losing Trades per Currency Pair Data source: Derived from data from a major FX broker* across 15 most traded currency pairs from 3/1/2014 to 3/31/2015. The above chart says it all. In blue, it shows the average number of pips traders earned on profitable trades. In red, it shows the average number of pips lost in losing trades. We can now clearly see why traders lose money despite being right more than half the time. They lose more money on their losing trades than they make on their winning trades. Let’s use EUR/USD as an example. We see that EUR/USD trades were closed out at a profit 61% of the time, but the average losing trade was worth 83 pips while the average winner was only 48 pips. Traders were correct more than half the time, but they lost over 70% more on their losing trades as they won on winning trades. The track record for the volatile GBP/USD pair was even worse. Traders captured profits on 59% of all GBP/USD trades. Yet they overall lost money as they turned an average 43 pip profit on each winner and lost 83 pips on losing trades. What gives? Identifying that there is a problem is important in itself, but we’ll need to understand the reasons behind it in order to look for a solution. Cut Losses, Let Profits Run – Why is this So Difficult to Do? In our study we saw that traders were very good at identifying profitable trading opportunities--closing trades out at a profit over 50 percent of the time. They utlimately lost, however, as the average loss far outweighed the gain. Open nearly any book on trading and the advice is the same: cut your losses early and let your profits run. When your trade goes against you, close it out. Take the small loss and then try again later, if appropriate. It is better to take a small loss early than a big loss later. If a trade is in your favor, let it run. It is often tempting to close out at a small gain in order to protect profits, but oftentimes we see that patience can result in greater gains. But if the solution is so simple, why is the issue so common? The simple answer: human nature. In fact this is not at all limited to trading. To further illustrate the point we draw on significant findings in psychology. A Simple Wager – Understanding Human Behavior Towards Winning and Losing What if I offered you a simple wager on a coin flip? You have two choices. Choice A means you have a 50% chance of winning 1000 dollars and 50% chance of winning nothing. Choice B is a flat 450 point gain. Which would you choose?         Expected Return Gains Choice A 50% chance to Win 1000 50% chance to Win 0 Expect to win $500 over time   Choice B Win 450   Win $450 Over time it makes sense to take Choice A—the expected gain of $500 is greater than the fixed $450. Yet many studies have shown that most people will consistently choose Choice B. Let’s flip the wager and run it again.         Expected Return Losses Choice A 50% chance to Lose 1000 50% chance to Lose 0 Expect to lose $500 over time   Choice B Lose 450   Lose $450 In this case we can expect to lose less money via Choice B, but in fact studies have shown that the majority of people will pick choice A every single time. Here we see the issue. Most people avoid risk when it comes to taking profits but then actively seek it if it means avoiding a loss. Why? Losses Hurt Psychologically far more than Gains Give Pleasure – Prospect Theory Nobel prize-winning clinical psychologist Daniel Kahneman based on his research on decision making. His work wasn’t on trading per se but clear implications for trade management and is quite relevant to FX trading. His study on Prospect Theory attempted to model and predict choices people would make between scenarios involving known risks and rewards. The findings showed something remarkably simple yet profound: most people took more pain from losses than pleasure from gains. It feels “good enough” to make $450 versus $500, but accepting a $500 loss hurts too much and many are willing to gamble that the trade turns around. This doesn’t make any sense from a trading perspective—500 dollars lost are equivalent to 500 dollars gained; one is not worth more than the other. Why should we then act so differently? Prospect Theory: Losses Typically Hurt Far More than Gains Give Pleasure Taking a purely rational approach to markets means treating a 50 point gain as morally equivalent to a 50 point loss. Unfortunately our data on real trader behavior suggests that the majority can’t do this. We need to think more systematically to improve our chances at success. Avoid the Common Pitfall Avoiding the loss-making problem described above is very simple in theory: gain more in each winning trade than you give back in each losing trade. But how might we do it concretely? When trading, always follow one simple rule: always seek a bigger reward than the loss you are risking. This is a valuable piece of advice that can be found in almost every trading book. Typically, this is called a “reward/risk ratio”. If you risk losing the same number of pips as you hope to gain, then your reward/risk ratio is 1-to-1 (also written 1:1). If you target a profit of 80 pips with a risk of 40 pips, then you have a 2:1 reward/risk ratio. If you follow this simple rule, you can be right on the direction of only half of your trades and still make money because you will earn more profits on your winning trades than losses on your losing trades. What ratio should you use? It depends on the type of trade you are making. We recommend to always use a minimum 1:1 ratio. That way, if you are right only half the time, you will at least break even. Certain strategies and trading techniques tend to produce high winning percentages as we saw with real trader data. If this is the case, it is possible to use a lower reward/risk ratio—such as between 1:1 and 2:1. For lower probability trading, a higher reward/risk ratio is recommended, such as 2:1, 3:1, or even 4:1. Remember, the higher the reward/risk ratio you choose, the less often you need to correctly predict market direction in order to make money trading. We will discuss different trading techniques in further detail in subsequent installments of this series. Stick to Your Plan: Use Stops and Limits Once you have a trading plan that uses a proper reward/risk ratio, the next challenge is to stick to the plan. Remember, it is natural for humans to want to hold on to losses and take profits early, but it makes for bad trading. We must overcome this natural tendency and remove our emotions from trading. The best way to do this is to set up your trade with Stop-Loss and Limit orders from the beginning. This will allow you to use the proper reward/risk ratio (1:1 or higher) from the outset, and to stick to it. Once you set them, don’t touch them (One exception: you can move your stop in your favor to lock in profits as the market moves in your favor). Managing your risk in this way is a part of what many traders call “money management”. Many of the most successful forex traders are right about the market’s direction less than half the time. Since they practice good money management, they cut their losses quickly and let their profits run, so they are still profitable in their overall trading. Does Using 1:1 Reward to Risk Really Work? Our data certainly suggest it does. We use our data on our top 15 currency pairs to determine which trader accounts closed their Average Gain at least as large as their Average Loss—or a minimum Reward:Risk of 1:1. Were traders ultimately profitable if they stuck to this rule? Past performance is not indicative of future results, but the results certainly support it. Our data shows that 53 percent of all accounts which operated on at least a 1:1 Reward to Risk ratio turned a net-profit in our 12-month sample period. Those under 1:1? A mere 17 percent. Traders who adhered to this rule were 3 times more likely to turn a profit over the course of these 12 months—a substantial difference. Why Do Many Forex Traders Lose Money? Here is the Number 1 Mistake David Rodriguez 11-14 minutes We look through 43 million real trades to measure trader performance Majority of trades are successful and yet traders are losing Reward to Risk ratios play a vital role in capital preservation Why do major currency moves bring increased trader losses? To find out, the DailyFX research team has looked through over 40 million real trades placed via a major FX broker's trading platforms. In this article, we look at the biggest mistake that forex traders make, and a way to trade appropriately. Why Does the Average Forex Trader Lose Money? The average forex trader loses money, which is in itself a very discouraging fact. But why? Put simply, human psychology makes trading difficult. We looked at over 43 million real trades placed on a major FX broker's trading servers from Q2, 2014 – Q1, 2015 and came to some very interesting conclusions. The first is encouraging: traders make money most of the time as over 50% of trades are closed out at a gain. Percent of All Trades Closed Out at a Gain and Loss per Currency Pair Data source: Derived from data from a major FX broker* across 15 most traded currency pairs from 3/1/2014 to 3/31/2015. The above chart shows results of over 43 million trades conducted by these traders worldwide from Q2, 2014 through Q1, 2015 across the 15 most popular currency pairs. The blue bar shows the percentage of trades that ended with a profit for the trader. Red shows the percentage of trades that ended in loss. For example, the Euro saw an impressive 61% of all trades closed out at a gain. And indeed every single one of these instruments saw the majority of traders turned a profit more than 50 percent of the time. If traders were right more than half of the time, why did most lose money? Average Profit/Loss per Winning and Losing Trades per Currency Pair Data source: Derived from data from a major FX broker* across 15 most traded currency pairs from 3/1/2014 to 3/31/2015. The above chart says it all. In blue, it shows the average number of pips traders earned on profitable trades. In red, it shows the average number of pips lost in losing trades. We can now clearly see why traders lose money despite being right more than half the time. They lose more money on their losing trades than they make on their winning trades. Let’s use EUR/USD as an example. We see that EUR/USD trades were closed out at a profit 61% of the time, but the average losing trade was worth 83 pips while the average winner was only 48 pips. Traders were correct more than half the time, but they lost over 70% more on their losing trades as they won on winning trades. The track record for the volatile GBP/USD pair was even worse. Traders captured profits on 59% of all GBP/USD trades. Yet they overall lost money as they turned an average 43 pip profit on each winner and lost 83 pips on losing trades. What gives? Identifying that there is a problem is important in itself, but we’ll need to understand the reasons behind it in order to look for a solution. Cut Losses, Let Profits Run – Why is this So Difficult to Do? In our study we saw that traders were very good at identifying profitable trading opportunities--closing trades out at a profit over 50 percent of the time. They utlimately lost, however, as the average loss far outweighed the gain. Open nearly any book on trading and the advice is the same: cut your losses early and let your profits run. When your trade goes against you, close it out. Take the small loss and then try again later, if appropriate. It is better to take a small loss early than a big loss later. If a trade is in your favor, let it run. It is often tempting to close out at a small gain in order to protect profits, but oftentimes we see that patience can result in greater gains. But if the solution is so simple, why is the issue so common? The simple answer: human nature. In fact this is not at all limited to trading. To further illustrate the point we draw on significant findings in psychology. A Simple Wager – Understanding Human Behavior Towards Winning and Losing What if I offered you a simple wager on a coin flip? You have two choices. Choice A means you have a 50% chance of winning 1000 dollars and 50% chance of winning nothing. Choice B is a flat 450 point gain. Which would you choose?         Expected Return Gains Choice A 50% chance to Win 1000 50% chance to Win 0 Expect to win $500 over time   Choice B Win 450   Win $450 Over time it makes sense to take Choice A—the expected gain of $500 is greater than the fixed $450. Yet many studies have shown that most people will consistently choose Choice B. Let’s flip the wager and run it again.         Expected Return Losses Choice A 50% chance to Lose 1000 50% chance to Lose 0 Expect to lose $500 over time   Choice B Lose 450   Lose $450 In this case we can expect to lose less money via Choice B, but in fact studies have shown that the majority of people will pick choice A every single time. Here we see the issue. Most people avoid risk when it comes to taking profits but then actively seek it if it means avoiding a loss. Why? Losses Hurt Psychologically far more than Gains Give Pleasure – Prospect Theory Nobel prize-winning clinical psychologist Daniel Kahneman based on his research on decision making. His work wasn’t on trading per se but clear implications for trade management and is quite relevant to FX trading. His study on Prospect Theory attempted to model and predict choices people would make between scenarios involving known risks and rewards. The findings showed something remarkably simple yet profound: most people took more pain from losses than pleasure from gains. It feels “good enough” to make $450 versus $500, but accepting a $500 loss hurts too much and many are willing to gamble that the trade turns around. This doesn’t make any sense from a trading perspective—500 dollars lost are equivalent to 500 dollars gained; one is not worth more than the other. Why should we then act so differently? Prospect Theory: Losses Typically Hurt Far More than Gains Give Pleasure Taking a purely rational approach to markets means treating a 50 point gain as morally equivalent to a 50 point loss. Unfortunately our data on real trader behavior suggests that the majority can’t do this. We need to think more systematically to improve our chances at success. Avoid the Common Pitfall Avoiding the loss-making problem described above is very simple in theory: gain more in each winning trade than you give back in each losing trade. But how might we do it concretely? When trading, always follow one simple rule: always seek a bigger reward than the loss you are risking. This is a valuable piece of advice that can be found in almost every trading book. Typically, this is called a “reward/risk ratio”. If you risk losing the same number of pips as you hope to gain, then your reward/risk ratio is 1-to-1 (also written 1:1). If you target a profit of 80 pips with a risk of 40 pips, then you have a 2:1 reward/risk ratio. If you follow this simple rule, you can be right on the direction of only half of your trades and still make money because you will earn more profits on your winning trades than losses on your losing trades. What ratio should you use? It depends on the type of trade you are making. We recommend to always use a minimum 1:1 ratio. That way, if you are right only half the time, you will at least break even. Certain strategies and trading techniques tend to produce high winning percentages as we saw with real trader data. If this is the case, it is possible to use a lower reward/risk ratio—such as between 1:1 and 2:1. For lower probability trading, a higher reward/risk ratio is recommended, such as 2:1, 3:1, or even 4:1. Remember, the higher the reward/risk ratio you choose, the less often you need to correctly predict market direction in order to make money trading. We will discuss different trading techniques in further detail in subsequent installments of this series. Stick to Your Plan: Use Stops and Limits Once you have a trading plan that uses a proper reward/risk ratio, the next challenge is to stick to the plan. Remember, it is natural for humans to want to hold on to losses and take profits early, but it makes for bad trading. We must overcome this natural tendency and remove our emotions from trading. The best way to do this is to set up your trade with Stop-Loss and Limit orders from the beginning. This will allow you to use the proper reward/risk ratio (1:1 or higher) from the outset, and to stick to it. Once you set them, don’t touch them (One exception: you can move your stop in your favor to lock in profits as the market moves in your favor). Managing your risk in this way is a part of what many traders call “money management”. Many of the most successful forex traders are right about the market’s direction less than half the time. Since they practice good money management, they cut their losses quickly and let their profits run, so they are still profitable in their overall trading. Does Using 1:1 Reward to Risk Really Work? Our data certainly suggest it does. We use our data on our top 15 currency pairs to determine which trader accounts closed their Average Gain at least as large as their Average Loss—or a minimum Reward:Risk of 1:1. Were traders ultimately profitable if they stuck to this rule? Past performance is not indicative of future results, but the results certainly support it. Our data shows that 53 percent of all accounts which operated on at least a 1:1 Reward to Risk ratio turned a net-profit in our 12-month sample period. Those under 1:1? A mere 17 percent. Traders who adhered to this rule were 3 times more likely to turn a profit over the course of these 12 months—a substantial difference. Why Do Many Forex Traders Lose Money? Here is the Number 1 Mistake David Rodriguez 11-14 minutes We look through 43 million real trades to measure trader performance Majority of trades are successful and yet traders are losing Reward to Risk ratios play a vital role in capital preservation Why do major currency moves bring increased trader losses? To find out, the DailyFX research team has looked through over 40 million real trades placed via a major FX broker's trading platforms. In this article, we look at the biggest mistake that forex traders make, and a way to trade appropriately. Why Does the Average Forex Trader Lose Money? The average forex trader loses money, which is in itself a very discouraging fact. But why? Put simply, human psychology makes trading difficult. We looked at over 43 million real trades placed on a major FX broker's trading servers from Q2, 2014 – Q1, 2015 and came to some very interesting conclusions. The first is encouraging: traders make money most of the time as over 50% of trades are closed out at a gain. Percent of All Trades Closed Out at a Gain and Loss per Currency Pair   Data source: Derived from data from a major FX broker* across 15 most traded currency pairs from 3/1/2014 to 3/31/2015. The above chart shows results of over 43 million trades conducted by these traders worldwide from Q2, 2014 through Q1, 2015 across the 15 most popular currency pairs. The blue bar shows the percentage of trades that ended with a profit for the trader. Red shows the percentage of trades that ended in loss. For example, the Euro saw an impressive 61% of all trades closed out at a gain. And indeed every single one of these instruments saw the majority of traders turned a profit more than 50 percent of the time. If traders were right more than half of the time, why did most lose money? Average Profit/Loss per Winning and Losing Trades per Currency Pair Data source: Derived from data from a major FX broker* across 15 most traded currency pairs from 3/1/2014 to 3/31/2015. The above chart says it all. In blue, it shows the average number of pips traders earned on profitable trades. In red, it shows the average number of pips lost in losing trades. We can now clearly see why traders lose money despite being right more than half the time. They lose more money on their losing trades than they make on their winning trades. Let’s use EUR/USD as an example. We see that EUR/USD trades were closed out at a profit 61% of the time, but the average losing trade was worth 83 pips while the average winner was only 48 pips. Traders were correct more than half the time, but they lost over 70% more on their losing trades as they won on winning trades. The track record for the volatile GBP/USD pair was even worse. Traders captured profits on 59% of all GBP/USD trades. Yet they overall lost money as they turned an average 43 pip profit on each winner and lost 83 pips on losing trades. What gives? Identifying that there is a problem is important in itself, but we’ll need to understand the reasons behind it in order to look for a solution. Cut Losses, Let Profits Run – Why is this So Difficult to Do? In our study we saw that traders were very good at identifying profitable trading opportunities--closing trades out at a profit over 50 percent of the time. They utlimately lost, however, as the average loss far outweighed the gain. Open nearly any book on trading and the advice is the same: cut your losses early and let your profits run. When your trade goes against you, close it out. Take the small loss and then try again later, if appropriate. It is better to take a small loss early than a big loss later. If a trade is in your favor, let it run. It is often tempting to close out at a small gain in order to protect profits, but oftentimes we see that patience can result in greater gains. But if the solution is so simple, why is the issue so common? The simple answer: human nature. In fact this is not at all limited to trading. To further illustrate the point we draw on significant findings in psychology. A Simple Wager – Understanding Human Behavior Towards Winning and Losing What if I offered you a simple wager on a coin flip? You have two choices. Choice A means you have a 50% chance of winning 1000 dollars and 50% chance of winning nothing. Choice B is a flat 450 point gain. Which would you choose?         Expected Return Gains Choice A 50% chance to Win 1000 50% chance to Win 0 Expect to win $500 over time   Choice B Win 450   Win $450 Over time it makes sense to take Choice A—the expected gain of $500 is greater than the fixed $450. Yet many studies have shown that most people will consistently choose Choice B. Let’s flip the wager and run it again.         Expected Return Losses Choice A 50% chance to Lose 1000 50% chance to Lose 0 Expect to lose $500 over time   Choice B Lose 450   Lose $450 In this case we can expect to lose less money via Choice B, but in fact studies have shown that the majority of people will pick choice A every single time. Here we see the issue. Most people avoid risk when it comes to taking profits but then actively seek it if it means avoiding a loss. Why? Losses Hurt Psychologically far more than Gains Give Pleasure – Prospect Theory Nobel prize-winning clinical psychologist Daniel Kahneman based on his research on decision making. His work wasn’t on trading per se but clear implications for trade management and is quite relevant to FX trading. His study on Prospect Theory attempted to model and predict choices people would make between scenarios involving known risks and rewards. The findings showed something remarkably simple yet profound: most people took more pain from losses than pleasure from gains. It feels “good enough” to make $450 versus $500, but accepting a $500 loss hurts too much and many are willing to gamble that the trade turns around. This doesn’t make any sense from a trading perspective—500 dollars lost are equivalent to 500 dollars gained; one is not worth more than the other. Why should we then act so differently? Prospect Theory: Losses Typically Hurt Far More than Gains Give Pleasure Taking a purely rational approach to markets means treating a 50 point gain as morally equivalent to a 50 point loss. Unfortunately our data on real trader behavior suggests that the majority can’t do this. We need to think more systematically to improve our chances at success. Avoid the Common Pitfall Avoiding the loss-making problem described above is very simple in theory: gain more in each winning trade than you give back in each losing trade. But how might we do it concretely? When trading, always follow one simple rule: always seek a bigger reward than the loss you are risking. This is a valuable piece of advice that can be found in almost every trading book. Typically, this is called a “reward/risk ratio”. If you risk losing the same number of pips as you hope to gain, then your reward/risk ratio is 1-to-1 (also written 1:1). If you target a profit of 80 pips with a risk of 40 pips, then you have a 2:1 reward/risk ratio. If you follow this simple rule, you can be right on the direction of only half of your trades and still make money because you will earn more profits on your winning trades than losses on your losing trades. What ratio should you use? It depends on the type of trade you are making. We recommend to always use a minimum 1:1 ratio. That way, if you are right only half the time, you will at least break even. Certain strategies and trading techniques tend to produce high winning percentages as we saw with real trader data. If this is the case, it is possible to use a lower reward/risk ratio—such as between 1:1 and 2:1. For lower probability trading, a higher reward/risk ratio is recommended, such as 2:1, 3:1, or even 4:1. Remember, the higher the reward/risk ratio you choose, the less often you need to correctly predict market direction in order to make money trading. We will discuss different trading techniques in further detail in subsequent installments of this series. Stick to Your Plan: Use Stops and Limits Once you have a trading plan that uses a proper reward/risk ratio, the next challenge is to stick to the plan. Remember, it is natural for humans to want to hold on to losses and take profits early, but it makes for bad trading. We must overcome this natural tendency and remove our emotions from trading. The best way to do this is to set up your trade with Stop-Loss and Limit orders from the beginning. This will allow you to use the proper reward/risk ratio (1:1 or higher) from the outset, and to stick to it. Once you set them, don’t touch them (One exception: you can move your stop in your favor to lock in profits as the market moves in your favor). Managing your risk in this way is a part of what many traders call “money management”. Many of the most successful forex traders are right about the market’s direction less than half the time. Since they practice good money management, they cut their losses quickly and let their profits run, so they are still profitable in their overall trading. Does Using 1:1 Reward to Risk Really Work? Our data certainly suggest it does. We use our data on our top 15 currency pairs to determine which trader accounts closed their Average Gain at least as large as their Average Loss—or a minimum Reward:Risk of 1:1. Were traders ultimately profitable if they stuck to this rule? Past performance is not indicative of future results, but the results certainly support it. Our data shows that 53 percent of all accounts which operated on at least a 1:1 Reward to Risk ratio turned a net-profit in our 12-month sample period. Those under 1:1? A mere 17 percent. Traders who adhered to this rule were 3 times more likely to turn a profit over the course of these 12 months—a substantial difference. Why Do Many Forex Traders Lose Money? Here is the Number 1 Mistake David Rodriguez 11-14 minutes We look through 43 million real trades to measure trader performance Majority of trades are successful and yet traders are losing Reward to Risk ratios play a vital role in capital preservation Why do major currency moves bring increased trader losses? To find out, the DailyFX research team has looked through over 40 million real trades placed via a major FX broker's trading platforms. In this article, we look at the biggest mistake that forex traders make, and a way to trade appropriately. Why Does the Average Forex Trader Lose Money? The average forex trader loses money, which is in itself a very discouraging fact. But why? Put simply, human psychology makes trading difficult. We looked at over 43 million real trades placed on a major FX broker's trading servers from Q2, 2014 – Q1, 2015 and came to some very interesting conclusions. The first is encouraging: traders make money most of the time as over 50% of trades are closed out at a gain. Percent of All Trades Closed Out at a Gain and Loss per Currency Pair   Data source: Derived from data from a major FX broker* across 15 most traded currency pairs from 3/1/2014 to 3/31/2015. The above chart shows results of over 43 million trades conducted by these traders worldwide from Q2, 2014 through Q1, 2015 across the 15 most popular currency pairs. The blue bar shows the percentage of trades that ended with a profit for the trader. Red shows the percentage of trades that ended in loss. For example, the Euro saw an impressive 61% of all trades closed out at a gain. And indeed every single one of these instruments saw the majority of traders turned a profit more than 50 percent of the time. If traders were right more than half of the time, why did most lose money? Average Profit/Loss per Winning and Losing Trades per Currency Pair Data source: Derived from data from a major FX broker* across 15 most traded currency pairs from 3/1/2014 to 3/31/2015. The above chart says it all. In blue, it shows the average number of pips traders earned on profitable trades. In red, it shows the average number of pips lost in losing trades. We can now clearly see why traders lose money despite being right more than half the time. They lose more money on their losing trades than they make on their winning trades. Let’s use EUR/USD as an example. We see that EUR/USD trades were closed out at a profit 61% of the time, but the average losing trade was worth 83 pips while the average winner was only 48 pips. Traders were correct more than half the time, but they lost over 70% more on their losing trades as they won on winning trades. The track record for the volatile GBP/USD pair was even worse. Traders captured profits on 59% of all GBP/USD trades. Yet they overall lost money as they turned an average 43 pip profit on each winner and lost 83 pips on losing trades. What gives? Identifying that there is a problem is important in itself, but we’ll need to understand the reasons behind it in order to look for a solution. Cut Losses, Let Profits Run – Why is this So Difficult to Do? In our study we saw that traders were very good at identifying profitable trading opportunities--closing trades out at a profit over 50 percent of the time. They utlimately lost, however, as the average loss far outweighed the gain. Open nearly any book on trading and the advice is the same: cut your losses early and let your profits run. When your trade goes against you, close it out. Take the small loss and then try again later, if appropriate. It is better to take a small loss early than a big loss later. If a trade is in your favor, let it run. It is often tempting to close out at a small gain in order to protect profits, but oftentimes we see that patience can result in greater gains. But if the solution is so simple, why is the issue so common? The simple answer: human nature. In fact this is not at all limited to trading. To further illustrate the point we draw on significant findings in psychology. A Simple Wager – Understanding Human Behavior Towards Winning and Losing What if I offered you a simple wager on a coin flip? You have two choices. Choice A means you have a 50% chance of winning 1000 dollars and 50% chance of winning nothing. Choice B is a flat 450 point gain. Which would you choose?         Expected Return Gains Choice A 50% chance to Win 1000 50% chance to Win 0 Expect to win $500 over time   Choice B Win 450   Win $450 Over time it makes sense to take Choice A—the expected gain of $500 is greater than the fixed $450. Yet many studies have shown that most people will consistently choose Choice B. Let’s flip the wager and run it again.         Expected Return Losses Choice A 50% chance to Lose 1000 50% chance to Lose 0 Expect to lose $500 over time   Choice B Lose 450   Lose $450 In this case we can expect to lose less money via Choice B, but in fact studies have shown that the majority of people will pick choice A every single time. Here we see the issue. Most people avoid risk when it comes to taking profits but then actively seek it if it means avoiding a loss. Why? Losses Hurt Psychologically far more than Gains Give Pleasure – Prospect Theory Nobel prize-winning clinical psychologist Daniel Kahneman based on his research on decision making. His work wasn’t on trading per se but clear implications for trade management and is quite relevant to FX trading. His study on Prospect Theory attempted to model and predict choices people would make between scenarios involving known risks and rewards. The findings showed something remarkably simple yet profound: most people took more pain from losses than pleasure from gains. It feels “good enough” to make $450 versus $500, but accepting a $500 loss hurts too much and many are willing to gamble that the trade turns around. This doesn’t make any sense from a trading perspective—500 dollars lost are equivalent to 500 dollars gained; one is not worth more than the other. Why should we then act so differently? Prospect Theory: Losses Typically Hurt Far More than Gains Give Pleasure Taking a purely rational approach to markets means treating a 50 point gain as morally equivalent to a 50 point loss. Unfortunately our data on real trader behavior suggests that the majority can’t do this. We need to think more systematically to improve our chances at success. Avoid the Common Pitfall Avoiding the loss-making problem described above is very simple in theory: gain more in each winning trade than you give back in each losing trade. But how might we do it concretely? When trading, always follow one simple rule: always seek a bigger reward than the loss you are risking. This is a valuable piece of advice that can be found in almost every trading book. Typically, this is called a “reward/risk ratio”. If you risk losing the same number of pips as you hope to gain, then your reward/risk ratio is 1-to-1 (also written 1:1). If you target a profit of 80 pips with a risk of 40 pips, then you have a 2:1 reward/risk ratio. If you follow this simple rule, you can be right on the direction of only half of your trades and still make money because you will earn more profits on your winning trades than losses on your losing trades. What ratio should you use? It depends on the type of trade you are making. We recommend to always use a minimum 1:1 ratio. That way, if you are right only half the time, you will at least break even. Certain strategies and trading techniques tend to produce high winning percentages as we saw with real trader data. If this is the case, it is possible to use a lower reward/risk ratio—such as between 1:1 and 2:1. For lower probability trading, a higher reward/risk ratio is recommended, such as 2:1, 3:1, or even 4:1. Remember, the higher the reward/risk ratio you choose, the less often you need to correctly predict market direction in order to make money trading. We will discuss different trading techniques in further detail in subsequent installments of this series. Stick to Your Plan: Use Stops and Limits Once you have a trading plan that uses a proper reward/risk ratio, the next challenge is to stick to the plan. Remember, it is natural for humans to want to hold on to losses and take profits early, but it makes for bad trading. We must overcome this natural tendency and remove our emotions from trading. The best way to do this is to set up your trade with Stop-Loss and Limit orders from the beginning. This will allow you to use the proper reward/risk ratio (1:1 or higher) from the outset, and to stick to it. Once you set them, don’t touch them (One exception: you can move your stop in your favor to lock in profits as the market moves in your favor). Managing your risk in this way is a part of what many traders call “money management”. Many of the most successful forex traders are right about the market’s direction less than half the time. Since they practice good money management, they cut their losses quickly and let their profits run, so they are still profitable in their overall trading. Does Using 1:1 Reward to Risk Really Work? Our data certainly suggest it does. We use our data on our top 15 currency pairs to determine which trader accounts closed their Average Gain at least as large as their Average Loss—or a minimum Reward:Risk of 1:1. Were traders ultimately profitable if they stuck to this rule? Past performance is not indicative of future results, but the results certainly support it. Our data shows that 53 percent of all accounts which operated on at least a 1:1 Reward to Risk ratio turned a net-profit in our 12-month sample period. Those under 1:1? A mere 17 percent. Traders who adhered to this rule were 3 times more likely to turn a profit over the course of these 12 months—a substantial difference. dont forget- like subscribe Data source: Derived from data from a major FX broker* across 15 most traded currency pairs from 3/1/2014 to 3/31/2015. Game Plan: What Strategy Can I Use? Trade forex with stops and limits set to a risk/reward ratio of 1:1 or higher Whenever you place a trade, make sure that you use a stop-loss order. Always make sure that your profit target is at least as far away from your entry price as your stop-loss is. You can certainly set your price target higher, and probably should aim for at least 1:1 regardless of strategy, potentially 2:1 or more in certain circumstances. Then you can choose the market direction correctly only half the time and still make money in your account. The actual distance you place your stops and limits will depend on the conditions in the market at the time, such as volatility, currency pair, and where you see support and resistance. You can apply the same reward/risk ratio to any trade. If you have a stop level 40 pips away from entry, you should have a profit target 40 pips or more away. If you have a stop level 500 pips away, your profit target should be at least 500 pips away. We will use this as a basis for further study on real trader behavior as we look to uncover the traits of successful traders. *Data is drawn from FXCM Inc. accounts excluding Eligible Contract Participants, Clearing Accounts, Hong Kong, and Japan subsidiaries from 3/1/2014 to 3/31/2015. Interested in developing your own strategy? On page 2 of our Building Confidence in Trading Guide, we help you identify your trading style and create your own trading plan. View the next articles in the Traits of Successful Series: Trading Leverage - A Real Look at How Traders May Use it Effectively Do the Hours I Trade Matter? Yes - Quite a Bit Analysis prepared and written by David Rodriguez, Quantitative Strategist for DailyFX.com Data source: Derived from data from a major FX broker* across 15 most traded currency pairs from 3/1/2014 to 3/31/2015. Game Plan: What Strategy Can I Use? Trade forex with stops and limits set to a risk/reward ratio of 1:1 or higher Whenever you place a trade, make sure that you use a stop-loss order. Always make sure that your profit target is at least as far away from your entry price as your stop-loss is. You can certainly set your price target higher, and probably should aim for at least 1:1 regardless of strategy, potentially 2:1 or more in certain circumstances. Then you can choose the market direction correctly only half the time and still make money in your account. The actual distance you place your stops and limits will depend on the conditions in the market at the time, such as volatility, currency pair, and where you see support and resistance. You can apply the same reward/risk ratio to any trade. If you have a stop level 40 pips away from entry, you should have a profit target 40 pips or more away. If you have a stop level 500 pips away, your profit target should be at least 500 pips away. We will use this as a basis for further study on real trader behavior as we look to uncover the traits of successful traders. *Data is drawn from FXCM Inc. accounts excluding Eligible Contract Participants, Clearing Accounts, Hong Kong, and Japan subsidiaries from 3/1/2014 to 3/31/2015. Interested in developing your own strategy? On page 2 of our Building Confidence in Trading Guide, we help you identify your trading style and create your own trading plan. View the next articles in the Traits of Successful Series: Trading Leverage - A Real Look at How Traders May Use it Effectively Do the Hours I Trade Matter? Yes - Quite a Bit Analysis prepared and written by David Rodriguez, Quantitative Strategist for DailyFX.com   Data source: Derived from data from a major FX broker* across 15 most traded currency pairs from 3/1/2014 to 3/31/2015. Game Plan: What Strategy Can I Use? Trade forex with stops and limits set to a risk/reward ratio of 1:1 or higher Whenever you place a trade, make sure that you use a stop-loss order. Always make sure that your profit target is at least as far away from your entry price as your stop-loss is. You can certainly set your price target higher, and probably should aim for at least 1:1 regardless of strategy, potentially 2:1 or more in certain circumstances. Then you can choose the market direction correctly only half the time and still make money in your account. The actual distance you place your stops and limits will depend on the conditions in the market at the time, such as volatility, currency pair, and where you see support and resistance. You can apply the same reward/risk ratio to any trade. If you have a stop level 40 pips away from entry, you should have a profit target 40 pips or more away. If you have a stop level 500 pips away, your profit target should be at least 500 pips away. We will use this as a basis for further study on real trader behavior as we look to uncover the traits of successful traders. *Data is drawn from FXCM Inc. accounts excluding Eligible Contract Participants, Clearing Accounts, Hong Kong, and Japan subsidiaries from 3/1/2014 to 3/31/2015. Interested in developing your own strategy? On page 2 of our Building Confidence in Trading Guide, we help you identify your trading style and create your own trading plan. View the next articles in the Traits of Successful Series: Trading Leverage - A Real Look at How Traders May Use it Effectively Do the Hours I Trade Matter? Yes - Quite a Bit Analysis prepared and written by David Rodriguez, Quantitative Strategist for DailyFX.com   Data source: Derived from data from a major FX broker* across 15 most traded currency pairs from 3/1/2014 to 3/31/2015. Game Plan: What Strategy Can I Use? Trade forex with stops and limits set to a risk/reward ratio of 1:1 or higher Whenever you place a trade, make sure that you use a stop-loss order. Always make sure that your profit target is at least as far away from your entry price as your stop-loss is. You can certainly set your price target higher, and probably should aim for at least 1:1 regardless of strategy, potentially 2:1 or more in certain circumstances. Then you can choose the market direction correctly only half the time and still make money in your account. The actual distance you place your stops and limits will depend on the conditions in the market at the time, such as volatility, currency pair, and where you see support and resistance. You can apply the same reward/risk ratio to any trade. If you have a stop level 40 pips away from entry, you should have a profit target 40 pips or more away. If you have a stop level 500 pips away, your profit target should be at least 500 pips away. We will use this as a basis for further study on real trader behavior as we look to uncover the traits of successful traders. *Data is drawn from FXCM Inc. accounts excluding Eligible Contract Participants, Clearing Accounts, Hong Kong, and Japan subsidiaries from 3/1/2014 to 3/31/2015. Interested in developing your own strategy? On page 2 of our Building Confidence in Trading Guide, we help you identify your trading style and create your own trading plan. View the next articles in the Traits of Successful Series: Trading Leverage - A Real Look at How Traders May Use it Effectively Do the Hours I Trade Matter? Yes - Quite a Bit Analysis prepared and written by David Rodriguez, Quantitative Strategist for DailyFX.com     View the next articles in the Traits of Successful Series: Trading Leverage - A Real Look at How Traders May Use it Effectively Do the Hours I Trade Matter? Yes - Quite a Bit Analysis prepared and written by David Rodriguez, Quantitative Strategist for DailyFX.com
    • Waiting for one constructive comment from you guys..anyone dont forget to like and subscribe
    • enjoy.. good profits in forex dont forget to like and subscribe          
    • try again..   1. MakingMoneyin ForexTradingTheForexmarkethasadailyvolumeofover $4trillionper day,dwarfingthevolumeof theequityandfuturesmarketscombined.Thousands ofpeople,allover theworld,are tradingForexandmakingtonsofmoney.Whynotyou?All youneedtostarttradingForexis acomputer andanInternetconnection.Youcan doitfrom thecomfortofyour home,inyour sparetimewithoutleavingyour dayjob. Andyoudon'tneedalargesum ofmoneytostart,youcantradeinitially withaminimal sum,or betteroff,youcanstartpracticingwithademoaccountwithouttheneedto depositanymoney.OnceyouconsiderstartingForextrading,oneofthefirstthings youneedtodois chooseabroker,choosingareliablebroker is thesinglemostcriticalfactor toForex success.We currently trade at eToro platform. After testing several Forex platforms we find this one to be the best. What made the difference is a unique feature that allow us to watch and copy the strategies and trades of the best performing traders on the platform. You can actually see each move the "Guru" traders make. This method works nicely for us. Since we started trading at this broker we noticed an increase of our successful trades and profits when compared to our former brokers. You may want to check them out.Please note that all trading involves risk. Only risk capital you're prepared to lose. Past performance does not guarantee future results. This post is for educational purposes and should not be considered as investment advice.NowIwouldstronglyencourageyoutogoandvisittheabovebroker's siterightnow evenifyouarenotyetdecidedwhether youwanttogointoForextrading.Why? Becauseitprovides tons offreeeducationmaterials,videosandbestofall ademo accountthatallows youtopracticeForextradingforfreewithouttheneedtodeposit anymoney.Simplygotothesite,registerforafreeaccountandstart"trading"-by actuallypracticingandexperiencingitfirsthandyou'll beabletodecidewhether Forex tradingisfor you.Inanycase,beforestartingtotradefor real,itis advisablethatyoupracticewithademo account.Onceyoubuildsomeskill andfeelmorecomfortablewiththesystemyou can starttradinggraduallyfor real money.GotoTo2.WhatisForexTradingForeignexchange,popularlyknownas 'Forex'or 'FX',is thetradeofasinglecurrency for another atadecidedtradepriceontheover-the-counter (OTC)marketplace.Forex is definitelytheworld's mosttradedmarket,havinganaverageturnover ofmorethan US$4trillioneachday.ComparethistotheNewYork Stock Exchange,thathasadailyturnover ofabout US$70billionanditisveryobvious howtheForexmarketisdefinitelythelargest financialmarketontheglobe.Inessence,Forexcurrencytradingis theactofsimultaneouslypurchasingoneforeign currencywhilstsellinganother,mainlyfor thepurposeofspeculation.Foreigncurrency values increase(appreciate) anddrop(depreciate) towards oneanother asaresultof varietyoffactors suchas economics andgeopolitics.ThenormalobjectiveofFXtraders is tomakemoneyfrom thesetypes ofchanges inthevalueofoneforeigncurrency againstanother byactivelyspeculatingonwhichwayforeignexchangerates arelikelytoturninthefuture.Incontrasttothemajorityoffinancialmarkets,theOTC (over-the-counter) currency marketsdoes nothaveanyphysical placeormainexchangeandtrades 24-hours every dayviaaworldwidesystem ofcompanies,financial institutionsandindividuals.Because ofthis,currencyratesarecontinuouslyrisingandfallinginvaluetowards oneanother, providingnumerous tradingchoices.Oneoftheimportantelements regardingForex's popularityis thefactthatcurrency tradingmarkets usuallyareavailable24-hours adayfromSundayeveningrightthrough toFridaynight.Buyingandsellingfollows theclock,beginningonMondaymorningin Wellington,NewZealand,movingontoAsiantradespearheadedfrom Tokyoand Singapore,aheadofgoingtoLondonandconcludingonFridayeveninginNewYork.Thefactthatprices areavailabletodeal 24-hours dailymakes certainthatprice gapping(whenever apriceleapsfrom onelevel toanother withnotradingbetween) is less andmakes surethattraders couldtakeapositioneachtimetheydesire, irrespectiveoftime,eventhoughinrealitythereareparticular 'lull' occasions when volumes tendtobebelowtheir dailyaveragewhichcouldwidenmarketspreads.Forexis aleveraged(or margined) item,whichmeansthatyouaresimplyrequiredto putinasmall percentageofthefull valueofyour positiontosetaforeignexchange trade.Becauseofthis,thechanceofprofit,orloss,fromyour primarymoneyoutlayis considerablygreater thaninconventional trading.Currencies aredesignatedbythreeletter symbols.Thestandardsymbolsfor someof themostcommonlytradedcurrencies are: EUR –EuUSD –UnitedStatesdollar CAD –Canadiandollar GBP–BritishpoundJPY–JapaneseYen AUD –Australiandollar CHF –Swiss francForextransactionsarequotedinpairsbecauseyouarebuyingonecurrencywhile sellinganother.Thefirstcurrencyis thebasecurrencyandthesecondcurrencyis the quotecurrency.Theprice,or rate,thatis quotedistheamountofthesecondcurrencyrequiredto purchaseoneunitofthefirstcurrency.For example,ifEUR/USD has anask priceof1.2327,youcanbuyoneEurofor 1.2327USdollars.Thereareso-calledmajors,for whicharound75%ofallmarketoperations onForexare held:theEUR/USD,GBP/USD,USD/CHF,andUSD/JPY.Aswesee,theUSdollar is representedinall currencypairs,thus,ifacurrencypair contains theUSdollar,this pair is consideredamajorcurrencypair.Pairs whichdonotincludetheUSdollar arecalled cross currencypairs,or cross rates.Thefollowingcross rates arethemostactively traded:EUR/CHF = euro-franc EUR/GBP= euro-sterling EUR/JPY= euro-Yen GBP/JPY= sterling-Yen AUD/JPY= aussie-Yen NZD/JPY= kiwi-YenTogiveyouatasteofwhatis happeningintheForexarenaherearesomehistoricalForexevents.Oneofthemostinterestingmovements intheForexmarketinvolvingtheBritishpound tookplaceintheSeptember16,1992.Thatdayis knownas BlackWednesdaywiththe BritishPoundpostingits biggestfall.Itwas mostlyseenintheGBP/DEM (BritishPound vs.theDeutschemark)andtheGBP/USD (BritishPoundvs.theUSdollar) currency pairs.ThefalloftheBritishpoundagainsttheUSdollar intheperiodfrom November toDecember 1992constituted25%(from2.01to1.51GBThegeneral reasonsfor this "sterlingcrisis"aresaidtobetheparticipationofGreat BritainintheEuropeancurrencysystemwithfixedexchangeratecorridors;recently passedparliamentaryelections;areductionintheBritishindustrialoutput;theBank of Englandeffortstoholdtheparityratefor theDeutschemark,as well as adramatic outflowofinvestors.Atthesametime,duetoaprofitabilityslant,theGermancurrency marketbecamemoreattractivethantheBritishone.All inall,thespeculators were rushingtosellpoundsfor Deutschemarks andfor USdollars.Theconsequencesofthis currencycrisiswereas follows:asharpincreaseintheBritishinterestratefrom 10%to15%,theBritishGovernmenthadtoacceptpounddevaluationandtosecedefrom the EuropeanMonetarySystem.Asaresult,thepoundreturnedtoafloatingexchange rate.Another intriguingcurrencypair is theUSdollar vs.theJapaneseYen(USD/JPY).The USdollar andJapaneseYenis thethirdonthelistofmosttradedcurrencypairs after theEUR/USDandGBP/USD.Itistradedmostactivelyduringsessions inAsia. Movementsofthis pairareusuallysmooth;theUSD/JPYpair quicklyreacts totherisk peakingoffinancialmarkets.From themid80's theYenratings startedrisingactively versus theUSDollar.Intheearly90's aprosperouseconomic developmentturnedinto astandstill inJapan,theunemploymentincreased;earnings andwages slidas well as thelivingstandardsoftheJapanesepopulation.Andfrom thebeginningoftheyear1991,this causedbankruptcies ofnumerousfinancialorganizationsinJapan.As a consequence,thequotes ontheTokyoStockExchangecollapsed,aYendevaluation tookplace,thereafter,anewwaveofbankruptcies amongmanufacturingcompanies began.In1995ahistorical lowoftheUSD/JPYpair was recordedat-79.80.TheabovestartedanAsiancrisis intheyears1997-1998thatledaYencrash.It resultedinatumbleoftheYen-USdollar pair from 115YensforoneUSdollar to150.Theglobaleconomic crisis touchedalmostall fields ofhumanactivities.Forexcurrency marketwas noexception.Though,Forexparticipants (central banks,commercialbanks, investmentbanks,brokers anddealers,pensionfunds,insurancecompaniesand transnational companies) wereinadifficultposition,theForexmarketcontinues to functionsuccessfully,itis astableandprofitableasnever before.Thefinancial crisis of2007has ledtodrasticchanges intheworld's currencies values. Duringthecrisis,theYenstrengthenedmostofall againstall other currencies.Neither theUSdollar,nor theeuro,buttheYenprovedtobethemostreliablecurrency instrumentfor traders.Oneofthereasonsforsuchstrengtheningcanbeattributedto thefactthattraders neededtofindasanctuaryamidamonetarychaos.Askand BidWhentraders wanttoplaceanorder ontheForexmarkettheyshouldbeawareofthe currencypair as well as thepriceofthispair.AForexmarketpriceofacurrencypair is denotedbytwosymbols,Ask andBid,whichhavespecific digitAsk priceis thehighestpriceinthepair’s quotationatwhichatrader buys thecurrency, standingfirstintheabbreviationofthecurrencypair.Consequently,atrader sells the currencystandingsecond.Bidpriceis thelowestpriceinthequotationofthecurrencypair,atwhichatrader sells thecurrencystandingfirstintheabbreviationofthecurrencypair.Respectively,atrader buys thecurrencystandingsecond.Seemcomplicated?here'sanexample:Let's assumethatwehavethecurrencypair ofEUR/USD withthequotationof1.3652/1.3655.Thismeansthatyoucanbuy1eurofor1.3655dollars or tosell1euro for 1.3652dollars.ThedifferencebetweentheBidpriceandtheAsk priceis called spread.Thespreadisactually thecommissionofthebroker.TheSpreadsinForextradingare actuallyverysmall comparedtocurrencyspreads atbanks.Aterm thatyou'll seealotwhiletradingForexis "pip"and"pips"-a“pip” standsfor “PercentageinPoint”.Apipis thesmallestpricemovementofatradedcurrency.Itis alsoreferredtoasa“point”.Itis veryimportantthatyouunderstandwhatapipis inthe Forextradingbecauseyouwill beusingpips incalculatingyour profits andlosses..For mostcurrenciesapipis 0.0001or 1/100ofacent.Whenacurrencymovesfromavalueof1.2911to1.2914,itmoved3pips.Whenapip has avalueof$10,youhavegained$30.Thereis anexceptionfor quotationsfor JapaneseYenagainstothercurrencies.For currencies inrelationtoJapaneseYenapipis 0.01or 1cent.Another termthatyou'll needtounderstandinrelationtoForextradingis “Lots”.Alotis theminimal tradedamountfor eachcurrencytransaction.For regular accounts onelot equals 100,000unitsofthebasecurrency.Howeveryoucanalsoopenminiandmicro accounts thatallowtradinginsmaller lots.Understanding thePip Spread -Thespreadis closelyassociatedwiththepipandhas amajor importanceforyouas atrader.Asmentionedabove,Itis thedifferencebetweenthesellingandthebuyingpriceofacurrencypair.Itis thedifferenceinthebid andask price.Theaskis thepriceatwhichyoubuyandthebidis thepriceatwhichyousell.SupposetheEUR/USDis quotedat1.4502bidand1.4505ask.Inthis casethespread is 3pips.Thepipspreadis your costofdoingbusiness here.Inthecaseaboveitmeans yousustainapaper lossequal to3pips atthemomentyouenter thetrade.Your contracthastoappreciateby3pipsbeforeyoubreakeven.Thelower thepipspreadtheeasier is itfor youtoprofit.Generallythemoreactiveandbigger themarket,thelower thepipspread.Smaller and moreexotic markets tendtohaveahigher spread.Mostbrokers willbeofferingdiffere thats better dont forget to like and subscribe  
    • or how about... 1. MakingMoneyin ForexTradingTheForexmarkethasadailyvolumeofover $4trillionper day,dwarfingthevolumeof theequityandfuturesmarketscombined.Thousands ofpeople,allover theworld,are tradingForexandmakingtonsofmoney.Whynotyou?All youneedtostarttradingForexis acomputer andanInternetconnection.Youcan doitfrom thecomfortofyour home,inyour sparetimewithoutleavingyour dayjob. Andyoudon'tneedalargesum ofmoneytostart,youcantradeinitially withaminimal sum,or betteroff,youcanstartpracticingwithademoaccountwithouttheneedto depositanymoney.OnceyouconsiderstartingForextrading,oneofthefirstthings youneedtodois chooseabroker,choosingareliablebroker is thesinglemostcriticalfactor toForex success.We currently trade at eToro platform. After testing several Forex platforms we find this one to be the best. What made the difference is a unique feature that allow us to watch and copy the strategies and trades of the best performing traders on the platform. You can actually see each move the "Guru" traders make. This method works nicely for us. Since we started trading at this broker we noticed an increase of our successful trades and profits when compared to our former brokers. You may want to check them out.Please note that all trading involves risk. Only risk capital you're prepared to lose. Past performance does not guarantee future results. This post is for educational purposes and should not be considered as investment advice.NowIwouldstronglyencourageyoutogoandvisittheabovebroker's siterightnow evenifyouarenotyetdecidedwhether youwanttogointoForextrading.Why? Becauseitprovides tons offreeeducationmaterials,videosandbestofall ademo accountthatallows youtopracticeForextradingforfreewithouttheneedtodeposit anymoney.Simplygotothesite,registerforafreeaccountandstart"trading"-by actuallypracticingandexperiencingitfirsthandyou'll beabletodecidewhether Forex tradingisfor you.Inanycase,beforestartingtotradefor real,itis advisablethatyoupracticewithademo account.Onceyoubuildsomeskill andfeelmorecomfortablewiththesystemyou can starttradinggraduallyfor real money.GotoTop           2.WhatisForexTradingForeignexchange,popularlyknownas 'Forex'or 'FX',is thetradeofasinglecurrency for another atadecidedtradepriceontheover-the-counter (OTC)marketplace.Forex is definitelytheworld's mosttradedmarket,havinganaverageturnover ofmorethan US$4trillioneachday.ComparethistotheNewYork Stock Exchange,thathasadailyturnover ofabout US$70billionanditisveryobvious howtheForexmarketisdefinitelythelargest financialmarketontheglobe.Inessence,Forexcurrencytradingis theactofsimultaneouslypurchasingoneforeign currencywhilstsellinganother,mainlyfor thepurposeofspeculation.Foreigncurrency values increase(appreciate) anddrop(depreciate) towards oneanother asaresultof varietyoffactors suchas economics andgeopolitics.ThenormalobjectiveofFXtraders is tomakemoneyfrom thesetypes ofchanges inthevalueofoneforeigncurrency againstanother byactivelyspeculatingonwhichwayforeignexchangerates arelikelytoturninthefuture.Incontrasttothemajorityoffinancialmarkets,theOTC (over-the-counter) currency marketsdoes nothaveanyphysical placeormainexchangeandtrades 24-hours every dayviaaworldwidesystem ofcompanies,financial institutionsandindividuals.Because ofthis,currencyratesarecontinuouslyrisingandfallinginvaluetowards oneanother, providingnumerous tradingchoices.Oneoftheimportantelements regardingForex's popularityis thefactthatcurrency tradingmarkets usuallyareavailable24-hours adayfromSundayeveningrightthrough toFridaynight.Buyingandsellingfollows theclock,beginningonMondaymorningin Wellington,NewZealand,movingontoAsiantradespearheadedfrom Tokyoand Singapore,aheadofgoingtoLondonandconcludingonFridayeveninginNewYork.Thefactthatprices areavailabletodeal 24-hours dailymakes certainthatprice gapping(whenever apriceleapsfrom onelevel toanother withnotradingbetween) is less andmakes surethattraders couldtakeapositioneachtimetheydesire, irrespectiveoftime,eventhoughinrealitythereareparticular 'lull' occasions when volumes tendtobebelowtheir dailyaveragewhichcouldwidenmarketspreads.Forexis aleveraged(or margined) item,whichmeansthatyouaresimplyrequiredto putinasmall percentageofthefull valueofyour positiontosetaforeignexchange trade.Becauseofthis,thechanceofprofit,orloss,fromyour primarymoneyoutlayis considerablygreater thaninconventional trading.Currencies aredesignatedbythreeletter symbols.Thestandardsymbolsfor someof themostcommonlytradedcurrencies are: EUR –Euros   USD –UnitedStatesdollar CAD –Canadiandollar GBP–BritishpoundJPY–JapaneseYen AUD –Australiandollar CHF –Swiss francForextransactionsarequotedinpairsbecauseyouarebuyingonecurrencywhile sellinganother.Thefirstcurrencyis thebasecurrencyandthesecondcurrencyis the quotecurrency.Theprice,or rate,thatis quotedistheamountofthesecondcurrencyrequiredto purchaseoneunitofthefirstcurrency.For example,ifEUR/USD has anask priceof1.2327,youcanbuyoneEurofor 1.2327USdollars.Thereareso-calledmajors,for whicharound75%ofallmarketoperations onForexare held:theEUR/USD,GBP/USD,USD/CHF,andUSD/JPY.Aswesee,theUSdollar is representedinall currencypairs,thus,ifacurrencypair contains theUSdollar,this pair is consideredamajorcurrencypair.Pairs whichdonotincludetheUSdollar arecalled cross currencypairs,or cross rates.Thefollowingcross rates arethemostactively traded:EUR/CHF = euro-franc EUR/GBP= euro-sterling EUR/JPY= euro-Yen GBP/JPY= sterling-Yen AUD/JPY= aussie-Yen NZD/JPY= kiwi-YenTogiveyouatasteofwhatis happeningintheForexarenaherearesomehistoricalForexevents.Oneofthemostinterestingmovements intheForexmarketinvolvingtheBritishpound tookplaceintheSeptember16,1992.Thatdayis knownas BlackWednesdaywiththe BritishPoundpostingits biggestfall.Itwas mostlyseenintheGBP/DEM (BritishPound vs.theDeutschemark)andtheGBP/USD (BritishPoundvs.theUSdollar) currency pairs.ThefalloftheBritishpoundagainsttheUSdollar intheperiodfrom November toDecember 1992constituted25%(from2.01to1.51GBP/USD).     Thegeneral reasonsfor this "sterlingcrisis"aresaidtobetheparticipationofGreat BritainintheEuropeancurrencysystemwithfixedexchangeratecorridors;recently passedparliamentaryelections;areductionintheBritishindustrialoutput;theBank of Englandeffortstoholdtheparityratefor theDeutschemark,as well as adramatic outflowofinvestors.Atthesametime,duetoaprofitabilityslant,theGermancurrency marketbecamemoreattractivethantheBritishone.All inall,thespeculators were rushingtosellpoundsfor Deutschemarks andfor USdollars.Theconsequencesofthis currencycrisiswereas follows:asharpincreaseintheBritishinterestratefrom 10%to15%,theBritishGovernmenthadtoacceptpounddevaluationandtosecedefrom the EuropeanMonetarySystem.Asaresult,thepoundreturnedtoafloatingexchange rate.Another intriguingcurrencypair is theUSdollar vs.theJapaneseYen(USD/JPY).The USdollar andJapaneseYenis thethirdonthelistofmosttradedcurrencypairs after theEUR/USDandGBP/USD.Itistradedmostactivelyduringsessions inAsia. Movementsofthis pairareusuallysmooth;theUSD/JPYpair quicklyreacts totherisk peakingoffinancialmarkets.From themid80's theYenratings startedrisingactively versus theUSDollar.Intheearly90's aprosperouseconomic developmentturnedinto astandstill inJapan,theunemploymentincreased;earnings andwages slidas well as thelivingstandardsoftheJapanesepopulation.Andfrom thebeginningoftheyear1991,this causedbankruptcies ofnumerousfinancialorganizationsinJapan.As a consequence,thequotes ontheTokyoStockExchangecollapsed,aYendevaluation tookplace,thereafter,anewwaveofbankruptcies amongmanufacturingcompanies began.In1995ahistorical lowoftheUSD/JPYpair was recordedat-79.80.TheabovestartedanAsiancrisis intheyears1997-1998thatledaYencrash.It resultedinatumbleoftheYen-USdollar pair from 115YensforoneUSdollar to150.Theglobaleconomic crisis touchedalmostall fields ofhumanactivities.Forexcurrency marketwas noexception.Though,Forexparticipants (central banks,commercialbanks, investmentbanks,brokers anddealers,pensionfunds,insurancecompaniesand transnational companies) wereinadifficultposition,theForexmarketcontinues to functionsuccessfully,itis astableandprofitableasnever before.Thefinancial crisis of2007has ledtodrasticchanges intheworld's currencies values. Duringthecrisis,theYenstrengthenedmostofall againstall other currencies.Neither theUSdollar,nor theeuro,buttheYenprovedtobethemostreliablecurrency instrumentfor traders.Oneofthereasonsforsuchstrengtheningcanbeattributedto thefactthattraders neededtofindasanctuaryamidamonetarychaos.Askand BidWhentraders wanttoplaceanorder ontheForexmarkettheyshouldbeawareofthe currencypair as well as thepriceofthispair.AForexmarketpriceofacurrencypair is denotedbytwosymbols,Ask andBid,whichhavespecific digital notations.     Ask priceis thehighestpriceinthepair’s quotationatwhichatrader buys thecurrency, standingfirstintheabbreviationofthecurrencypair.Consequently,atrader sells the currencystandingsecond.Bidpriceis thelowestpriceinthequotationofthecurrencypair,atwhichatrader sells thecurrencystandingfirstintheabbreviationofthecurrencypair.Respectively,atrader buys thecurrencystandingsecond.Seemcomplicated?here'sanexample:Let's assumethatwehavethecurrencypair ofEUR/USD withthequotationof1.3652/1.3655.Thismeansthatyoucanbuy1eurofor1.3655dollars or tosell1euro for 1.3652dollars.ThedifferencebetweentheBidpriceandtheAsk priceis called spread.Thespreadisactually thecommissionofthebroker.TheSpreadsinForextradingare actuallyverysmall comparedtocurrencyspreads atbanks.Aterm thatyou'll seealotwhiletradingForexis "pip"and"pips"-a“pip” standsfor “PercentageinPoint”.Apipis thesmallestpricemovementofatradedcurrency.Itis alsoreferredtoasa“point”.Itis veryimportantthatyouunderstandwhatapipis inthe Forextradingbecauseyouwill beusingpips incalculatingyour profits andlosses..For mostcurrenciesapipis 0.0001or 1/100ofacent.Whenacurrencymovesfromavalueof1.2911to1.2914,itmoved3pips.Whenapip has avalueof$10,youhavegained$30.Thereis anexceptionfor quotationsfor JapaneseYenagainstothercurrencies.For currencies inrelationtoJapaneseYenapipis 0.01or 1cent.Another termthatyou'll needtounderstandinrelationtoForextradingis “Lots”.Alotis theminimal tradedamountfor eachcurrencytransaction.For regular accounts onelot equals 100,000unitsofthebasecurrency.Howeveryoucanalsoopenminiandmicro accounts thatallowtradinginsmaller lots.Understanding thePip Spread -Thespreadis closelyassociatedwiththepipandhas amajor importanceforyouas atrader.Asmentionedabove,Itis thedifferencebetweenthesellingandthebuyingpriceofacurrencypair.Itis thedifferenceinthebid andask price.Theaskis thepriceatwhichyoubuyandthebidis thepriceatwhichyousell.SupposetheEUR/USDis quotedat1.4502bidand1.4505ask.Inthis casethespread is 3pips.Thepipspreadis your costofdoingbusiness here.Inthecaseaboveitmeans yousustainapaper lossequal to3pips atthemomentyouenter thetrade.Your contracthastoappreciateby3pipsbeforeyoubreakeven.Thelower thepipspreadtheeasier is itfor youtoprofit.Generallythemoreactiveandbigger themarket,thelower thepipspread.Smaller and moreexotic markets tendtohaveahigher spread.Mostbrokers willbeofferingdifferent  
×
×
  • Create New...

Important Information

By using this site, you agree to our Terms of Use.