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In spot forex, there is no centralized market or exchange that you're trading on. The interbank exchange is used by the big banks, mutual and hedge funds, but not the spot forex brokers to place your trades. The interbank is where the forex brokers get their price quotes, which they pass along to you. However, they don't have to use the exact same quote at the same time, so you'll see slightly different prices from different brokers. The claim of manipulation comes about because they can choose to move price to their liking, such as to take out some stops, and then move it back in line with the interbank quotes. The forex broker can choose to "lay off" your "bet" - to use some bookie terminology - or hedge, if you will, but they don't have to. They may simply take your trade and count on you losing, helping that out by moving price around, such as to take out your stop.
The other option, which is becoming increasingly popular, is to trade currency futures, which is on a regulated exchange. They've now begun offering micro currency futures to attract smaller traders. The volume is still low in some markets, but getting better and I don't think is a problem. You do have to pay commissions, but with a smaller spread than in spot forex, and again, it's regulated.
I hope this helps. And I welcome any corrections or clarification, as forex isn't my main focus, but I believe all of that is accurate.
You are essentially correct about the FX market and its workings. However, I trade FX night hours in addition to futures during market and most larger and reputable brokers are moving to "no dealing desk" execution which keeps spreads consistent. They do, however, fluctuate; but not enough to be a true concern. Here is a link to the home page of MBTrading (broker I use) where the FX spreads based on a full account (see below) are in real time - you can see they fluctuate and are quite different for each pair MB Trading - Stocks Options Futures Forex Online Discount Trading
The key is in selecting a reputable FX broker MBTrading, PfgBest are two I know of for sure. In addition to the spread, you need to factor in a commision; but typically when working with a broker such as MBTrading, spreads are lower to adjust for commission somewhat.
A benefit of trading FX is to test the waters in trading a system. If you are scalping, then FX is probably not for you, though I do know scalpers in FX also. Now why do I say it is a good way to test your system? Because you can trade a micro, mini, or full account. Micro is 10 cents per pip, mini is $1 per pip and full is $10 per pip. Also the spreads adjust for each account in percentage. so a 1.80 spread in the GBP/USD would be 18 cents in a mini and 1.8 cents in micro. So you can put $50 in a micro account with a broker such as FXCM (which has moved to no dealing desk). If you cannot afford to blowout a $25 or $50 account you should not be trading anyway! NOTE, I do not recommend FXCM for a live full account, though many traders swear by them and their micro account is how I got started.
Regarding currency futures I agree it is a way to go, but just as any trading methodology, you need an account size to back your trading.
There are many days where I've done better in my FX account than in futures so it is why I say it's a good place (micro lot FX) to test a system that won't kill you if you lose a few $$. Also, I know the futures market is moving to E- micro currency futures https://www.cmegroup.com/trading/fx/files/FX-220_E-micros_Sell_Sheet_updated_version.pdf however, the volume is just not there as of yet though it will be at some point.
Broker: Advantage, Trading Technologies, OptionsCity, IQ Feed
Trading: CL, NG
Posts: 1,038 since Jul 2010
Thanks Given: 1,713
Thanks Received: 3,863
I've been a trader for around 12 years starting out in the equities, options and fixed income markets (mostly junk bonds). Moved to trading futures almost exclusively soon after. I've managed money at the big firms, etc. Finally got fed up with clients and dealing with their issues and went independent a few years ago. I now trade from my home office and do not have to deal with any client drama It took a little time getting used to not throwing a suit on every morning, but it's far more rewarding.
Started out trading right at the beginning of the internet bubble. Those were some crazy times! For futures, I've primarily traded the ES for years but recently decided to start trading TF. I found it's price action to be far more straightforward vs. ES. TF has become a new animal after leaving the CME in my opinion. I've spent thousands of hours in front of a computer screen developing an edge through trial and error while paying some serious dues. The key is to never give up and never take on more risk than your account can handle. We've all had those days of pain that are so necessary to learn from.
I think the whole "percentage of traders who make it" saying is an odd subject. You really have to break it down by who has sat down at a computer terminal and put in the countless hours studying the markets and developing a strategy/edge that works for their trading appetite. I think the term "trader" is loosely thrown at anyone who trades securities. A lot of people with no financial background/training enter this field with unrealistic expectations. Once they realize it's a lot harder than they thought, they either give up or become reckless by taking on too much risk/leverage. To me, a trader by profession, is someone who has taken the time to educate themselves and understand what it is they are trading and has developed a specific strategy/edge that they are confident in that provides enough income to live off of.
By the way, I've seen several people start trading with a small stake and grow their account to six figures, etc. They all had specific set ups/edges and practiced sound money management. If you have a small account, you should be trading the appropriate markets that fit within you risk parameters. As your account grows, you can then move to bigger, more volatile markets. Example, one guy started trading the NQ contract. Grew his account over time and moved up to the ES.
One last thing, trading should be relatively boring. You go into the market each trading day unbiased to a degree, you have a specific entry and exit criteria. You either hit your profit target or get stopped out. If you're breaking a sweat and become overly emotional each time you place a trade, closing out trades for no reason other than nerves, you need to re-build your confidence in your trading system and stop concentrating on your P&L. Maybe SIM trade until you've deleted those emotions and make sure you're trading in the market that is most appropriate to your account size/risk tolerance. If you put the time in and work hard enough at this, you can "make it". You just need to be realistic (risk, profit targets, etc.)
Would u say such a trader needs to put in 2000 trades on his method in simtrading or replaytrading b4, with a 80% win rate, to even think of doing it fulltime. What would be your yardstick in terms of the no of trades or the hours spent in this endeavour to have a good shot at success. i am asking against the background of my mentor insisting on 2000 trades on his methodology to reach a success rate of 80%.
Broker: Advantage, Trading Technologies, OptionsCity, IQ Feed
Trading: CL, NG
Posts: 1,038 since Jul 2010
Thanks Given: 1,713
Thanks Received: 3,863
I'm not sure if you could bring it down to an exact science of 2,000 trades with an 80% win rate but that does seem reasonable. I will say that SIM trading is not the same emotional experience as live trading. In fact, I never had the opportunity to SIM when I first started.
If you've never traded live, the best first steps would be (IMO) to use SIM to develop your comfort with your trading application and charts and to find the market that's most appropriate for your account size and risk appetite. Develop a simple strategy that has a good/favorable risk to reward ratio. Example, risk 2% with a reward of 4%, etc. SIM trade this method until the point when you know your set up in your sleep and when you get stopped out, you can accurately identify what went wrong and learn from that experience vs. getting emotionally upset. Study your charts well and learn the ebbs and flows of the market in which you are trading. Not all markets move the same. I believe that there are certain markets that are better suited for beginner traders as well, so be careful.
Begin trading live when YOU feel most comfortable and are completely clear and confident in your strategy whether that takes 1,000 SIM trades or 3,000 SIM trades. The only thing that matters is your confidence in what you've developed that has proven profitability. Just keep it real simple at first.
I appreciate your answer. I however do feel it misses the point. How many of the 95% of traders that fail in this business have traded that methodology that they traded, on 500 or 1000 trades. How many have made the effort to internalize that method and know when they make mistakes, why they make mistakes. The issue of having a 80% winning rate and to at least have 1000-2000 trades is pertinent. Of course there is no way that the paths of all successful traders to consistency and profitability will be the same. However, putting a yardstick, either of 2000 trades or 4000 hours of screentime, provides a measurable criteria to judge. U can just jump in and trade live money bcoz of few patterns or this or that gutfeeling. U need concrete proof that you have been successful with your chosen method on 2000 trades. Other than that, I dont see how the masses can leapfrog to success, consistency etc without hardwork.
Broker: Advantage, Trading Technologies, OptionsCity, IQ Feed
Trading: CL, NG
Posts: 1,038 since Jul 2010
Thanks Given: 1,713
Thanks Received: 3,863
Regarding the 95% failure question, there's no way to accurately assess this but my guess is that many newer traders are constantly changing their trading strategies and indicators. This creates inconsistency and conflicting views in what they're trying to accomplish. They then become confused and frustrated which in turn removes any confidence they may have had. They are unable to internalize why their trades are going wrong because they've switched around so much. This inevitably leads to failure if not addressed immediately.
The path to success is indeed different for each successful trader. But there are a few key things that consistently occur in my opinion.
- They've taken the time to educate themselves through reading, coaching, screen time, etc.
- They have a specific strategy they employ on each trade
- They have a favorable risk to reward ratio (sound money management)
- They trade the market that is most appropriate to their account size
- They have confidence in their system and do not change their charts/indicators over and over again
So to answer your original question regarding trading live vs. SIM, once you feel you've accomplished these basic steps and are truly confident in your strategy which includes the appropriate market, begin to test the water. Start small and build your confidence in "live mode". If your confidence starts to falter, go back to SIM and trade until you feel better about what you're doing.
You do not need to have an 80% win rate to be successful! That will come over time as you fine tune your set up. You can be a 50%-50% win/loss trader or whatever and still be successful. It really comes down to having a good risk to reward ratio. Example, you're risking $100 to make $300 on 10 trades during the day/week/month. You're a "break even"/50-50 trader, your total wins equate to $1,500 and your total losses equate to $500. At the end of the day/week/month, you've netted $1,000 minus commissions, etc. An extreme example would be let's say you lose 70% of your trades and you win 30% but your risk to reward is very favorable risking $100 to make $300 per trade. On the same 10 trades, you lose $700 total and you gain $900 total. At the end of the day/week/month, you're up $200 per contract traded. It's not that complicated. Trading statistics can obviously be skewed in many ways and the key is to stick with your strategy (no impulse trades or overtrading) and not lose confidence when you're stopped out several times before getting a winner. You took the time to wait for your specific entry signal that has proven to be successful in the past and you analyzed why you were stopped out and you're thankful you defended your capital effectively in which will afford you the opportunity to keep trading.
Another thing about stops as they relate to a strategy. Many new traders pick a market to trade and then create a risk-reward ratio. The problem is they typically base the stop on the amount they are willing to risk with no regards to the volatility of that particular market. For example, You're willing to risk $100 to make whatever amount, say $500. You've chosen to trade crude oil. The likelihood that you get stopped out on each trade is far higher than you reaching your target as crude oil is a highly volatile market. Stops need to be placed where your particular trade is no longer valid which means a more volatile market will require a larger stop range in fact, CL will jump one point ($1,000) in a few seconds. This leads to selecting the appropriate market relative to your account size. This is one of the biggest mistakes newer traders make and probably one of the biggest account killers that exist and leads to overtrading.
You mentioned that you "don't see how the masses can leapfrog without hard work". I couldn't agree with you more on that. Like I said before, many new traders enter this field with high expectations of making big money with a few clicks of a button. They may have beginner's luck but eventually, reality hits hard. You have to learn to trade right before you can start making money consistently.
Anyway, I hope this helps to clarify a few things. Best of luck!
each trader is different if you can sim 1 or 2 contracts and consistently positive on day to day basic for a whole year based a the same setup then you can go live.
It took a little time getting used to not throwing a suit on every morning, but it's far more rewarding. 