Getting started in Forex

[nizar]

One downside is minimum deal size of 100,000 units of base currency so no use for mini traders.

Just one question about this.
If i buy a standard lot of AUD/USD at say 0.8600, that will cost me AU$86,000, and 1 pip is worth US$10.

Is this correct?

If so, if i buy a standard lot of GBP/JPY at say 225.00, that will cost me 225,000 pounds?? and 1 pip is worth 10 yen??

Surely that cant be right??
Or??

(Im a very much beginner in this market, so please be easy on me)

 

[tayser]

You need your account's equivalent of the currency on the left hand side of the pair you're trading and your profit will be in the currency on the right hand side of the pair.

100,000 GBP/USD @ 1.9925 = 100,000 Sterling buys 199,250 Greenback

So if you're denominated in AUD, you need:

GBP/AUD = 2.3199

231,990 AUD to buy 100,000 GBP/USD

yep, 1 pip will be $10USD

so if you make 10 pips, your profit will be:

AUD/USD = 0.8588 (1/.8588 = 1.1644)
$100 USD * 1.1644 = 116.44AUD.

 

[disarray]

they build the leveraging into the transaction. so you place an order for 100,000 units and you front $3000 or so then make $10 / pip but you are exposed to a higher amount (depending on leveraging). start an oanda fx game to get the feel of it.

a picture is worth a thousand words so ......

 

[nizar]

Thanks disarray and Tayser.
But could you please answer the question in my previous post more directly?

Isnt 10yen useless? lol.

Would this be a reason this pair isnt popular to trade with AUD?

 

[tayser]

The value of the pip (therefore your profit/loss) is always in currency on the right hand side of the pair - therefore, if it's not AUD, you have to run it through that currency's AUD exchange rate to get back into your account denomination (if you're denominated in AUD).

for Yen crosses (most popular scalping pairs) let's compare:

10 pips on AUD/JPY (97.10) and GBP/JPY (225.15)

your margin requirement is in italics & (brackets)

AUD/JPY

AUD/JPY 97.10

Using 1:100 leverage with AUD account denomination

BUY 100,000 (1000) aussie* 97.10 = 9,710,000 yen

Value of position when 10 pips in profit (when you exit by doing the opposite order: sell):

SELL 100,000 (1000) aussie * 97.20 = 9,720,000 yen

1 pip = ¥1000 or ¥10,000 profit

10 pips profit = ¥10,000 * (1/97.10) = $102AUD


GBP/JPY

GBP/JPY = 225.15
GBP/AUD = 2.3199
AUD/JPY = 97.10

Using 1:100 leverage with AUD account denomination

100,000 sterling = 231,990 / 100 = $2319.90AUD

BUY 100,000 (2319.90) sterling * 225.15 = 22,515,000 yen.

Value of position when 10 pips in profit (when you exit by doing the opposite order: sell):

SELL 100,000 (2319.90*) sterling * 225.25 = 22,525,000

1 pip = ¥1,000 or ¥10,000 profit

10 pips profit = ¥10,000 * (1/97.10) = $102AUD

*remember the GBP/AUD will move whilst you're in a GBP/JPY position so your margin requirements for GBP/JPY may rise/fall as the GBP/AUD exchange rate moves

So with the two examples you come up with the same amount of profit - except when you trade GBP/JPY you're required to have 2.3 times the margin requirement (because to buy Sterling with Aussie - which the broker will do the transaction internally - you need 2.32 dollars to buy one pound which in turn is then use to buy 225.15 yen (multiply by the lot size: 100,000))

But this doesn't mean you should trade AUD/JPY instead of GBP/JPY - you next have to compare liquidity and volatility (how much it will move)... and sterling/yen moves like no tomorrow.

 

[nizar]

and sterling/yen moves like no tomorrow.

Tend to agree.
GBP/USD moves a fair bit as well.

Thanks for the example, i think i understand it now.

 

[MS+Tradesim]

I sent an email to Hotspot, the ECN I linked to earlier. I specifically asked about any extra fees for data or API integration etc and the guy said only fee is the trading comm.

They can feed data into Metastock and have a program so buy/sell signals in Metastock can initiate trades automatically. They also have a test environment.

My objectives now....

1) Buy Metastock Pro (has the advantage of also being usable for intraday stock trading analysis - means I have no program development learning curve as I already use MS EOD)
2) Hook in to datafeed.
3) Develop back-tested strategy using Tradesim
4) Demo live trade
5) refine
6) Live trade small
7) refine
8) Live trade big
9) repeat 3-8

BTW, Tayser thanks for your response to nizar. I found it helpful too.

It would be great to do this openly like tech/a did with his system development.

 

[tayser]

Just with your overall strategy above, be careful when you start 'live trading small' - different ECNs have different levels of liquidity and if liquidity is poor you'll possibly find that when you start trading small lots (i.e minis: note I haven't done much research into HotSpot so don't know what they offer) you won't get filled as fast compared to if you were trading a few standard lots.

I'm just downloading their platform and it's taking ages - not a good sign when execution is one of my paramount concerns. It's being downloaded from Europe.

cheers.

 

[nizar]

They can feed data into Metastock and have a program so buy/sell signals in Metastock can initiate trades automatically.

Are you sure you can autotrade through MS?
I thought only MT4 or TradeStation can do this?

And do you know where you can get intraday forex data?

Anyway, keep us posted on your progress.

 

[tayser]

Most MT4 broker's demos' data will go back a fair way (just looking at the MT4 demo I have: AUDJPY goes back as far as 1983 - when we floated!) - and when markets are open you'll be able to get down to 1 minute charts. It will suffice while you're still learning.

 

[nizar]

Does anybody know of an ECN which offers Mt4 ?

 

[tayser]

MT4 is a market-making/deal-desk platform.

FF's EFX thread: http://www.forexfactory.com/showthread.php?t=10002 Jlebang is a customer management rep so he's obviously got a vested interest in spruiking his brokerage, but throughout the thread he discusses these types of questions - if you read the thread from beginning to end you'll pick up on an ECN + MT4 discussion.

 

[ithatheekret]

And which forex sites were in hybernation , on the 25Th when Tokyo was open , seeing new set ups in the charts ?

Many were closed and your postions unless hedged , could have suffer major damage .

The market session times are extremely important , as each international opening , has a direct impact on certain currencies and the crosses related to it .

For a market maker , I take my hat off to OANDA , they are there everyday !

The pips spread variations and the minor slippages are something one would have to put up with , with the multiple market convenience being the benefit outweighing .

Are there any other operators known by members that allow all markets participation , especially in the end of year slowdown , where thin markets are more volatile . ?

 

[nizar]

MT4 is a market-making/deal-desk platform.

FF's EFX thread: http://www.forexfactory.com/showthread.php?t=10002 Jlebang is a customer management rep so he's obviously got a vested interest in spruiking his brokerage, but throughout the thread he discusses these types of questions - if you read the thread from beginning to end you'll pick up on an ECN + MT4 discussion.

Im working my way through that thread slowly.

Just got a question for you, what is the ECN equivalent of MT4?
What Im specifically looking for is fully automated trading.
How do ECNs offer this?

Iv heard the term API get used? What exactly does this mean and how does it work?

Thanks.

 

[MS+Tradesim]

Nizar,

I'm still in software research phase as my original idea of MSPro and Tradesim got panned. Tradesim won't handle timeframes smaller than 1day.

Metastock Pro can handle realtime forex and using an API middleman like Tradebullet of Ninjatrader etc, to connect to an ECN like Hotspot (they've confirmed they have their own middle-party plugin) can be setup to be fully automated but backtesting is limited to its inbuilt tester which as you would know is dodgy at best.

Tradestation (which is not cheap for us forex beginners) can handle real-time stocks and forex, and strategies can be automated through either their sponsored brokers or through your choice of broker (but you pay a higher monthly fee for platform access). Tradestation can backtest and optimise over one instrument at a time but I can't see that it can do true portfolio testing like Tradesim, which as a systems trader I consider essential.

I've just been talking to Jose Silva and he thinks Amibroker might do the trick for backtesting. I've downloaded the Amibroker trial and several years of free EOD forex data and I'll let you know if it does the trick....but I have to learn its development language first. Don't know if this will ultimately be able to be automated but I now have reservations about fully automating a strategy UNLESS I am prepared to sit there while it trades. There are just too many things that can go wrong along the production chain to feel confident about turning it on and going to bed.

EDIT: Hotspot confirmed their real-time data-feed will plug into MS Pro and automated strategies can be developed within their test environment before going live.

 

[Timmy]

MS+Tradesim and Nizar - just following along your conversation here re system testing etc; would Wealthlab do the trick for what you want? I have no experience with it but know a few FX systems-type traders who use it.

 

[julius]

nizar,

The API allows two programs to interface with one another - this can facilitate a data feed, order execution, etc.

Generally there are a number of different broker API plug-ins to accommodate different ( trading ) platforms - IB has one for Excel , Amibroker, C++.

I've played around with them a bit but gave up on accounting for all the possible contingencies - not really where I'm at atm but happy to help where I can.

Howard B and Kaveman (sp?) prob know much more.

 

[nizar]

MS+TradeSim,

Looks like we are both on the same road here.

I spoke to David some time ago about TradeSim and intraday testing and he told me the same thing. TradeSim cannot handle the timestamp on periodicities smaller the daily.

TradeStation with forex i dont mind one currency pair testing at a time, as its much less of a hassle than 1 stock! But from what Iv heard, i just cant see myself trading with these market maker types. I would only go ECN. The thing is, it seems that at the moment its only through the market makers where you can do fully automated trading through MT4.

Im sure the ECN brokers will offer some sort of equivalent to facilitate automated trading in the near future. This type of trading is still very much in its infancy going by what Iv heard and read.

AmiBroker the features and speed I heard is excellent, but its the lack of monte carlo analysis which is a let down as the integration with TradeSim is far from seamless. But it can be done -- Im sure Stevo would be happy to help here. As for the programming, for me to learn a complex language with no programming background would be tough. I would rather pay a programmer to do it (try Grahame/Kaveman)

I have talked to somebody who has a wide array of software at his disposal and he told me for intraday -- Wealthlab or Amibroker are the best.

But this was when I was looking at intraday CFDs and before I had considered forex. Still applicable I suppose.

Julius, thanks for your post. I appreciate it.

 

[nizar]

if you read the thread from beginning to end you'll pick up on an ECN + MT4 discussion.

Finally got to this point, page 52 of that thread!

You asked; “Which automatic trading software can work with your platform?”

I’m sure we work with many I don’t even know about, but here is a few I do know of for certain;
NeoTicker – www.neoticker.com
TradeBullet – www.tradebullet.com

 

[LetItRide]

Hey All!!!!


Well I haven't been on this site in ages since I converted to forex but it's exciting to see some of the traders here showing an interest.

I'm far from an experienced trader but I would like to suggest to anyone who is seriously interested in parting with their money in the forex game please do your research. It's a highly unregulated market and unless you're willing to put in the hours to understand the market's structure you might as well be gambling.

Also this is a business so treat it like one. Think of things like;

*Capital - Would you start a business with a couple of hundred bucks?

*Money management - How many % are you going to risk on each trade?
- Have you got enough capital to withstand a string of losses?(Even with the old coin flip of 50% probability, there's a definite possibility of 10 heads or tails in row)

*Realistic Goals- Making 5%-10% is month is realistic while 100-200% a month isn't.

*Risk- What's your risk tolerance?

*Plan- Would you go into business without a plan? (Think of things like, what happens after you enter a trade and price goes up? down? or sideways?


When looking for a system make sure you find one that works for you personally, not one that's been hand fed to you by a friend or a trading guru.
I'm a swing trader who likes to keep an ear to the ground listening to the fundamentals but thats my personal choice and what I'm comfortable with.

There's no holy grail to trading but being disciplined and well planned will certainly put you in the right direction of reaching your goals.

Ok I could go on and on but hopefully you get the picture

good luck and happy trading

p.s. here's a link of some articles which you may find helpful

http://www.forexfactory.com/showthread.php?t=39892