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Info for beginners to Forex

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BentRod

BentRod

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I've noticed there seems to be a lot of new posts lately asking some pretty basic questions regarding the Forex market.

This thread is designed to steer pure beginners in the right direction and to provide them with the resources they need to get started in understanding and trading the Forex market.




WHERE CAN I LEARN HOW THE FOREX MARKET WORKS?

The very first stop should be to go to school @ Babypips
The lessons are well thought out and clearly written, shouldn't take long to get through them all.

There has also been a book recommended by Tayser called An Australian Guide To Forex Trading, you can buy that from the ASF bookshop .







HOW MUCH IS NEEDED TO GET STARTED IN FOREX?

Despite the misconceptions, a larger account is not imperitive when trading spot Forex (Futures will require a larger account though).
Most brokers offer three types of accounts/Contracts:

Standard Contract($100,000 contract size) which is $10/pip
Mini Contract ($10,000 contract size) which is $1/pip
Micro Contract ($1,000 contract size) which is 10 cents a pip


To add to this, Oanda is the only broker I know of that doesn't use the micro/mini/full accounts structure. Their position sizing is completely dynamic and can be changed so as to risk any exact amount per trade. This in my view is a huge advantage if practicing fixed fractional position sizing.

Keep an eye on http://infiniteyieldforex.blogspot.com to see what can be done with a small capital base and correct money management.
The Author Joel Rensink (AKA The Real Thing is no slouch, a pro trader for 20 years)






WHICH BROKER?

There are many, make sure you do your research beforehand.

A couple of Larger established ones are:

Oanda
Interative Brokers

There are also two different types of Brokers, ECN and Market maker.
Further reading regarding the differences between the two can be found in the Broker section at FF.







HOW CAN I START DEMO TRADING?

The beauty of the Forex market is that most brokers offer a free demo account.
This is a huge advantage as you don't need to loose money to find out what works and what doesn't.
Any strategy can be forward tested in real time with real data with demo dollars.
I bet a few older traders wish these were around when they started!

One of the best free trading platforms is Metatrader. Alpari offers a demo Metatrader that doesn't expire, most other brokers have a trial period and after a while you can't connect anymore.

Get the Alpari Metatrader HERE
That link goes to Alapri in Russia(not the UK one) because their demo has USDX, DJI, OIL, Gold etc, most others have forex only.

Oanda has a demo called FXGAME (this is a java based platform not Metatrader)






WHAT IMPACT DOES NEWS HAVE ON THE FOREX MARKET?

Major news can have a huge impact on the market and new traders should be aware that most brokers widen the spread as news is released so if your stop is close to the market, chances are you will be stopped out if the market moves sharply as it often does.

It is best to be aware of when Major news is going to be released to prevent eg. taking a trade 5 minutes before a release.
The best resource for this is the Forex Factory Calendar , an invaluable tool.
Click on the clock up the top to set your correct time.

Just to add, new traders to Forex often try to trade the expected impact of the news, this is mostly a loosing strategy.
How can you ever know what the market has already priced in?

Don't trade the news, react to the reaction of the news.





WHEN IS THE FOREX MARKET OPEN?

There are three basic sessions in a 24hour Forex day, the market literally follows the Sun around the World.
Asia is first, followed by Europe and finally the USA. Flurries of activity should be expected as each session opens and closes.





USEFUL LINKS TO MARKET CLOCKS AND SESSION TIMES:

World Market Clock

Forex4n00bs clock

Qlock (The free clock is down the bottom, once installed it basically just shows the current time in London,Tokyo,New York)

Forex Session times in GMT

GMT Convertor





OTHER USEFUL FOREX LINKS:

Forex Factory (A great forum, probably the most active Forex Forum on the internet)


Forex Goodies (A great site with plenty of useful statistical info)


Mataf Forex Tools (more stats)


Oanda FxLabs (some great stuff here)


Hopefully this might help someone. Any further info, corrections or links are welcomed from all.:xyxthumbs

Bent.
 
Thats some great info there BentRod :)

Seems with the sharemarket going down and restrictions and uncertainty surrounding short selling the interest in Forex has increased noticeably.

Good luck to anyone giving them a go.

Cheers

Pager
 
BentRod - excellent

Re your quote "One of the best free trading platforms is Metatrader. Alpari offers a demo Metatrader that doesn't expire, most other brokers have a trial period and after a while you can't connect anymore".

If you delete your MT account in the Navigator panel (right click/delete). Exit the platform, re-open again and you will get a further trial period with a new cash balance, plus the platform will still have all your old indicators, chart templates, etc.

rgds - arco
 
The information about Forex is very good for a newbie and I have many times seen this question asked from a person who is interested in forex market. So you have done a nice job by elaborately describing all the things.
 
This is a copy of a post by "Rusty" on Forexfactory, interesting reading :eek:

Hey

Guys hows it going - Sorry about another broker related posting. I know i'm actually getting sick of them too.

But I wanted to post something productive, and might deter some myths about brokers - especially the marketmakers.

I use to work at a Large Australian Investment Bank here is Sydney - I'll give you a hint, the bank recently tried to take over the London Stock exchange. I worked on the FX cash dealing desk in 2003 and 2004 - which most of the guys who know dealing desks well....it is the lowest ranked dealer you can be. But I was only 18 years old at the time, and I was on a cadetship program with the bank, through university.

I was working along side some of the best salesmen and traders in the country. These guys are literally on millions or in some instances tens of millions of dollars a year in bonuses and salaries. Anyways, my dream was always to be on the otherside of the phones as a private trader, hence me being one now - cause working at banks is quite stressfull and i enjoy a laid back lifestyle, but i also have a massive passion for finance.

Anyways, enough lifestories - Basically we were the interbank market. The bank I worked for is among the top 15 investment banks in the world. So we were the end of the line so to speak, we only dealt with other major banks. (Rule of thumb was to deal with Citigroup as little as possible...lol)

However, believe it or not - We also were a marketmaker with our clients. Infact most major Investment Banks are. Contrary, to people's beliefs that banks are straight through processing, which they are - but also dealt clients prices and matched them with other clients.

We would take positions against our clients, quite frequently - as our division was not only a broker to our clients, but a trading house too. You don't understand the amount of losing volume that came from clients everyday.....millions! Through our dealing desk we had a volume on average of over US60 billion dollars. (sometimes it racked over 100-150 billion) - This was in 2003, 2004 by the way, I would imagine today the volume would be much, much larger. So, the trader's who liase with the executing dealers on the desks everyday would try to scalp off your position - so that they can take a commission, plus a greater spread.

For example - If you were long 100,000 euro's at 1.20. Our bank would take a position for 30,000 short euro's at 1.20 against you. Would wait till the market hit 1.1990 and then scalp 10 pips, with a prescribed stop loss. They would not do this all the time, but they would do this when the traders felt the time was right. Sure enough, the amount of losing trades from clients outweigh the winners, and the bank would be in profit.

We would also play clients positions against each other. Not in a bad way....but it was to offer the clients a better level of service - I'll explain why.

Part of the reason why the bank was so heavily focused on being a marketmaker - was not only to make profits. But to ensure better service for their clients. The real truth is, that we wanted our clients to do well - but the reality was that most didn't, no matter how much advise or consultancy we gave them. Some of biggest losing clients were actually large corporate accounts.

How we would ensure better service for our clients, was by trying to fill most orders (we couldnt do all of them, cause the volume through from some clients was to the tune of tens of billions - including leverage that is.) - and we could only fill orders sometimes, by playing clients up against each other.
However we didnt guarentee fills.

The dealing desk also provided 24 hour support to clients, including advisory from a trader you dealt with especially. (Most of our trades were executed over the phone by the way, we did have a web based platform - but we wanted to encourage traders to ring us up - so we can give them a better level of service through supporting them with their trading - including giving advice, and market information - so a trader could ring us up anytime and ask us for marketdepth or major buyers of certain pairs. etc)

We would often favour clients who held their positions - we liked day trading accounts for their volume.

Although we were a large investment bank, we hated scalpers and often tried to deter them from using us. Most retail marketmakers, I would imagine also -would have a hate towards scalpers, cause they would not be able to feed prices through to the client fast enough (since they are level 2 brokers - and receive the prices from interbanks then must pass them on to the client - making them a middle, middle man so to speak). This is probably why brokers like FXCM. etc place scalpers on manual execution - cause scalpers would take arbitrage opportunites from the real marketplace and play them against the price the broker is giving them.

The best place for scalpers is with ECN's perhaps. People who guarentee straight through processing. The only problem is most ECN's dont have dealing desks.

The myths of brokers, feeding through clients the incorrect market prices in order to trigger stops - is quite proposterous. To be able to do that, would not only put the whole firm in disarae, because regulatory authorities not only from Australia (whom are extremely tough), but from all around the world in exchanges we dealt in, would be on your case for fraud, misleading disception, and also theft agains the client. ASIC in Australia, who is the main regualtory body, considers it a criminal act of theft, to decieve clients in terms of pricing. And rightly so.

This would damage the banks name - and i imagine it would be all over the media in a flash. One of the strictest rules in the firm, was to have integrity, especially towards clients.

The foreign exchange market is not regualted to an extent - but if pricing can not be confirmed as being executed at market prices for that time (market prices means that there must be a record of prices from anywhere in the world being at that quote at that time), it cannot be done, legally.

I dont know if brokers elsewhere can toy with that idea - set up phony exchange houses and deal incorrect prices with them for example. But I know we didnt do it. I doubt most large sensible, even the larger retail brokers would do it either.

To the idea of chasing stops - Yes, this did occur, quite often. During news times mostly. We would see where stops were with our clients, we also had a good idea where market depth was, and we would send through volumes of trades to take them out, in order to make money for the bank.

See the bank always came first...profitability for the bank the most important thing overall. Clients would leave eventually, successfull or not....but the bank was always there, so it was our main priority.

The idea at the end of the day is that its every man for themselves in the market. Brokers, traders, hedgefunds. etc are all in it for themselves to make a buck and they will do it whatever way they can.

If you are a good trader - and know the ins and outs of the market (not placing in house stop losses. etc), you will not need to worry, cause you can play the game - then your sweet!

My advice is - pick a respectable and PROFITABLE (profitability in a broker is so important, cause the more clients a broker has, the better level of service they can offer you - and the less chance the broker has of falling to the ground), who has impeccable client service. Aim for the bigger retail brokers (if your retail)....who have great relationships with interbanks.

When questioning a broker, ask them how many interbanks they deal with. If they have a figure less than 5....than stay well away, cause the flexibility of price they will offer you as a client will be completely crap!

Also, just dont go for brokers just cause they have tighter spreads. etc. Of course you want the best deal at the end of the day...but you also want your orders filled and a dealer you can talk to - this is why I'm not really a fan of broker houses without a dealing desk.

For everyone who deals with American brokers go to www.cftc.gov - and then go to 'financial reports for FCM's'. Here you can check out the Capital of all the brokerage houses, try to stick to the retail brokerage houses with the highest amount of capital - cause this ultimately means more clients, a better relationship with more banks in the interbank market, cause they can guarentee volumes, and also a better level of service.

Most importantly....make sure your broker is licensed and registered with regulatory authorities in major financial countries around the world. For example - dont be signing up with no brokers who offer you tight spreads and guarenteed fills from Nigeria.

Brokers arent bad, they arent there to be against you. But they may not, in terms of co operation in the market itself, work with you. Most brokers who are large and service respectible numbers of clients will tend to try to help their clients become profitbale as much as they can.

But once your order is placed, its every man for themselves...

I hope I've helped some people who are just starting out create an idea of how the major brokers and institutions work.

Cheers

Rusty
Click to expand...
 
Help
I have been trading stocks for a considerable period of time.

I'm considering moving on to trade Forex, However, I may have a problem -

Can I use my super fund to trade Forex?
 
BBand said:
Help
I have been trading stocks for a considerable period of time.

I'm considering moving on to trade Forex, However, I may have a problem -

Can I use my super fund to trade Forex?
Click to expand...


If the trust deeds of your superfund allow you to, I cannot see why not

mine do allow me to invest in any instrument ( so long as it is thru IG markets)

I have a corporate trustee ( a special purpose company)

I am a client of esuperfund

So far as I am aware there is nothing in SIS or APRA regs that proscribe any investment format.

I have not traded FOREX, but have been thinking about it, as it does allow opportunity to profit in any market condition, but as yet have not had time to learn requisite skills (big job, probably better of not, but u got to start somewhere)
 
potato said:
nice thread. can some 1 tell me where i can get free eod data for aud/usd to import into into amibroker. :)
Click to expand...

Amibroker can be connected to Metatrader via a plug-in for any data that is displayed in Metatrader so the best way is to install a metatrader demo and go from there.

Keep in mind the data from Metatrader may not be correct, after all it's bucketshop data.

For serious testing and accurate data you are better off subscribing to a service like Norgate premium data.
 
BentRod said:
Amibroker can be connected to Metatrader via a plug-in for any data that is displayed in Metatrader so the best way is to install a metatrader demo and go from there.

Keep in mind the data from Metatrader may not be correct, after all it's bucketshop data.

For serious testing and accurate data you are better off subscribing to a service like Norgate premium data.
Click to expand...

Norgate is still EOD though right? Esignal is the best RT data. About 100AUD per month i think....or was that 100 USD?

Cheers,


CanOz
 
Live forex and EOD data is free from Interactive Brokers if you have an account with them. I feed it into Metastock, but I believe it can also be easily streamed to Amibroker or Ninjatrader (which I have both but I am most comfortable with MS).
 

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