Hi everybody, I’m new here.
I would like to know why the minor currencies are ignored? In the Babypips school there is not much except to say that it should be left to the professionals.
Why would one not trade USD/ZAR for instance? Last year it went from 7ZAR to the dollar to 10ZAR to the dollar in about a months time. Now it has been gaining rapidly again. Surely there is more scope for profit when you have prolonged rallying?
Because for better or worse (often worse) most retail traders focus on shorter-term trading. The spreads on the non-majors are generally much wider, which makes them very challenging to trade profitably in the short-term.
Well (and to be more precise):
First: the ???/ZAR pairs are not considered ‘minors’ but rather ‘exotics’. These pairs are ‘right up there’ with EUR/RON, USD/RON, USD/RUB, etc. ALL of which have ‘exotic’ (another word for ‘HUGE’) spreads!!!
Second: following on from what John has noted these pairs, because of their spreads, are ‘no good’ for short term trading.
Third: you need to watch the range (use Average True Range for example). These pairs (can) move 1 000’s of pips in a day so if you’re insistent on trading these pairs you’d better watch your money management. A single MICRO lot (we’re not even talking about NORMAL or FULL lots here) of GBP/ZAR for example can quite easily ‘finish off’ an undercapitalised account (e.g. a $100 account) if it’s a bad trade. Of course: if it’s a GOOD trade then the profits are just as ‘spectacular’ as the potential losses!!!
Fourth: to the best of my knowledge there is not a broker on the planet that offers these ‘exotics’ with instant order execution i.e. trades on these pairs ALWAYS go through a dealing desk. Depending on your broker: you may wait a while (and then some) for your order to be executed so DO NOT EVER try to ‘scalp’ these pairs!!!
ON THE OTHER HAND let me say this: if you are able to then take a look at pairs like USD/RON and USD/RUB (or EUR/RON or EUR/SEK). They DEFINITELY DO trend almost ALL of the time i.e. VERY rarely do you find the congestion (ranging) with them as you do with the majors.
Dale.
Erikza,
Dale is absolutely right on all points. I would add just one thing to what he has said:
[B]Large trading volume is the main reason that some currencies are referred to as “majors”.[/B]
Consider the volume (the “market share”, if you will) of the USD vs. the ZAR (South African rand). Note that we are looking at single currencies here, not pairs. According to the BIS Triennial Central Bank Survey, [B]the USD is involved in 86.3%[/B] of all currency transactions, worldwide; whereas [B]the ZAR is involved in 0.9%[/B] of worldwide currency transactions.
[B]Volume = Liquidity[/B]. The high volume pairs can be readily traded, essentially 24 hours per day. The low volume pairs, not so much. That’s why, as Dale pointed out, trades on “minor pairs”, or “exotics”, are processed manually, on a deal-desk, often with troublesome delays.
Clint
Note: the latest release of the BIS (Bank for International Settlements) Triennial Central Bank Survey was in December 2007, reporting data collected in the Spring of 2007. The next release will be in December 2010.
If you want to read the Survey, here is a link to the 59-page .pdf: http://www.bis.org/publ/rpfxf07t.pdf?noframes=1
Yes, I hear what you are saying. I noticed that the USD/ZAR spread is currently some 300 pips.
The immediate questions that then arise are :
In other words, because of the large movement, of necessity your account needs to be substantive in order not to get margin called?
And I would surmise that your stop loss needs to be set way down in order to absorb the fluctuation?
What would be the reason for the large pip movement?
Dale, thank you for the detailed response. I notice that you are from JHB. I’m in East London. I have a pressing question that I would like to put to you, if it is not an imposition.
Basically I am at the stage where I am considering becoming a fx home trader. Before I invest the time though, I need to know that it is viable. The best way to confirm this would be for me to speak to a local trader that is consistantly profitable. I specify local because I would like to meet face to face. To date I have not been able to find one in RSA.
If not yourself, do you know any that may be willing to entertain my enquiry?
When you talk about delays, would this be measured in minutes, hours?
Is there a possibility that liquidity be so affected that a sell instruction may not be executed due to a lack of buyers?
Trading the right timeframe is beneficial. For some it’s short-term. For some it’s longer term. Don’t let anyone ever tell you that one is better than the other as some fixed rule. Short-term trading just generally provides more frequent trading opportunities.
As for why folks favor shorter-term, that is in many cases because of a serious misjudgement of risk. People look at longer-term trades and see that they probably need to have wider stops and say “Oh, I could never risk that much” when it has nothing to do with anything. Another part of the reasoning is the false belief that the real money is in day trading, or that to trade for a living (or whatever you want to call it) one must day trade.