I’m a newbie trader and started trading the emini S&P 500 futures a couple of months ago. Just before the Christmas holiday I was watching the slow market move in a tight channel and thought there was no way that anyone could make money at that time. I decided to test a scalping strategy in my simulator and trading 1 contract I simply started scalping for one tick at a time. I used limit orders for entry and exit and with a OSO order I placed a stop three ticks opposite my direction in case the market reversed quickly. It was a bit like playing on Playstation and with my mouse I rapidly executed quick trades with a target of only one tick. In the emini 500 my profit per tick is roughly $10 each time…$12.50 profit minus $2.40 fee for round turn.
At the end of two hours I was up over $1,000 even though I took short breaks. I waited till after the holidays to try it in the live market but when I did it did not translate. My limit orders were often not filled. The price would hit my order but would not get filled…simply not enough liquidity.
Since forex is such a humongous market compared to all others I wanted to ask a seasoned forex trader if a scalping strategy using limit orders in one of the major pairs might work. I don’t know anyone who trades forex and I don’t want to open an account just to test my strategy. But if limit orders of one std lot are filled very quickly it might just work. I don’t know what one tick profit in forex is but even half of what the profit in the S&P mini could be a nice daily return. Any thoughts or insight from someone who actively trades forex would be appreciated. Thanks.
First of all in my opinion you could test your strategy by using it on a demo account just to see if it works as well on currencies. On the other hand, to answer your question, in forex every currency has its own specifications: I am talking here about spread and minimum pending order price difference. For example, at the broker I am trading with, the EURUSD spread is 1.6 pips and the minimum pending order price difference is 3.2. So you have to keep in mind these details and check your strategy to see if it is working. But you need to be careful as the majors do not always tend to keep a channel.
Hi Mac,
I believe the problem here is not in the lack of liquidity on the real market. It is just that you get slippage by the opening so you get different fill price (this is how the real market work if you use 100% DMA/STP broker) or because of the spread you only think that the price on the chart is reached (if you are only looking on the BID price) but for your trade to be triggered if it is a Buy Stop or Buy Limit you need the ASK price to match your opening price.
If you are going to try your strategy on forex on a Demo account it should work. Here the tick size is usually 1 pipette (0.00001) which would generate you just 1 USD if you have a position of 1 standard lot in ERUUSD (100 000 units). The problem here again is that if you try it on Live you should be prepared to get slippage and also spread widening sometimes. However, usually slippage can also be positive so it could also work in your favour. That is why the suggestion of Andrew89 isn’t so great as the trades on Demo never go on the real market, e.g. there is no slippage possible.
Other option is to use a broker with guaranteed SL, TP and fill price by pending trades (usually a market maker). In this case, you should be prepared that the broker would trade against you and try to limit your profits or even make them loses.
Quite apart from the fact that this kind of scalping is generally the most difficult and impracticable style for any aspiring trader to master, in the case of forex, there are going to be some serious additional problems with it, including these …
A counterparty market-making “broker” won’t tolerate it for long anyway, because you’d actually be scalping [U]them[/U] rather than scalping [U]the market[/U];
I [I]think[/I] it’s going to be difficult (or maybe even impossible) to find a broker that permits such small stop-losses as you’ve mentioned above;
Compared with e-mini futures, you’ll find the spreads enormous;
What you describe is pretty much classic of the kind of the method that can appear to be viable on demo, but doesn’t translate favourably to a live account.
Apologies for a “negative-sounding” post which I know isn’t what you wanted to read at all. :8:
This depends on each one’s way of trading. While I am very satisfied by my broker’s services: transparency and community + technology I am not going to change it to get let’s say 1 pips lower spread. Anyway I am not trading to target less than 30-40 pips so I do not mind about a spread like this.
Maybe so, and the word “too” obviously makes it subjective, to some extent, because “too” implies a comparative value assessment, and people aren’t all going to agree about those.
That’s fair enough, if it’s what suits you overall, of course. You’ve obviously decided - for whatever reasons - that it’s ok to pay twice the dealing costs you need to. And given how you’re trading, that might perfectly validly make sense to you for reasons of your own … but at the same time, Andrew, the reality that you’re paying twice the dealing costs you need to is just [I]factual[/I].
I admit (nosey soul that I am) that I’m wondering how frequently you trade, and whether you’ve really worked out what that’s costing you on an annual basis.
For me, I must say, when I was actively trading EUR/USD every day, it would have made a very significant difference to my bottom line.
Thank you for your reply, and you are obviously right. Probably if I would calculate at the end of the year, the costs that I pay extra would be pretty big. But on the other hand I am not opening more that 1-2 trades a day, sometimes even less due to the lack of time.
And I rather pay some extra for other services that I get with my current broker, such as a very nice and transparent community, different from anything I saw anywhere else.
Actually, that is one of the most important things when you trade, so great that you have find a broker that matches what you are looking for.
On the other hand, 1,6 pips fixed spread on EURUSD and transparency are two things that I cannot use in one sentence
Just because fixed spreads for forex trading sounds like market making to me and I don’t believe that market makers are famous with their transparency. However it is just my opinion and as a mentioned it is more important that in the end you are satisfied with what your broker gives you as trading conditions/experience.
I like to test things out with a micro account. I can run a strategy on Oanda for instance with trade sizes as low as 0.01 lot. So, if it totally blows up, and it usually will, I blow maybe $20. It’s real trading, just for cents per pip. Consider that before trading a standard lot and throwing your money down the toilet. Save your capital for that glorious day when you find something that doesn’t blow up. That usually takes 5 to 10 years of steady work.
I can understand your point and sorry for the late reply. I was not actually talking only about the broker’s transparency, but also about some other advantages related to transparency. For example, I am talking about a community where I can see other people’s trades ( if they want to share it), interact and so on…
