I recently found this article, named “Real Cost of Non-Institutional Forex” on the internet, the author (forex facts( made it sound very depressing for us rookies but I still seek experienced trader’s view on this article.
[I]There is one golden rule in trading the Forex market, [B]‘DO NOT SET STOP-LOSSES’[/B] on your trades unless unavoidable. [B]Setting stops is very unwise practice for traders[/B]
[B]When you read that the FX market is the largest in the world, and trades an average of $1.3 trillion per day, much of this is in game/demo accounts[/B] (or so I’ve read), and on its own, if we remove leverage (counting only real trader funds) we are left with a much smaller market that Futures or Equities.
[B]Quoted everywhere in the online FX world as being the largest market in the world. This is simply untrue.[/B] The FX market is in fact smaller than most other well known markets like Futures or Equities. [B]By removing Leverage value from FX trading statistics, thereby including only trader’s ‘real money’ (which is all they can lose), and keeping separate the inclusion of all Game/Demo trades in their statistics (Most Market Makers have free Trading Demos), the Forex market is considerably smaller then other more popular trading markets[/B].
Forex market is much less popular, assumed risky and I have found deceptive and dishonest than any other market [B]in my 15 year trading experience. [/B]Betting on either Horse racing or at a Casino is in fact a much smarter (but obviously still against-the-odds) investment as well as more entertaining.
[B]The large government, corporate and institutional FX trades to my knowledge are not set at the current FX price, and cannot affect the market price [/B]directly. Otherwise a 3 Billion dollar corporate merger or acquisition as example, transferring 1 to 3 Billion dollars across international borders would in one hit, shift a currency price well over a thousand pips.[/I]
Everything in that article is pretty much wrong. If you choose only one part to disbelieve make it the part about stops, that is pretty much the stupidest thing I’ve read coming from an, “experienced trader.”
I found it and read the whole thing. Interesting perspective, from what mostly sounds like a sour grapes experience.
Funny thing about it is the misrepresentation of facts. For instance, practice accounts do not share servers with live accounts. They share the info, but are removed, so there is no way cyber contracts would be offered up as live ones in the bid/ask columns.
Here’s the conclusion to the article:
Conclusion
The Foreign Exchange Market implements complex financial and mathematical techniques to set prices. In 18
months of trading I have been unsuccessful in ascertaining any direct knowledge of the algorithms behind price
variation (and I have asked), which in my view is fundamental to understanding the trader’s investment
selection and risk.
I have assessed the odds against an individual trader profiting overall from investing in the Foreign Exchange
Market as being approx. 85%, which agrees with statements made by market commentators who have stated
80% and 85% as being the percentage of closed FX accounts which lose money overall.
In closing I urge you, before trading FX at a significant level, to understand your ‘real’ risk of trading. The idea
that a random trade will produce near equal odds is definitely not the case in the FX market as your trade affects
the market, and without question becomes a target for sophisticated price-manipulation techniques used by
experienced market participants at several levels as explained above.
Do not be naïve, if you trade on this market be prepared to lose, unless you can outclass the banks, Market
Makers and institutional investors exercising nearly 200 years of professional experience to take your money
through deception and manipulation. It is as simple as that. There are times where you can win against the odds,
but you should strive to understand what you are up against or you will probably be wasting your time and
money.
There are no algorithms to forex because of the variables. It’s the “butterfly wing flap in Africa causes a hurricane in Florida” theory in action.
It’s still a market, and still acts like one, it just moves faster, and with leverage, moves larger than equities.
[B]ThePhoenix[/B] makes a good point. If the writer didn’t set stop-losses, I’m not convinced he understood the “real risks of trading”, hence his bitterness when he found out.
That article is so stupid, I would hate to waste time trying to point out all its errors.
But, two of the errors in the article are especially stupid:
[ul]
[li]the claim that the forex market is not a $1-Trillion-per-day market, and
[/li]
[li]the claim that volume figures for the forex market include demo trading
[/li][/ul]
The source for factual information on the foreign exchange market is the Bank for International Settlements (BIS) in Basel, Switzerland. Every three years they publish a document titled Triennial Central Bank Survey. The most recent Survey was published in December 2007. The next will be published in December 2010.
Here is a table from the 2007 Survey, showing slightly more than $1 Trillion in daily spot forex turnover, and slightly more than
$3.2 Trillion in total daily foreign exchange transactions worldwide. (I added the green highlights and notes.)
To the writer of that stupid article, I would simply say that the BIS and the central banks of the world know the difference between real-money transactions and play-money transactions, and they are not in the business of tracking play-money transactions in demo accounts.
Clint
p.s. – here is the entire 2007 Triennial Survey in .pdf format:
