Fixed vs. Variable Spreads

Beginner Questions
1

As you’ve (mostly) noted I don’t post much over here anymore but THIS I thought important enough to make you (especially new) traders aware of.

The ‘fixed vs. variable spread’ debate has ‘raged’ MANY time before I know. But if you’re a trader who’s stops are being taken out for no APPARENT reason then in all probability (unless you REALLY don’t know what you’re doing) well then ‘there’s your problem’ (Mythbusters)!!!

For lack of something to do I was just looking at a very well known variable spread (MetaTader) broker . I was absolutely HORRIFIED to see that as of right now the variable spread on Gold is ‘hovering’ around 102 - 105 pips!!! Silver: same thing i.e. it’s hovering around 9 and 10 pips. At a fixed spread broker (like mine): the fixed spread on Gold is 40 pips and the fixed spread on Silver is 4 pips. In my case (and with my trading systems) this would have made the difference RIGHT now between getting into a trade that I should not be in in the first place at the variable spread broker. So do yourself a favour: if at all possible trade with a fixed spread broker. Either that or trade SHORT ONLY (remember the spread is varied by varying the BUY/ASK price which is not always shown on the chart and even if it IS shown on the chart there’s not a whole lot you can do about it). This UNLESS you’re a scalper in which case a variable spread COULD count in your favour (bust most scalpers, or should I say most NEW scalpers, don’t ‘make it’ in this business).

JUST a friendly word of (useless???) advice for you is all.

Regards,

Dale.

Edit:

And while I’m on the subject of ‘anomalies’:

Forgive my lack on knowledge here but what does it mean to ‘lobby’??? I’ve said this before and I’ll say it again: instead of the SEC and the NFA worrying about ‘crap’ like leverage what would it take to FORCE EVERY SINGLE BROKER WORLDWIDE to close their charts at EXACTLY the same time no matter WHERE in the world they are located (otherwise you could simply not operate as a broker if you did not ‘adhere’ to this ‘rule’ and if you did try you would not have any clients)??? I’m just curious as to how one could ‘force’ this issue (if at all). Once again (and in my case anyway): 4-hour charts, same trading systems, even the same trading PLATFORM in my testing (MetaTrader), and different results (huge profits at the one broker and huge losses at the other ON THE SAME INSTRUMENTS using spot Gold and Silver for testing and, as noted above, fixed vs. variable spreads aside). If this could be accomplished I’ll GUARANTEE that the win/loss ratio of spot FOREX traders would improve ‘in leaps and bounds’ (ESPECIALLY those that trade the 4-hour charts and the daily charts). Just curious. On this particular topic: I found yet ANOTHER broker where their Gold and Silver 4-hour and daily charts open and close at different times (also a variable spread MetaTrader broker)!!! LOL!!! Now I ask you ‘with tears in my eyes’ how this is possible (even THEY don’t have an answer that is reasonable to me)!!!

(What makes you think I’ve got nothing better to do with my time than ‘nurse’ L-O-N-G term trades)!!! LOL!!!

2

Hello Dale,

nice to see you around! :slight_smile:

Well, H4 is always different if you have a difference in the local time zone of the broker server. CET is different from GMT and that all is different from EST. So, if you use H4 on several brokers with different times with the same system, you WILL get differences. You only will not get differences if your timezone of one broker is exactly 4 hours earlier or later than that of the other broker.

Regarding daily charts it is not much better. You will have different o/c times as well if it goes to those time zones (and others as well).

That’s why I developed a strategy now which is independent from charts. My EA calculates based upon hours and hours only and not H4 anymore. While still using H4 values. I use a formula which generates those H4 and daily values outside of H1 values and with my own settings of time. Because H1 is almost identical. One hour starts imho at every location at the world at the same time. So, 1 hour and below strategies should work everywhere almost like the same. Not to say that spreads count more with the lower time frames.

That aside, just one question: Where do you see the s&p heading? I see a hs pattern there and test of the shoulder line from the bottom and after that I would assume it will drop further. What do you think about that? Sry if this is off topic. I don’t trade it, but it would have an impact on xau/xag imho.

Best regards

Mr. Gecko. :smiley:

3

Good morning Mr. Gecko.

To address your interest in the S&P: your guess is as good as mine. And I do mean GUESS!!! I don’t know WHAT has happened to these markets this past week but everything has gone ‘topsey turvey’ (I think that’s the correct spelling). For a good long while now people have been piling into Gold and shorting equities. Then Gold corrected (one of the only decent trades I’ve made this past week) and THEN all of a sudden the whole LOT started moving in the SAME direction (Gold and equities). As you know: I’m probably the worst ‘fundamentalist’ in the world but I remember this sort of ‘action’ in 2008 and 2009 (where correlations that had remained intact for a few years started to break down). What this means: ‘f*ck only knows’ but I have a foreboding that it’s not good (I’m just not sure for WHO it’s not going to be good)!!! I don’t know if that addresses your query much (probably not) but maybe somebody who has a good understanding of fundamentals can ‘chime in’ here.

As for the 4-hour and daily timeframes. I’m fully aware of the ‘issues’ and that’s what ‘pises me off’. That and these disgusting things called ‘variable spreads’. I think you know how most of my trading systems work and most of them require me to place a stop one tick above or below the signal bar for entry or stop and reverse. As it so happened (and I trade with fixed spreads at Deltastock as you know): I was short Gold (on the four hour chart) when I was signalled to place a stop and reverse order one tick (plus the fixed spread i.e. I always add the spread to any buy/ask orders) above a certain signal bar (obviously to go long). Which I did. The stop and reverse was never executed and I remained in the short trade. Had that same scenario played itself out at the other (well known) variable spread broker: I would have been stopped and reversed because of the widened spread and only a few bars later would have had to stop and reverse again (at a loss obviously) only a few bars later. My point is that it’s a travesty that ‘this lot’ (brokers) are allowed to advertise things sudch as ‘spreads as low at 0.1 pips’ and the (new) trader thinks ‘wow: that’s the broker for me’. If you’re a scalper (as I noted above well then ‘it’s the thing for you’ but scalping is an ‘art’ and most will never master it. Retail scalping: it’s like taking a new trader and putting him in S&P pit and expecting him to ‘perform’. Most will wipe out their accounts in a few minutes). Like I said in my first post: 104 - 105 pips spread on Gold when I’m trading with a 40 pip fixed spread??? You tell ME who’s getting the ‘better deal’ ‘on average’ or ‘overall’. I know I shouldn’t be saying this (for obvious reasons) but this variable spread ‘thingy’ is absolute 'bullsht’ and yet another potential ‘pitfall’ (as if there aren’t enough). I’ve noted this before: when I first started trading I had stops getting taken out and on the (bid price only) chart price APPEARED to have never been CLOSE to my stop order price. The ‘excuse’ made by the broker: ‘the spread widened’ and there’s not a THING you can do about it (not even if you ask them to prove it). And I know (just from a few posts on this very site that this type of thing happens ALL of the time).

And as for these different closing times: I REALLY DO believe that it’s something that should be addressed worldwide. I don’t know why other people around here cannot see the gravity of this issue!!! Everytime I’ve brought it up it seems to be dismissed ‘out of hand’. SURE: one can trade on the 1-hour and shorter timeframes but, as we all know, your chances of getting whipsaws and false signals increase proportionately the shorter the timeframe and isn’t that what the broker wants??? Put it this way: they’ll never be able to ‘centralise’ spot FOREX trading but ensuring that ALL charts EVERYWHERE close at exactly the same time would most certainly go a ways to ‘simulating’ a ‘centralised’ market. Like I said: I don’t know how to ‘lobby’ (or even understand how it works) but I think I’m going to make this a new little ‘pet project’ of mine in the near future and could use the support so if anybody is interested and doesn’t think that I’ve ‘lost my marbles’ then feel free to let me know and I’ll see what I can do. Nothing is impossible. Obviously I don’t have a problem trading on-exhange instruments because they open and close at the same times day in and day out. But when it comes to spot FOREX (and unfortunately spot Gold is ‘lumped’ in with spot FOREX) I’m AGAIN being reminded of all the little ‘traps and tricks’ involved in the trading of spot FOREX. It’s time to ‘clean this business up’ (and by that I do NOT mean playing ‘nanny’ i.e. if a new trader wants to ‘bet the farm’ while not knowing what he’s doing well, then, that’s his problem. There’s no excuse for it because there’s enough information around JUST ON THIS SITE let alone on the Internet to teach them NOT to do this. But there are just so many other ‘variables’ that are really starting to ‘pi*s’ me off’)!!! Put another way: if you’re trading ANYTHING that trades 24/7 then all the brokers mey as well remove the 4-hour and daily charts from their systems and let the poor retail spot FOREX trader get ‘chopped up’ on the 1-hour and shorter timeframes!!!

And you don’t have to post details of how you EA calculates i.e. just email me. I’d just like to see how it can be accomplished just out of interest sake.

Regards,

Dale.

Edit:

Sorry Mr. Gecko. Regarding the direction of the S&P: ‘every trader and his dog’ is waiting for the outcome of the jobs numbers today. The general consensus is that no matter HOW they come out: the markets will rally. If they’re bad: the general consensus is that the Fed will be forced to step in and take action which will cause the stock market to rally and, one can only assume, Gold will go down further (but then who knows given what I said above). If the jobs number is in line with, or better than, expectations: well the stock market will rally anyway (well ‘so say the experts’).

And you know: I remember so clearly what Jim Rogers said back in 2008 or 2009. Let the markets ‘take care of themselves’. ONLY NOW do I see and understand clearly just how right the man was!!! These are not ‘free markets’ anymore. Back then: he said that if an institution was going to fail the let it fail because it’s obviously not been ‘doing things right’. The markets will take care of themselves. And he was right. By now and three years later: the markets would have sorted themselves out and we’d be ‘trading’ again. Now: the price of the Dow depends on whether ‘The Ben Bernank’ enjoyed his breakfast and coffee this morning or not!!! Jim Rogers was right. Personally he’s ‘not my cup of tea’ but he was right then about letting the ‘weak’ fail and he was right about China and commodities!!! I’m just sorry that I didn’t know THEN what I know NOW!!! Just look at these ‘secret loan funds’ that have only just been made public??? Were it not for those funds: as far as I understand it the like of Goldman Sachs wouldn’t even exist in its present form now (if at all) (obviously my having Bloomberg TV back is not a good thing)!!! LOL!!! It was easier when I was able to ‘bury my head in the sand’!!!

4

Good afternoon Dale!

And thank you for your opinion! :slight_smile:

Yeah, as I said I do not trade on that. Just what I think and what I see on the weekly s&p chart. It could go a little higher until say 1285, but that would be a resistance line based on what I see on the chart. Not so much fundamental. If that would bounce there strongly there it would be likely to go down after in my opinion. Xau is right now back at 1865. Not so far away from the top. The correction was a little 12% or so. Sure, the absolute numbers look huge, but the higher it goes, the better it is to look at percentages. 12% was not a big move.

You are shorting xau? Oh my, I’d never do that. Trade with the trend or sometimes maybe countertrend, but not with this super bullish trend, lol. Did you see this movie The Treasure of the Sierra Madre (1948) - IMDb ?

Old movie from 60 years ago, probably nothing for the quick and gone generation of today, lol. Nevertheless a very nice movie. It’s regarding some gold diggers and if you ask me the morality of the movie is not what the producers tried to teach me, but I think the morality is that gold doesn’t follow any path of fake. Right, let the markets be markets. A market is not free, which is a lie if anybody tells like that. Same fake if somebody comes with the nonsense that speculators destroy “free markets”. If the market is not free and it obviously has rules of supply and demand, how can anybody destroy a market? Nobody can destroy a market. Even in the ages of cold war there were markets in the east. The effects on this you could watch if you looked at the streets. Where was high demand and problems with supply there was a line in front of the shop, lol. Who is going to destroy markets can only deform the market to an extent, but that’s it. And, who is deforming markets? I see governments always at the pole position in doing this.

Regarding spread: I do not see the issue in the variable spreads, but rather in the minimum spread advertising. That’s really good for nothing. It would be much better to have a maximum spread in the rules. Then I can calculate based on that and if it’s lower even better. Right now I have the experience of two brokers side by side and I must say I like the broker with variable spread, which are most times a little lower than the broker with the fixed spread, much better. I don’t know if that is just because of the variability, but I can assume it has a reason. Because the banks only offer variable spreads imho and if a broker want’s to give you a fixed spread he has to do two things:

  1. Alter the original feed.
  2. Take the risk.

I am not going into the risk part talking, but if you take point 1 it means inherently that you have a lag in timing.

Well, regarding that time topic of charts I am with you. Allright, until that time if that would happen that all charts start the same time a day, I quick fixed that. Nothing to hide here. I use an indicator which is based on my H4 charts, but I want to be able to use that with any broker. So, I just calculate the H4 chart values for myself. At least it is all about ohlc. Just 4 values of every candle. I take the prices from an H1 perspective and transform that with a formula into an H4 perspective. For instance: If you know your H4 chart candle starts every 4 hours of a base of zero at the start of the day then you can calculate that very easily.

So, letz say you need an actual H4 median for instance, you can just use the low/high H1 from 4 hours ago and that of the current H1 candle and all candles in between. The you sort of the highest high and the lowest low with min/max functions and then you can calculate the median easily based on H4 while you just use H1 values. That EA would run at every broker. Probably you just had to adjust a variable which tells the EA when the day will switch. Based on that it can calculate the H4 ohlc values perfectly. Most formulas of indicators are not that complicated.

Huh, what a nice spike on eurusd lately, lol. 60 pips around. Nfp time. No, I have no clue what systems you use. Not that I wouldn’t be interested, but I am a rather miserable follower and am more looking to develop my own systems. Okay, now I must look what might come after the spike and if your assumption (or what you heard about it) is right.

You have a gread time down there and more pips than you can count! :slight_smile:

edit PS: This is funny now isn’t it? The rumor said if nfp will go better or not it will drive markets up. What happened? Boring numbers without a trend up or down. Just the opposite of what most expected, lol. :smiley: So now letz look what the big pockets do. I assume they will do nothing big, lol. Then Monday is labor day I guess. Another flat market day probably. Another thing what some say is that qe3 couldn’t be that effective as qe packages before. That’s in my humble opinion the most accurate version. DC can and will go to print more money anyways, but that won’t produce any damn bottle of beer more, lol.

5

Yep: now THAT was nothing that anybody thought about i.e. a ‘nothing’ number!!!

For what it’s worth (and just posting this to that I can either look back on it and laugh or say ‘see: I told you so’): Gold is going to correct again and the stock index futures are going to go up (at least since the NFP numbers came out THAT correlation seems to have ‘normalized’)!!! LOL!!!

I had typed you a really nice long post but deleted most of it (sorry). I’ve had a bad week. I’ll catch up with you over the weekend.

Regards,

Dale.