Hi all,
I am completely new to forex. I am actually doing algorithmic trading crypto in Binance, and I am interested in apply one of my strategy in forex. My strategy absolutely needs to have NO FEES to be effective, because the gains are low.
My strategy only uses limit orders (maker), and in Binance I can make these trades with no commission.
I am trying to understand how Forex brokers fees work, but I find it confusing. I see that they normally earn money putting an artificially high spread. But the spread only affects the takers (market orders), am I correct?
So in theory if I only trade with limit orders I don’t pay any fees, am I wrong?
If yes, in which brokers?
So when you enter a trade with a limit order, you don’t know if you got the best price from the (Binance) broker. For example you may have decided to short the GBPUSD with a limit order of 1.3300. Binance fills your order at 1.3300 but how do you know what their supply side price was? 1.3299, or 1.3200? In a fast moving market, you could end up paying 100 x a fixed spread.
Same when you exit the trade. Let’s say you set a limit buy order to exit the above trade at “1.3400 or above”. So Binance fills your order at 1.3400 and you take your 101 PIP gain, but how do you know the price that Binance got from their Tier 1 market maker? Was it 1.3401 or was it 1.3450? Now you don’t know their spread, so they can trade with you “at no cost to you”. Does that explain how not paying any fees works?
So crypto man, basically in forex, commissions are applied on the trades by two ways; zero commission where you will not be charged for any but the spreads you will get, are little bit marked up and on the other side some brokers charge commissions based on the lots you trade but in this case you will get spreads as narrow as possible. I always prefer to trade with brokers who charge some amount of commissions on the trade as this gives you an advantage of tight spreads which is very important for the costs associated with your trades. You can see this thread for some good brokers:
Thank you for your answer, I now understand a little bit more how Forex works.
In crypto you place your orders directly in the orderbook, so by putting limit orders I am acting as a Tier 1 market maker. I can even see my trade in real time in the orderbook from the Binance API. In forex there is no such transparency. In return, crypto exchanges have no physical headquarters, so they can run with your money and they don’t even need to say thank you!
I have another tricky question.
I am on the demo account of Oanda. My account is in EUR.
If I sell short EUR at 1.50 and I take profit at 0.75, I get a 0.66% gain instead of a 100%!!!
So, I understand that my EUR (base) are always converted to USD (quote).
Is there any broker that allows me to use my EUR as a collateral even if it is the base currency?
So, a short selling of EUR with a 50% price fall can give me a 100% gain in EUR?
Thank you, I having a hard time trying to understand the maths in Forex.
Hi,
I am not sure I agree with your synopsis here. In Forex you can use a Level 2 screen to see market depth too. It is just that this cannot be global market depth - only the broker’s market depth. And about the decentralized exchanges running off with your money, why would they wish to do that when the blockchain allows forensic order tracing for which the crypto exchanges themselves most often do the donkey work for the regulatory authorities to bring the bandits to justice. You just need to read a bit more about blockchain security to understand how this is much safer than trusting a broker, even a regulated broker, because none of the transactions are on the blockchain and can (and have been) manipulated by bad corporate actors ( reference the MF Global collapse in 2011), and in violation of Sarbanne Oxley compliance - put in place after the 2008 financial market collapse due to ineffective controls on banks. I could rant on for another 10,000 words, but this is a great example of perpetuated myths that somehow “regulated” businesses are far safer than unregulated ones. I can assure you they are not - half of my paid work in the past 20 years has been in pursuit of the risk management of non-compliance to authority documents.
About your other tricky question, it is not tricky. It is covered at length in the Babypips School of Pipsology. Please search its contents to find that specific content, or try the whole course. All of what you have asked is covered within its educational content.
Hi.
Also in crypto you only see the L2 of the exchange, you don’t see the global market situation. Although there is not a lot of difference because arbitrage bots read the orderbooks faster than the human eyes.
I totally agree on the transparency of the blockchain, and also that if an entity is regulated doesn’mean it is safe.
I agree also that I need to learn more about Forex, and for sure I will go deeper through the course. I have already started it and I find it educative, with a bit of humor that sweetens the pill.
I just don’t have a lot of time available between my full time job, the algo trading, the family…
Is there is a way to short the base currency using the same base currency as a collateral, so as in my example, double the EUR in the case of a - 50% and not just earning 66%?
i don’t think is there any way to fully avoid fees, you can find one with the lowest spread but broker need to make money to sustain themselves too. i would suggest aximtrade (the one i’m using with very tight spread).
Agreed! There is no such thing as free lunch. If you go for zero commissions, on the other side of the coin you will get higher spreads. Can check fxview and tickmill to experience tight spreads.
There is no way you can trade forex, make profits, and get away with it without paying the broker anything. Forex brokers earn via spreads and commissions, but each broker decides the ratio of spreads and commissions. So, you need to choose a broker that offers tight spreads and low commissions. Like I’m using finpro trading. You can also find one, as there are plenty of good options these days.
this is a very fine post and this is real , never think broker is a friend of us , at any cost by real or by cheating they will make profit . true fact
Exactly, they are in business for a reason, that’s to make money. But when their commission becomes too much it posses a problem, the best we can ask for is a broker with a very low commission and flexible trading conditions. I remember that was one reason I chose Forexchief, their commission is really low and especially no commission required when you withdraw or deposit.