I’ve searched and read the posts that I can find about this issue on the forum but still not quite clear about how important the difference between local and broker server time is when swing trading on the daily charts - I’m still just learning and have a demo account.
My brokers time is GMT +2 and I’m at GMT 0 what I want to know is should I be looking at my charts with this time difference in mind?(if that makes sense)
I ask because I want to test out a ‘midnight local time’ strategy that I found on the web but am unsure quite what ‘00.00’ is if my brokers time is GMT +2. Should I be thinking of implementing the strategy at the brokers ‘midnight’ or 00.00 my time and ignore the 2+ difference?
I hope this makes some sense and thank you for any replies.
If you are referring to Edward Revy’s 2007 strategy, called [I][B]Advanced System #1 (Midnight Set-Up),[/B][/I] I think you will find that the strategy is based on [B]the opening of the daily candle[/B] in whatever trading platform you happen to be using.
Back in 2007, broker platforms typically used midnight (local server time) as the opening (and closing) of each daily candle. That is no longer universally the case. Today, many short-term traders and swing traders prefer daily candles which open and close at 5 pm New York time, and several broker platforms conform to that timing. FXCM’s Trading Station II and MarketScope charts, for example, open and close daily candles at 5 pm New York time.
So, if the Revy strategy were being rewritten today, Revy probably would not refer to midnight, local time. Instead, he would probably instruct you to simply base his strategy on the time of day that your platform’s daily candles open and close — whatever time that might happen to be.
In your case, that would be midnight in the GMT+2 time zone (which is 10 pm in your GMT time zone).
Should I be concerned about this time difference when testing daily swing strategies for the GBP/US? For example, I’m trying out a 3-ema one so should I again be making decisions based upon the broker platforms closing time rather than the closing times of the relevant markets or would it be better to use a platform that closes at the New York times?
But, what about Daylight Saving Time (or British Summer Time, as you Brits call it)? No problem.
After the U.S., the U.K., and all of central and eastern Europe have made the switch from Standard Time to DST (in the spring), or vice versa (in the fall), the time differences between our locations are preserved. That is, London is 5 hours ahead of New York in both summer and winter, and Transylvania is 2 hours ahead of London in both summer and winter.
So, [I]except for a couple of weeks each year,[/I] your broker’s daily open/close time in the GMT+2 time zone will always correspond to the 5 pm New York open/close time.
The [I]couple of weeks each year[/I] referred to above pertains to the fact that the U.S. begins DST earlier in the spring than the U.K. and Europe, and ends DST later in the fall than the U.K. and Europe. But, don’t worry about those short periods when your daily candles are out-of-synch with New York. You won’t notice the difference.
If you’re interested in why we favor 5 pm New York time as the start/end of each forex trading day, I can refer you to some previous posts on the subject. But first, try to research it on your own, starting with the SEARCH feature on this forum. The little SEARCH box at the top of each page on this site works like a google search. Type in key words — the more specific, the better — and the system will search the Babypips site (forum and blogs) for those words. It’s a handy tool.
Thanks for your time again Clint, again a clear and concise explanation that solves my concerns.
I will take your advice about the search function and admit to being sneaky and lazy by taking advantage of someone who obviously knows his stuff.
Read the post and not sure if enjoy was the word :), as it was tough to read an opinion from someone who has obviously been there and done that and has some pretty cogent points against one’s hopes of making a profit from forex. Although it’s nice to get a dash of reality and has made me think about and start researching what I assume is the spread-betting market in equities and commodities.
Still, my long-term aim is not to make it rich but just to swing-trade and turn a reasonable yearly profit on about £50k of capital as a sort of pension, of course not sure what is reasonable is at present and it may well be not worth the candle. Hence a lot of demoing is going to go on before I take the leap and even then I’ll start a lot smaller to test the waters and even then take quite a while before I truly commit my money to a set of strategies.
I wasn’t suggesting that you read that entire thread.
I was just directing you to the joke about Dracula and the opening/closing time of the forex trading day.
Before you commit a significant portion of your retirement funds to this RISKY forex market, you need to do several preliminary things.
First, you need to learn the basics regarding how this market operates. You begin your learning by going through the Babypips School of Pipsology (as many times as necessary) to firmly establish the basics in your mind. And then you continue your learning by reading everything pertaining to the forex market and forex trading that you can get your hands on. This reading-phase of your forex education should continue for the rest of your career as a trader.
Second, you need to become an expert on your broker’s trading platform and the charting package associated with that platform. You do this by downloading the broker’s demo platform, and using your demo to practice the things you are learning in the School of Pipsology. By the time you have completed the School curriculum, you should be an expert at selecting, opening, managing, and closing trades using your demo platform.
Third, you should open a live trading account with a TINY portion of your available capital. [I]Tiny[/I] means just enough to allow you to trade the SMALLEST positions possible in your live account. If your live account allows you trade micro-lots (1000 units of base currency) with 100:1 maximum allowable leverage, then consider funding your live account with NO MORE THAN £1000. Even better, start out with £500. Prove to yourself that you can trade a modest account successfully, before you even consider risking a larger portion of your retirement funds. [I]Proof,[/I] in this case, means a significant number of trades, over a significant period of time, with slow and steady increases in the equity in your account.
Finally, at some point down the road, you might be ready to ramp up your trading, by depositing more of your available capital to your trading account, and trading larger positions. Do this in steps. If you have succeeded in increasing your initial £500 balance to, say, £750, then consider adding another £500 to your account, and doubling the size of your positions. Once again, prove to yourself that you can handle a larger account, and larger position sizes; and prove to yourself that you can continue the slow and steady growth you achieved previously.
If you fail to master this market, it will master you. It will eat your lunch, and leave you broke and depressed, faster than you could ever imagine.
On the other hand, if you learn how to take modest profits out of this market, on a consistent basis, using a modest account, then scaling up to bigger and better things is a distinct possibility.
If £50k represents your retirement nest-egg, don’t blow it. Be prudent in the way you risk a small portion of it in the largest financial market on the planet.
Pretty much what I’ve been thinking and the path I’m taking.
Once again I’m going to pick your brains with a stupid question that I have tried to find a clear answer to but have not found a simple response.
Leverage!! I get how it works in that I can trade more than I have in my account what I can’t get my head around is how or if I have to pay it back. If I have an account with a £1000 and use your example of a 100:1 then presumably I have £100,000 to play with, what happens if I stupidly used the whole amount and went bust, were does the £99,000 come from? Or is it that the position closes well before that happens and the £1000 just goes up in smoke and this is what is meant by a margin call? But I don’t actually owe the rest to someone.
There is no “£100,000 to play with”. — You have [B]your own £1,000[/B] “to play with”.
When you enter a position, say one micro-lot of GBP/USD, your broker will set aside a certain portion of your money as required margin (security, if you will) against the position you have entered. The amount of that required margin is simply a function of the broker’s advertised “leverage” (100:1, in the example we are using).
The relationship is — [B]required margin = 1 ÷ broker leverage[/B]
In the case of your example, required margin = 1 ÷ 100 = 0.01 = 1%. This means that 1% of the notional value of your position will be designated as “used margin”, and will not be available for you to use for other purposes, for the duration of this trade. In this example, required margin would be £10.
Suppose you enter a much larger position, say 20 micro lots. That would be 20,000 units of GBP/USD with a notional value of £20,000. In this case, required margin would be 20 times as much, or £200. In this example, you have simply increased the size of your bet (from £1,000 to £20,000), and your broker has simply increased the margin required to hold your position (from £10 to £200). That’s £200 of your money, serving as “security” against your position. The remaining portion of your account (£800) is available to cover any loss which might occur in your position — or for you to use for margin in a second open position, or for you to withdraw from the account.
The only real money involved here is your real money. As a client of your broker, you don’t get to use any of your broker’s money. Your broker is not in the business of lending money.
Furthermore, your retail forex positions (trades) will never involve buying or selling any currencies, and therefore your account currency (sterling) will never be converted into any other currency.
If you take a LONG position in EUR/JPY, for example, you will not be buying euro and simultaneously selling yen, as some writers/teachers/courses will tell you. Even the Babypips School of Pipsology will tell you that your LONG position involves buying the base currency and selling the quote currency, and Babypips is dead wrong about this. In the retail forex market, there is no buying or selling of currencies, or currency pairs, or anything else.
And there is no lending or borrowing. Your broker will never let you get your hands on any of his money.
So, what about that £20,000 worth of GBP/USD that you were able to wrangle with your little £1,000 account? Where did all that money come from?
The answer is that it isn’t actual money. It’s the “notional value” of your position. It’s the size of your bet. In effect, you have said to your broker, [I]‘I want to place a bet on the change in value of a big basketful of GBP, quoted against the USD. I want 20,000 GBP in this “basket”. Depending on how the value of this 20,000-GBP “basket” of notional currency changes with respect to the USD, I will collect the profit (in cash), or cover the loss (out of the cash in my account).’[/I]
But, there is no basket, and there is no £20,000, in this transaction between you and your broker. The £20,000 notional value of your trade is like the £2 million value of a thoroughbred horse in a horse-race. If you bet (against the track) on that horse, neither you nor the race-track has to “buy” the horse. In similar fashion, if you take a 20,000-GBP position in a “bet” with your broker, neither you nor your broker has to put up £20,000.
However, when your broker offsets his side of your bet, by trading upstream with his liquidity provider (bank), it’s an entirely different situation for him, but not for you. For your broker, the offsetting position is [B]unleveraged,[/B] which means that he actually commits £20,000 of his line-of-credit with, say, HSBC, to take this offsetting position.
So, to summarize this whole deal, you decide to speculate (bet) on what will happen to a big basket-ful of money — £20,000 worth of GBP/USD, in this example. Your broker says, [I]‘Sure, you can do that, but I will need to hold £200 of your money as margin (security, if you will) against this bet.’ [/I] As soon as you enter your position, your broker (who doesn’t want to be exposed to the other side of your bet), offsets his exposure to your bet by placing an identical position with his bank (HSBC, in our example). If your retail position was LONG, then your broker’s offsetting position with HSBC will also be LONG. The difference between your bet and your broker’s offsetting position is that you have bet on a “hypothetical” basket of currency using “leverage”, and your broker has bought sterling against dollars for the full (unleveraged) notional amount of your bet, using his line-of-credit.
Life would be so much easier for newbie traders, if the word “leverage” was abandoned, and all of this were described in terms of “margin”. But, the brokerage industry likes to advertise “leverage”, because they like to mention eye-popping numbers: [I]‘We offer 1000:1 leverage. This means that, with just £1,000 in your account, you can control £1 million worth of currency!’[/I] You betcha.