Simulation - All trades immediately jump to negative

Beginner Questions
1

So this isn’t really an issue but more of a curiosity. I’ve been trading on a simulator for about six months now and i notice that for every trade i set up, without exception, whether short or long, always jumps straight to a loss (usually no more than between 0 pips and -2 pips). I’ve pretty much taken it for granted that this will happen and that every trade i make will instantly show in red for a bit.

This will naturally change of course as the ticker moves along and i’m usually able to close a trade with a positive number of pips, but i can’t help but find it a bit odd that it’s always a loss right at the start. Surely it should be occasionally a loss and occasionally a profit based on how the market moves the instance after my purchase. But as far as i can tell it’s never been a positive. Should this be the case, and it’s just been a huge coincidence that all my trades so far have gone instantly negative, or is there something else i should be considering here?

Thanks in advance.

2

Hi @Shariku

The reason all your trades start out slightly negative is due to the spread, which is the difference between the bid (sell) price and ask (buy) price in the market. If you buy to open a trade, then you must sell to close it. If you sell to open a trade, then you must buy to close it.

Therefore, you must overcome that price difference in order to break even on your trade. The spread varies from one currency pair to another based on liquidity and market conditions. As an example, you can see our live spreads http://on.forex.com/2xKhFom

Note some forex brokers may charge you a commission in addition to the spread. In this case, you must factor in your total transaction costs (both spread and commission).

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3

Going through your threads what seems to me the reason is your spreads. If you have learnt well about trading then you will get that spreads are the difference between the sell and buying price. Most of the trader like earn very good profit but for not having lowest trading spreads it gives negative result. So, if you overcome your spreads to lowest I guess your problem will solve out.

4

I noticed this as well, exactly the same issue with every new trade without exception. The BP Elite rattled on about trading ability (smoke screen) but it’s a reality with MM’s.
See link to thread

Like me, I imagine Shariku after 6 months understands spread, these reversals are spread + negative pips each and every position opened. My hypothesis is it’s the MM broker instantly matching your trade with a trade in the opposing direction, Non STP (MM) Broker 101.

Unbelievably, unlike a Casino… the mathematical laws of probability are absent in the FX market.

I have my doubts who now controls BP these days… the “RaRa” market or retail traders…

5

Hi @Trendswithbenefits

You seem to have overlooked the fact that @Shariku has “been trading on a simulator”. We take that to mean a demo account where no real money is at stake. Even an unscrupulous broker would have no motive to manipulate prices in order to steal a trader’s demo dollars.

Furthermore, it’s important not to blame market makers for the problems caused by bad brokers. Not all market makers are bad. Not all bad brokers are market makers.

If your forex broker is not a market maker themselves, that only means they must offset your trades with another firm that is a market maker. This is because market makers perform a vital function, not only in forex, but in other financial markets, including the major futures and stock exchanges.

Consider what the world’s largest stock exchange says about how their market model works:

The cornerstone of the NYSE market model is the Designated Market Maker (DMM). DMMs have obligations to maintain fair and orderly markets for their assigned securities. They operate both manually and electronically to facilitate price discovery during market opens, closes and during periods of trading imbalances or instability. This high touch approach is crucial for offering the best prices, dampening volatility, adding liquidity and enhancing value.

DMMs apply their market experience and judgment of dynamic trading conditions, macroeconomic news and industry-specific intelligence, to inform their decisions. A valuable resource for our listed company community, DMMs offer insights, while making capital commitments, maintaining market integrity, and supporting price discovery.

Since market makers provide a valuable service used by retail traders and retail ECN brokers alike, rather than trying to avoid market makers altogether, it would be more productive to identify the reputable ones. For example, forex brokers regulated in the US are required to adhere to strict rules governing their finances and trade execution. Below is a quote from the CFTC site:

The final rules include financial requirements designed to ensure the financial integrity of firms engaging in retail forex transactions and robust customer protections. For example, FCMs and RFEDs [retail foreign exchange dealers] are required to maintain net capital of $20 million plus 5 percent of the amount, if any, by which liabilities to retail forex customers exceed $10 million. Leverage in retail forex customer accounts will be subject to a security deposit requirement to be set by the National Futures Association within limits provided by the Commission. All retail forex counterparties and intermediaries are required to distribute forex-specific risk disclosure statements to customers and comply with comprehensive recordkeeping and reporting requirements.

Full disclosure: FOREX.com is a market maker, but that’s not why we defend this model. It’s worth noting that for institutional traders, our parent company, GAIN Capital, offers ECN solutions through the GTX marketplace. However, at the retail level, we have always been open about our role as the market maker for the trades placed by our clients.

We feel no reason to hide this fact, because at retail trade sizes, we believe market making is the best way to provide customers with reliable pricing while effectively managing our own risk. We are fully accountable for every execution and don’t outsource that responsibility to a third party.

While it’s not our intention to make this discussion about ourselves, anyone who has questions about us specifically is welcome to send us a private message or post in our discussion thread in the Broker Support section of BabyPips.

1 Like
6

Once again, I appreciate your extensive reply Forex.com, but you have continued the MM’s tradition of making out that anyone questioning Broker activity is either naive, wrong or plain stupid. Of course I read the fact that he is trading on a Demo… Other posters tried to assert that Shariku doesn’t comprehend spread… after 6 months, really.
Anyone trading a demo alongside a live account and noticed discrepancies in price would be witness to actual fraud?

And no one has still been able to add a possible light to the OP’s original question…

After conversing with you and others on various threads, it became apparent that most (99%) of the retail traders are trading against a Market Maker of one description or another due to the substantial account size required to access the true ECN/STP market. I am pretty sure this came as a revelation to a great many new or unsophisticated traders here on BP.
If you read back through some of the history in BP, the general consensus was under no circumstances open an account with a Market Maker due to possible unscrupulous behaviour. It’s now the new normal… Now the leading qualifying factor for a trusted broker appears to be where on the planet they are regulated.

A lot of the Market Maker shenanigans that go on in the FX market will not get daylight here from the new or unsophisticated for fear of ridicule by some of the more “persuasive” posters. It’s a very successful byproduct enabling the marketing (conditioning…) to remain on target. I know of 3 newish posters over the last 6mths that have disappeared after being belittled raising genuine issues with trading activity.

7

Sorry to shrug my shoulders after you’ve defended me so, but i actually didn’t know this was how the spread showed itself. I thought that was considered so minuscule that it didn’t really show itself on my side, so thank you Forex for making that clearer.

I may have been doing this for six months but i’m still very much playing around with the investopedia simulator and feeling stuff out. At this point my method has been to get around 40-50 pips a day and I’ve slowly turned $1000 into $12000 but honestly, i need to start taking the education side of this more seriously because that’s all been just lucky guesswork on my side.

2 Likes
8

It’s our pleasure @Shariku. We’re glad our explanation of the spread made things clearer. :slight_smile:

There’s nothing slow about 1100% in 6 months, or was your simulation testing your strategy over a longer duration of historical data?

9

My strategy is basically looking at the default chart screen provided by Investopedia (which looking at it now seems to be over a period of ten minutes), which says it’s provided by forex.com. If the line is low for that currency i buy trades equal to the number of my current cash balance plus one zero (so it i have $3000 i buy 30,000 trades) with a stop loss of -30pips. When it gets +10-11 pips i sell. I do this five times a day (usually buying in the morning and closing in the afternoon) with the default currencies provided by Investopedia.

Honestly i was just kind of feeling this out. I’ve just basically done what i can to make the numbers go up. I don’t think i’m using historical data as the Historical tab doesn’t seem to load up on my computer.

Thanks again.

1 Like
10

You seem to be correct @Shariku. From what you described it sounds like you are scalping.