Positive interest
I frequently read that great traders are very patient as they wait for the best setups. (Without worrying about what defines one of these great trade setups in this discussion..) They trade less and aim for larger risk-reward ratios. Since they are trading less and winning more, they are paying less spread per avg profit (as measured in a ratio) compared to more frequent traders.
Now in leveraged forex, we can bring another very interesting element into the picture: interest positive trading! How does this effect the overall profitability? I’ve been thinking about this lately. Mostly I’m wondering how I can study this aspect mathematically.
Is this why there are a lot of people advocating “interest positive trading” only? If you don’t do this, are you simply trading more often? Going against the philosophy of waiting for the best possible trades?
Yes on one hand you will give up potential opportunities that may end up being great trades. But there will be others where your payments in interest will cut into your higher reward ratio just like frequent trading adds more spreads.
Does anybody have any ideas or previous studies to build upon?
Positive interest
found on oanda web site > under interest…
Let us consider two specific examples:
Trade 1: Buy 1000 units EUR/JPY @ 91.7308 on Monday Jan 1, 2001 at 12:01am
Applicable interest rates:
Assume that the following interest rates apply for Monday Jan 1, 2001:
EUR – 4.76 / 4.81 %
JPY – 0.28 / 0.38 %
Note that the borrowing rate is quoted first, followed by the lending rate, and that interest rates are quoted in percentage points per year.
Calculate duration of trade:
Now assume that the trade is closed at 5:45am later the same day on Jan 1, 2001. The amount of time the trade is held open is 20580 seconds (= 12:01am – 5:45am), or 0.00065214 years (20580 secs / 31557600 secs—- there are 31,557,600 seconds in a year).
Calculate interest obtained on EUR:
For calculating the interest obtained on our EUR position, we use the following formula:
units * lifetime (in years) * EUR borrowing interest rate (%/year) * conversion to USD
If we plug in the appropriate numbers, we obtain:
1000 * 0.00065214 * 4.76% * EUR/USD bid exchange rate
= 1000 * 0.00065214 * 0.0476 * 0.8423
= USD 0.0261
Calculate interest charged in JPY:
For calculating the interest charged on our JPY position, we first note that we effectively are short 1000 Euros worth of Japanese Yen, which, with the exchange rate of 91.7308 is 91730.8 units of JPY (= 1000 * 91.7308) on which interest is charged. We then use the following formula similar to the one used above:
units * lifetime (in years) * JPY lending interest rate (%/year) * conversion to USD
If we plug in the appropriate numbers, we obtain:
91730.8 * 0.00065214 * 0.38% * JPY/USD ask exchange rate
= 91730.8 * 0.00065214 * 0.0038 * 0.00918
= USD 0.00209
Difference between the two interest amounts:
The account will be credited by the difference between the interest to be credited and the interest to be debited:
$0.0261 – 0.00209 = USD 0.02401
Note that in this case the customer is collecting significantly more money than they are paying, due solely to the discrepancy in interest rates between the base and the quote currencies. In this instance, the base currency (EUR) interest rate is higher than the quote (JPY) interest rate, which is referred to as a “discount” quotation.
If the inverse were true (base currency interest rate lower than the quote currency interest rate), the instrument would be said to be quoted at “premium”.
Trade 2: Sell 2000 units GBP/CHF @ 2.5882 on Monday Jan 1, 2001 at 04:00am
Applicable interest rates:
Assume that the following interest rates apply for Monday Jan 1, 2001:
CHF – 3.18 / 3.28 %
GBP – 5.97 / 6.00 %
Note again that the borrowing rate is quoted first, followed by the lending rate, and that interest rates are quoted in percentage points per year.
Calculate lifetime of trade:
Assume that this trade is also closed at 5:45am later the same day on Jan 1, 2001. The amount of time the trade is held open is 6180 seconds (= 04:00am – 5:45am), or 0.00019583 years (6180 secs / 31557600 secs)
Calculate interest obtained on CHF:
For calculating the interest obtained on our CHF position, we first calculate the number of CHF units the interest is applied to: 2000 GBP units worth of CHF with the exchange rate of 2.5882 is 2000 * 2.5882 = 5176.4. Then we apply the following formula again:
units * lifetime (in years) * CHF borrowing interest rate (%/year) * conversion to USD
If we plug in the appropriate numbers, we obtain:
5176.4 * 0.00019583 * 3.18% * 0.5606
= USD 0.01807
Calculate interest charged in GBP:
For calculating the interest charged on our GBP position, we again use the following formula similar to the one used above:
units * lifetime (in years) * GBP lending interest rate (%/year) * conversion to USD
If we plug in the appropriate numbers, we obtain:
2000 * 0.00019583 * 6.00% * 1.4516
= USD 0.03411
Difference between the two interest amounts:
The account will be credited by the difference between the interest to be credited and the interest to be debited:
$ 0.01807 – $ 0.03411 = – USD 0.01604
Since the amount is negative, the aggregate interest is charged to the account.
Factors affecting currencies
Your interest in what “factors” affect currenciy prices in speculative market has many answers….
most of which have been covered already.
there is ONE area however not mentioned here and I will try to be as brief as possible.
World Econonomic Events (Qrtly GDP, Mthly PPI, Trade Balance, etc. and Monetary policy (Fed Funds Rate, MPC Decisions…etc) are the most powerful events that help you “time” when the next most important “time” to sit in front of a screen and what for the next trend to form (some belive that the market is so fast these days and the level of insider knowledge is so pervasive that one can also look for some of the most pwerful trends to occur, actually BEFORE the actual news events, such as I have described above////that is a very probable occurence as it is observed very frequesntly that large “mystery” trends do in fact get baked into the speculative market well before a singificant event occurs. This also helps you to be prepared that at the time of such event does actually arrive, the market goes bonkers and becomes irrational…meaning the oppsoite outcome in the short term is often observed….completely out of whack with the “news” you here…This is commonplace in alsmost all markets…the cu7rrency commoidities market shows this feature for longer periods/..that is the big difference…as the econmic thoerist might explain…the currecy spot market has “long tails”....meaning trends tend to remain in force for long periods….What I am explaining is that these trends can start to take shape before the event even occurs and in some instances you will see the trend completed even before the event occurs…
how weird is the3 spot market…eh?
Anway, there is one other area that is also not mentioned in some of the clues provided by others…
thius has to do with game theory and outright competition…here is an explanation…
Everyione cannot be right about the market…it is competitive and only a small percentage of players can win…that is a fact…we must assume that the percentage is variable, but is never a majority of players…
Along those lines, one has to assume that the narture of “pre-baked” trades are placed well into the future based on specualti8ve outcomes of not just the news but also how the “herd majority” will respond to such news….
In this regard, you must often in order to be a successful trader, ignore events in a rational way and determine (AS PRECISELY AS POSSIBLE) how the majority will respond to the news.
This is bot necessaril;y being a contrarian trader at all…In fact, since we can assume that the majority traders are going to be wrong….then you have to fact the fact that the majority actually holds a real contrarian trade strategy at all times….No other way to explain how very few traders make a lopng term profit !
It is not a coin toss inh this area. The confusion begins when technical traders forgo such market behavior aspects of the herd pyschology that is so pervasive in the markets….They assume that this is the random nature of the markets…nothing could be further from the truth…The truth is that the market is made fo winners and lowers….common speculators insists that fundamental news coupled with their favorite tech tool will provide the “edge” over the competition, when alsmost all modes of techynical analaysi and findamental news inteerpretation are known by all players that use them…In this way, the ”*****” majority is attemtping to claim pips in the same fashion…with only money mangement and lots of false luck and hope to unwind the losses they experience.
So how do you presume to trade against the majority losers? The answers sho9uld be very simple and even my 5 y/o makes the connection….be different…Do the oppsotite of what you “think” is the rational thing to do with the “facts” that you have …..”facts that all majority traders have, by the way”..treat this information just the same as you would treat economic news release…you rationalize the position./direction that is most obvisous and then…trade agressively against that notion….
This is trader method series 1000….this is actually the first level….the other 9 levels take more time and money to discusss in this forum…but as you go along…and jhopefull survive this first semester of training…you get to advanced topics…even if you are not looking for them…be certain you will get an education if you pay attention to details….the things that are not popular and that are seldom discussed are your answers…and the best way to experience that is to live it.
One more random entry like a million others in the global FX market
Do the brokers with the narrowest spreads try to make up for it in other ways? I have been paying a 5 pip spread to trade GBPUSD and I’m tempted to switch to a broker with a spread of 3 pips.
The reason why they make the spreads narrower is because they hope to attract more suckers to lose their money with them instead of with their competitors.
It sounds like a way to save trading costs.
If one thinks clearly through the process how the brokers operate – their only source of “risk free” revenue is the margin accounts of the clients. (They also have risk based revenue from the offsetting of positions at their clearing houses. You must however understand that they can not realistically offset each small trade, so they constantly monitor the net position they have per currency pair and hedge that position. As a net result they may incur profits or losses from that process).
As long as their clients (all together) are net losers they are net winners. So the story of narrow spreads is just part of the marketing wizardry / half truths they use in their marketing to lure ****** money that will inevitably be lost via losing trades to them.
Think about it for a moment
1. They don’t ask commission. No free money taken out of clients’ accounts there.
2. They ask rollover fees. There they make free money. (But not nearly enough to make a business out of it.)
3. They can use tactics built into the software like, “price shifts”. With this they effectively just take a pip or two out of clients accounts. Price-shifts is a sure fire way to do it, but I think it is not used that much anymore because (1) they MAKE ALL THEIR LOOT FROM THE STOP LOSSES THE CLIENTS PLACE THE WHOLE TIME (2) they rather convince them to place say 30 point stops and make 30 X 1 pip than ripping 1 pip out of 30 accounts?! Or rather 30 X 30 pips rather than 30 X 1 pip ?!
4. Consider this. All of them do everything possible to convince you to over leverage and place close stops. WHY? Because the only way they make money is if you really are a net ***** – “at the end of the day”.
5. Its really immaterial to them if they have a 3,4 or 5 point spread. On all clients via introducing brokers they have to pay over usually 1/2 to 1 pip in any case. If they have to offset at a clearinghouse the spread they trade on is usually 2 or 3 pips. They therefore don’t necessarily make money from the spread. They make money from your losses.
6. And i say it again. They subtly convince you to follow trading strategies that cause you (inevitably) to do many losing trades. And in other respects they turn the concepts of “risk management” against you to convince you you better not leave that screen before you have placed a stop much closer to the entry point than a limit to the entry point, or your profit target.
Why do they do it? Because they know, from high up, your trade, how cool you might think it is, how right, how perfect a signal, it is just one more random entry like a million others in the global FX market done by thousands and thousands of “gamblers with randomness” and a stop 3 times closer to it than a limit, has a three times better chance to be hit. And they then take the winnings.
But Smooth operator, yes, move. Especially if you have a realistic history of profits. That means you may bargain on taking on average in the future x number of pips net per trade and if you can add 2 pips to that, its more effective. If you don’t have such a history, you shouldn’t even bother to move, but rather spend your time getting to the point where you can realistically know that on average you will net x number of pips if you push the buy / sell button to open a trade.
May I add here that any beginner should have this as part of his goals: Get a long run of real money trades behind your back and know why you did them. Then you calculate the net profit you make per trade. If it is a long enough series you should have confidence that you will be able in future to repeat it. (How much is long enough? Tough to say, probably about a 8 months to one year, where you have had a few ranging periods and up and down trending in the currency / currencies you are trading. Obviously if the result is a net loss, you should preferably stop doing it and leave the FX or get someone to teach you to make a series of net winning trades.
The moment you reach that point your broker is in trouble … cause they are going to become a net ***** with respect to you.
Coders Short Term Trade Management Ideas
- Coders Short Term Trade Management Ideas ***
1/ BREAKEVEN AFTER X PIPS
The concept here is that after the price has moved X pips in profit, the stoploss is moved to breakeven + 1 pip.
Basically stops a profit from turning into a loss.
2/ REDUCE LOSS AFTER X PIPS
This concept allows you to have a greater stop loss gap than limit gap and still have the loss equal the same amount as the profit if it gets hit. This one needs an example:
Buy 1 lot @ 1.2000, Limit 1.2015, Stop 1.1980
We have a 15pip limit with a 20pip stop loss.
The price moves down to 1.1990. At this level we are 10pips down. Close out half of the position at this level. If the stop gets hit, you have lost -$150 instead of -$200. If you limit is hit, you still make money.
3/ TAKE PROFIT AFTER X PIPS PROFIT
This one is self explanitory. Entry with 1 lot and close out half after X pips profit.
4/ REDUCE LIMIT AFTER X PIPS LOSS
In my opinion, it’s better to have a 1 pip profit than a 20 pip loss. By reducing your limit price if the trade moves against you by X pips, there is more chance that it will be hit than if you left the limit at the open price + limit level. For example:
Buy 1 lot @ 1.2000, Limit 1.2015, Stop 1.1980
We have a 15pip limit with a 20pip stop loss.
The price moves down to 1.1990. At this level we are 10pips down. Move you limit from 1.2015 down to 1.2001. There is a greater chance that the limit at 1.2001 will be hit, than if you left it at the 1.2015 level.
The examples don’t take into consideration the cost of spreads.
Please post any other short term trade management ideas that you may have.
Understanding grid trading
I think the best way to understand it is to do it yourself. This is how I learned.
Let me try to put it simple on a single pair EURUSD with 20 pips grid spacing:
1. In one account, put limit buy orders every 20 pips at …, 1.2200, 1.2220, 1.2240, 1.2260, 1.2280, 1.2300, 1.2320, 1.2340, 1.2360, 1.2380, ....
Each order has a TP of 20pips (maybe 17pips if you don’t want to have a trade while the immediate lower one doesn’t TP), and NO STOPs.
Whenever a buy order is gone (either because it TP or limit order expires), re-enter that limit order (at the same price and same TP, no stop)
2. In another account, do the same thing except do sell instead of buy.
I personally trade in one account only and have adapative spacing, and use market orders instead of limit orders. But if you try this for 2 or 3 days, you will get the idea.
Support and Resistance
I use bollinger bands to “project” technical support and restistance levels. I also use the “fixed” method using 12 hour and 24 hour and weekly pivots…..at intersection of these two types of momentum and friction techniques are often found specially formed powerful impulse waves that either result in :
continuation (price penetrates the intersection and continues in that direction for x…pips///
or….
reversal (price rejects the intersection and continues back in the previous direction)
and then of course light raning days we tend to see price consolidate tightly at these same levels.
The X number of pips for either situation as a projection target is yet another issue, which I solve using nison candle adn demark and raff channels..all of which tend to be reliable.
Refco and Oanda
I would like to add to the discussion. I have been with Oanda for 3 years. It is unlikely I would have ever become a successful trader without them. When I first got into trading I just assumed I would be trading stocks…had no idea Forex even existed. Whilst doing my due diligence on “Online Brokers” back then Oanda stood out head and shoulders above all others in terms of their technology but more importantly, their corporate philosophy. Their openness on these forums, interest calculated and paid by the second, the ability to trade any size at all with no minimum account balance…there were so many things that came together for me and said “Yes, this is a firm that exudes integrity”. I’ve read enough on these forums over the years to know that most of their clients agree.
Now, to the matter at hand. I have been trading a real money account and as of tomorrow it will be one year to the day. This past year has been a very successful trading year by my standards given it’s my rookie season. As I approached this anniversary my wife and I agreed to ramp up the size of our trading account considerably. At the time I was unaware of the Mathemeticians sage advice to spread your grubstake around but it was certainly my intention to do so. It just made good sense and was the only way I would sleep at night. After exploring a lot of online Forex dealers and reading endless customer agreements, filling out endless account applications, etc., etc., (you know the drill) I settled on 3 brokers. It wasn’t 3 weeks after opening my account with Refco that everything “hit the fan”.
The first thing I did was put in a call to the CIPF (Canadian Investor Protection Fund) of which Refco Canada Co. is a member and of course was one of my primary reasons for choosing them. Mine was the first call judging on the reception I got which was basically “Refco who???” Suffice to say when I called again a few days later they were very well versed in the “Refco Affair”.
I’ll try to cut to the chase here. I resisted the temptation to jump off the ship because I felt comfortable with the fact that my funds were insured. The complete Refco story has yet to be told and there is still a chance a portion of my trading capital could get tied up in a receivership if Refco Canada Co. becomes insolvent. I cannot stress enough how much comfort the CIPF insurance has given me throughout this whole debacle. My question for Micheal Stumm and Oanda is this: Are there any plans for Oanda to register with the IDA (Investment Dealers Association)in Canada? As I understand it, members of the IDA automatically extend CIPF coverage to their clients by virtue of their membership.
I realize that Canadian traders are likely in the minority here so this may not be the ideal overall solution to help offer protection for all Oanda clients. Some brokers are offering a fidelity bond that would give similar security for customer accounts.
Please forgive my long-winded post but this thread deals with an issue that is obviously very near and dear to me. Micheal Stumm, I know you are reading this thread so I am asking you to consider this type of protection for all of us. I love the trading experience here at Oanda and so much of what it stands for; for what it is to the forex trading community (the Forex Trader’s Bill of Rights is an awesome challenge to your competitors). The innovation and pioneering spirit…you have so much to be proud of as you move forward with plans for growth in the future. I do not want to leave but I would have no choice if the CIPF coverage (or something equivalent) is not forthcoming. Forgive me if that sounds like an ultimatum; it is not meant that way. It’s simply a situation where this experience with Refco leaves me feeling “Why would I trade somewhere that doesn’t offer me this protection when I can trade somewhere that does?”
400 pips a month
I can only laugh at 400 pips per month. doesnt sound like a good performance. i guess you would have to look at the consistancy.
Deano, Orlando Fly Boy is saying that a lot of people come onto this board and promote signals or ask for opinions on signals, they are always being sold by people who are not able to trade and do not have the performance that is claimed. Its a very frequent occurance to sign up to one of these signal providers and see the performance of the signals fall so dramatically that instead of the signals being 400 pips a month they are more like -576 pips a week, they are also likely to calculate pip performance incorrectly, and its always my belief that paying for signals is a fast way to go backwards, it will often be the case that you want to go long and your view is long on currency XYZ, but the signals tell you to be short, and its the signals are wrong.
If you want to be smarter don't pay for anything
deano
I understand that you are new to forex and searching for gaudiness.
Some people in this forum may forgot how it is in the start. You are looking for practical examples of other traders, funny thing about trading is that whatever works for one trader will probably wont work for the other
However i personally find this website very useful for beginners; http://www.surefire-trading.com/tsl/secret.htm
If you want to be smarter
don’t pay for anything (not a dollar) until u are wise enough to understand what is (if ever) a good buy
U have more information then u can handle for the next year to come free of charge!
listen to what other traders have to say in this forum, but don’t forget that sadly most of them are continuously losing money.
Always remained your-self that in the world of forex trading everybody want a share of your———Mr Deano’s money.
That means brokers, traders, writers, ****** guys that sell signals and so on. the moment u say “i want to trade” is the moment every one else say “give us your money’’.
So u try to keep ur money before you learn all u can about forex world
gl