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How to Enter the Trading Arena

September 6, 2017 by Shaun Overton Leave a Comment

As a relative newcomer to the trading scene, your eagerness to get started may overwhelm your better judgment. There are several questions you need to ask yourself before you start trading, including the following:

  • Which trading platform are you going to be using?
  • Which financial assets are you going to be trading?
  • What affects the market prices of your chosen assets?
  • What trading budget are you going to be working with?
  • What resources can assist in your trading activity?

Of course, there are many other questions that you will need to consider when you begin trading.

The trading platform of your choice should be one that is credible, offers transparency, and low spreads. Whether you are trading CFDs (commodities, currencies, indices, stocks or treasuries) or Forex, you will always want to work with a regulated brokerage that offers you recourse in the event of nonpayment, anomalies, or problems. The trading platform you choose should be fully registered, licensed and regulated to offer real money trading in your jurisdiction.

Trade with a Licensed and Regulated Broker

charts

Many operators currently offer their services beyond their jurisdiction. If you’re going to be investing your hard-earned money with a trading platform, ensure that they have FCA (Financial Conduct Authority) licensing, CySEC (Cyprus Securities Exchange Commission) licensing and regulation, ASIC, or other reputable licensing.

If possible, it is always preferable to use a brokerage that offers you demo trading options. When you trade on a demo account, the broker typically provides practice trading funds which you can use to test your trading tactics and strategies on your chosen assets. On the topic of assets, you will want to pay attention to where you invest your money.

Stocks, commodities, indices, currencies or cryptocurrency are all available to you when you trade from home. It is not necessary to frequent land-based brokers to invest your funds in financial assets. Mobile trading options provide maximum convenience, cost-effectiveness, and variety. Expert traders recommend that you pick a financial asset that you understand such as a currency, a commodity, an index or a stock. Examples include the USD, GBP, or EUR, gold, silver, the FTSE 100 index, Google, Twitter, Amazon etc.

Allocating a Budget to Trading Activity

The precise allocation of funds towards each financial asset depends on your available budget. Never trade with more money than you have available in your bankroll. Financial trading gurus advise novices and intermediate-level traders to use specific credit cards or debit cards for trading purposes. That way, you will not mix household expenses with trading expenses, and you will be able to keep a close tab on your budget allocation towards your trading endeavours.

On the topic of budget allocations, it is preferable to limit each trade to know more than 1% of your available bankroll. As you become more adept at trading, you may be able to increase that allocation to 2% of your available bankroll. Be advised that budgetary constraints are necessary to protect you from sudden market changes. Volatility is an inherent component of financial markets, and the only way to protect your investment is by spreading it across as many different trades as possible.

Use trading resources to assist you

As a newbie trader, or an intermediate-level trader you can always benefit from the know-how of experienced traders. It’s not only about what you trade, or how you trade; it’s also about reading macroeconomic variables such as interest rates, nonfarm payroll data, gross domestic product, inflation rates, changes to monetary or fiscal policy etc. Experienced traders know which assets and asset categories are likely to move given an imminent economic data release. Pay attention to speculative activity, notably shifting capital from equities to commodities (from stocks to gold or Bitcoin) as this could signal the beginning of a reversal.

Filed Under: How does the forex market work? Tagged With: broker

7 Things You Need To Become A Successful Forex Trader

June 13, 2016 by Nikolai Kuzentsov 1 Comment

If you make the decision to start trading forex to earn extra income it is vital that you set yourself up to succeed. To do so you need to be aware of the 7 things you need to become a successful forex trader.

The desire to succeed

Firstly, it is elementary that you commit fully to the process of becoming a forex trader. That means that you are willing to put the time in to learn all important aspects of currency trading and the global currency market. You will only have the motivation to put the time in to learn, if you truly have the desire to succeed and make money trading currencies.

A genuine interest in forex, economics and the financial markets

Secondly, and this ties in with the first point, if you want to succeed as a currency trader it is vital that you have a genuine interest in the financial markets. If you are doing it just to make a quick buck, without actually putting in the regular work of reading financial news, analyzing charts and reading daily currency market updates, then you will most likely not succeed. Furthermore, you will need to learn about macroeconomics, as economic data and central bank policies are key drivers of the foreign exchange market. Hence, having a genuine interest in what moves the financial markets is a key component to becoming a successful currency trader.

The economist

The right online broker

There is a vast choice of online brokers that charge different spreads and commissions and have different product ranges. Hence, it is important to choose an online broker that is right for you. To do so, you need to choose a broker that covers the asset classes and currency pairs you wish to trade, charges you comparatively low fees, offers tight spreads, has a good reputation and is regulated by your country’s financial regulatory body.

It is also important that the online broker you choose offers easy-to-use chart analysis tools, timely market news updates and possesses good customer service. The best way to choose a broker is to check independent broker reviews and comparisons online.

Trading capital (but less than you might think)

To start trading forex you need a certain amount of capital. However, it is must less than you might think if you choose to trade with leverage. Leverage in the foreign exchange market refers to the ability to move, for example, USD 100 dollars worth of a currency using only USD 1. This would be leverage of 100:1, which is a popular leverage amount in the currency market. Other common leverage amounts are 50:1 and 20:1. Using leverage you can move large amounts of a security by only putting down a small initial amount per trade. This small amount is referred to as the initial margin.

The best way to use leverage is by trading so-called CFDs (contracts for difference) as they allow you to set your leverage, as you require it. By adopting a CFDs trading strategy you are able to profit off small moves in the currency pairs you are trading without putting down a large amount of capital on each trade. Hence, this is the best way to trade currencies if you only have a small amount of available trading capital.

trade cfds

The right trading strategy

Once you feel comfortable with the currency market’s terminology and mechanics and you have deposited your trading capital into your online brokerage account, it’s time for you to apply the right trading strategy.

When it comes to trading currencies there are many approaches you can take. For example, you can apply more of a momentum trading strategy and put on trades just after market moving news, such as economic data announcements, or you can use a technical indicators-based trading strategy and follow a set of indicators that give you buy and sell signals for the currency pairs you follow. Of course, there are many more approaches you can take. It is important for you to find a strategy that suits your style of trading and is in line with your risk-return profile.

The discipline to stick to your strategy

Once you have found a trading strategy that works for you, it is important that you have the discipline to stick to your trading strategy. A great way to ensure you don’t let emotions get in the way of you following your strategy is to set target prices and stop-losses, where your broker automatically buys or sells the currency you hold against another, once these trading levels have been hit.

online trading

The emotional stability to handle losses

Finally, if you truly want to succeed as a forex trader you need to develop the emotional stability to handle losses. No matter how good your trading strategy is you will have days where you will generate losses. It is important to accept down days and not let your losses affect you emotionally, as this could impair you when you put on further trades.

Filed Under: How does the forex market work? Tagged With: broker, leverage, strategy

Should you start a forex broker?

January 22, 2015 by Shaun Overton 4 Comments

A friend of mine in Ireland was absolutely convinced that I should set out and start my own forex brokerage. Don’t you just buy a MetaTrader license and the money starts rolling in?

Photo credit: taxcredits.net/

Photo credit: taxcredits.net

Instead of trying to persuade him why I wasn’t in a position to succeed, I told him a few stories about people that have done well opening their own forex broker.

Who succeeds as a forex broker?

Some of the most successful brokerage owners are immigrants to English speaking countries like the US, Ireland or Australia. They’ve started businesses before and have done well for themselves. Most of these immigrant entrepreneurs have a large number of family members back home that are eager and willing to help launch a new venture.

I put together a few entrepreneur profiles to show who tends to do well in this type of business.

The local option

Hinh left Vietnam in the early 1990s for better opportunities in Canada. He’s done well for himself operating a local restaurant chain. Although he’s been gone for 20 years, he regularly travels to Vietnam to visit uncles and cousins.

His relatives recently started trading forex and sensed a business opportunity. There are almost no brokerages in the country with a local office. Nobody feels really comfortable with the current options out there, but where else can they trade?

The cousins and their sons have been introducing a few accounts to the major brokerages but feel like they’d do a lot better keeping everything in house. Maybe Hinh could put up the seed money to start a new business that can cater to local needs?

The cousins start running seminars for their friends and neighbors about forex. People like the idea of managing their own investments and open their accounts based on the trust and relationships they’ve built with Hinh’s extended family.

The specialist firm

Thomas is a British investor living in Portugal with his Russian wife Anna. He’s been dabbling in the forex market as for five years. It’s only recently that he feels like his investment abilities are put to better use in currencies than shares.

If he were to raise funds for investment in the stock market, he’d spend a king’s ransom before he was legally permitted to earn a penny. Focusing on FX allows him to raise money from around the world with significantly less money up front.

He also knows that his reputation is on the line, so he doesn’t want to pick a firm out of thin air. Thomas believes he’ll do far better running everything entirely on his own.

He starts a broker and, largely on a hunch, decides to target Russia, South Africa and Mexico. Partly from two decades of international travel and partly due to luck, Mexico happens to be a market that’s very receptive to managed funds products.

Thomas has a background in marketing and sales, allowing him to identify high net worth investors quickly. After making a few business trips between Portugal and Mexico, he lands the accounts that he needs. As he establishes himself over the next two years, his brand becomes associated with quality managed accounts and trust with larger deposits.

Why forex and what’s my competitive advantage?

Immigrant entrepreneurs do well with forex due to the underdevelopment of their home countries. Consider the example of Hinh from Vietnam. The local stock market is not noteworthy. There’s no such thing as an IRA account or municipal bonds that you go buy for your retirement account.

People with savings need to put that money to work. Running a global forex brokerage offers that capital an outlet to international markets. It doesn’t really have anywhere else to go.

At the moment, there’s not a lot of competition in these emerging markets for local brokers that build relationships on a person to person level. Running Google Ads and the usual online marketing tactics are saturated.

Google adwords

The one way in which the FXCMs and Saxo Banks of the world cannot compete is on personal relationships. If you or your family members are good at networking and can show new traders how to succeed in the market, you have an edge that is difficult to compete against.

What you might see as your disadvantage, being a new broker in the market, is actually one of your biggest strengths. You’re not yet worth competing against. That will undoubtedly change in a few years as the idea of forex establishes itself in frontier markets.

Assuming that you succeed in your home country, the global nature of the market gives you worldwide opportunities for expansion. It’s common for someone to incorporate in Spain, run their operations from India and run a sales team in the Philippines.

An enormous percentage of internet users know some degree of English, at least enough to open and maintain a forex account. The barriers to trading are also fairly low; anyone with a cell phone and basic English can manage a trading account. The presence of a common language allows brokers to expand and run their operations where time zones and costs present an advantage.

The best candidates for launching a broker are IBs with a substantial client base. They usually run in-person classes, manage money or have a substantial internet presence. It’s not all necessary to be great at everything. Most start up brokerages find a niche within the trading community and use that as a base to build from.

How much money do I need to invest to be successful?

A forex brokerage is a financial institution. If you’re going to do start a brokerage and expect to do well, an investment of $100,000 is a reasonable starting point. That amount of money should cover the following:

  • Incorporation and initial legal compliance costs
  • Technology setup and maintenance costs for the first year
  • A sufficient marketing budget to open new accounts
  • Staffing to run the operation 24 hours a day, 5 days a week

Like any new venture, some businesses do well and others don’t. According to Erich Grant, head of the Start A Broker (SAB) program at Shift Forex, the brokers that thrive tend to turn a profit within the first 6 months.

Given the risk involved, it’s important to identify your personal advantages and whether the potential opportunity is large enough to justify the risk. Email info@onestepremoved.com to learn more details on starting your own FX broker.

Filed Under: How does the forex market work? Tagged With: broker, forex, incoporation, Shift Forex, technology

Shaun’s Recommended Forex Brokers

October 21, 2014 by Shaun Overton 99 Comments

There are only three questions you need to ask when you’re looking for a forex broker:

  1. Are you going to give me excellent execution with low commissions and spreads?
  2. Are you going to send my money back within 24 hours?
  3. Are you likely to go bankrupt in the near future?

If a broker ticks those boxes, then picking a broker is really just a commodity. I don’t need market analysis or the latest trendy tool. The only reason I’m trading forex is to make as much money as quickly as possible (and to keep it) .

Too many brokers have gone belly up. I put together this guide to help you make an informed decision about who to trust and who offers the best deals.

Shaun’s broker recommendations

Pepperstone Metatrader 4 Forex Broker

Pepperstone is where I trade my live accounts, which says everything. My money is sitting at this broker right now. I’ve met Owen Kerr, the CEO, in person and have a friend in their Dallas office. I’m very comfortable with their banking relationships. They also offer extremely competitive pricing.

ILQ

ILQ caters to large retail customers (people that trade 100mm in monthly volume or more) or CTAs and independent money managers. The upper echelon audience means they do those three important things right. ILQ has a solid reputation in the industy, and based on the endorsement of a colleague that trades with them, I’m comfortable recommending them to my readers.

MB Trading is a US firm that offers the only true ECN available to retail traders. When you post a limit order and it’s better than the best bid or offer, your price shows up in the terminal window. They also offer liquidity rebates, which I’m a big fan of. I’ve known Justin LeBlang for several years and held live account with MB Trading for two years. They’re support is best in class and the technology and pricing is excellent.

Are you concerned about broker shenanigans? Learn how to protect yourself against forex broker bankruptcies.

Filed Under: How does the forex market work? Tagged With: broker, forex, ILQ, Pepperstone

Can my broker steal my expert advisor?

October 17, 2013 by Shaun Overton 4 Comments

I get this question often enough that it’s time to put this out on the internet. There are plenty of reasons for traders to remain wary or suspicious of their broker. If you’re using the broker’s software, can they steal the expert advisors in your account that are making money?

Steal MT4 expert advisor

Can the broker steal your EA for MT4 or MT5?

The answer is an emphatic no. I started my career working as a broker and have been involved with forex for 7 years this month. I’ve seen the backend systems and tools that the MT4 brokers use to manage clients and their positions. I’ve also seen them on the floor of one of the MetaTrader bridge companies.

The brokers use a piece of software called the MetaTrader Manager. The manager is basically a database that tracks the open positions and equity for clients. It does not have a button for sucking MT4 expert advisors from client accounts.

Filed Under: MetaTrader Tips Tagged With: broker, expert advisor, metatrader, MetaTrader Manager, mt4

Risks of Broker Arbitrage

April 28, 2011 by Shaun Overton

Every month or two, someone asks about picking off  brokers with slow or manipulated prices.  The basic concept is that you can buy or sell "risk free" when two parties misprice certain assets. 

Example of differing Bid/Ask:

Broker A shows EUR/USD trading at 1.48250 / 1.49264

Broker B shows EUR/USD at 1.48227 / 1.48239

Notice how it is possible to buy EUR/USD at 1.48239 at Broker B and instantaneously sell the same contract at Broker A?  The idea is that you could make 1.1 pips without worrying about the direction of the price.  Although it sounds farfetched, arbitrage differences actually occur all the time.

Arbitrage is a perfectly sensible strategy.  But, there are a number of risk factors to consider when taking this approach in MetaTrader:

  1. The price you see on the screen may not be tradeable.  Latency, a glitch on the server or any number of reasons can cause your price feed to lag unreasonably.  This means that the price is not actually real.
  2. Slippage.  You do not have any way to guarantee that your order will be filled at the requested price.  Considering that the normal slippage is often more than the amount of money that you're trying to earn, you still face a very real risk of loss.
  3. Brokers aren't stupid – they notice scalpers who seem to win all the time. If a broker manipulates the price and sees you taking advantage of it, I guarantee that your account will not remain open very long.
  4. The amount of time it takes to execute orders means that the price on the other half of your trading is dancing around while you have a naked position.

Think about the time involved with every step of the process of executing two trades.  Assume that you have a respectable internet connection with a 40 ms latency to the trading server.  The following steps have to occur:

  1. The broker sends the price quote (40 ms)
  2. MT4 communicates with the other broker to determine if an opportunity exists.  MQL4 is a slow langugage, so let's say this takes 10 ms.
  3. MT4 sends the first part of the order to Broker A.  Broker A checks with their counterparty, confirms the trade and then forwards this on to you.  My experience is that this takes anywhere from 200 ms up to several seconds in MT4, depending on the broker and market conditions.
  4. You receive the trade confirmation and send the new request over to the Broker B MT4 platform (40).
  5. MT4 only updates on incoming ticks, so you're unable to send the order request programmatically until a new incoming tick arrives.  Market conditions dictate how long this might take.  We'll call the optimistic scenario 200 ms.
  6. MT4 sends the second part of the order to Broker B (40 ms).
  7. Broker B takes the same 200+ ms that Broker A took in Step 3.

At this point in time, the entire sequence completes its execution.  How long did it take?  The best case scenario looks like it takes something around 750 milliseconds, if everything goes smoothly.  If any one of the 7 steps hits a bump in the road, it could take 5 seconds (5,000 ms)  or longer to actually complete both sides of the order.

A lot can happen in 5 seconds!  Most of these opportunities appear during volatilie markets, which means that the worst case scenario is most likely to happen precisely when you're trying to arbitrage the market.

 

Filed Under: Trading strategy ideas Tagged With: arbitrage, broker, latency

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