Automated Forex Trading

In June of 2012, a proposal by the National Futures Association requiring stricter regulation of PAMM accounts went into effect, sending many money managers and CTAs scrambling for PAMM account alternatives.

A PAMM account, or Percentage Allocation Management Module, is simply a way for investment management firms and CTAs to manage individual investor accounts more efficiently. Multiple individual accounts are aggregated into one “Master Account,” which is traded by the money manager or CTA. It is operated as one pooled account and the P&L is divided equally among the investors based on their equity in in it.

In April of 2012, James Bibbings, a former NFA supervising auditor, wrote a very informative post discussing the implications of the pending proposal. Appearing on SeekingAlpha.com, the post explained how the NFA felt PAMM accounts too closely resembled Commodity Pools, without being registered as such.

The points they brought up described multiple instances of structural problems. Issues with liquidity and margin were posing risks to investors and contributing to questions about the fairness of the division of P&L among sub-accounts. In the proposal, the NFA recommended the restructuring of PAMM accounts as a means of eradicating any dangers they could cause participating investors.
Bibbings also notes that PAMM scrutiny has reached the state level. Pennsylvania state security regulators saw the PAMM allocation system as a mechanism that was generating a “synthetic securities product.” This view made PAMM accounts subject to many additional securities laws and regulations in Pennsylvania, and could do so in other states, too.

At the time of Bibbings post, things weren’t looking good for PAMM accounts as they fell under intense regulatory scrutiny. Two months later, after the proposal took effect, “traditional” PAMM accounts began disappearing to make their necessary compliance changes. Some companies have seized the opportunity to create PAMM alternatives and others offer consulting services to help existing PAMMs comply with the new rules.   These instruments play an integral role in providing CTA’s and Money Managers with the key benefit of PAMM accounts: centralized management.

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Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results. Investor returns may vary from Trade Leader returns based on slippage, fees, broker spreads, volatility or other market conditions.

Turn on the TV, listen to the radio or read any web page and you can’t seem to escape the pessimism, doom and gloom surrounding the economic crises happening across the globe. Whether it’s Friday’s historic downgrade of the U.S. economy’s credit rating by Standard & Poor’s or the actions of the European Central Bank to intervene in the plight of the PIIGS (Portugal, Italy, Ireland, Greece and Spain) or the debt ceiling debacle happening here in the U.S., one thing is clear: it’s a tough time to be an investor.

Source: www.psfk.com

Investors everywhere are struggling with the same issue: how to combat a down market. Investor confidence has been rattled, and they are looking for answers. Not answers that plummet into the toilet as the price of gold skyrockets or as another Wall Street scandal is uncovered, but real opportunities to succeed as an investor.

My grandmother would tell stories of hiding money in jars - sometimes in the backyard and other times under the mattress. To her, it was the only way to keep a dollar a dollar. But in these uncertain times, investors are looking to more than keep their dollar whole – they are looking for ways to invest and still buy that retirement condo in Florida or take that trip to Spain or put two kids through college. Staying whole isn’t enough in today’s shaky economy, and investors don’t have much in the way of new options.

Sure, there are hedge funds, mutual funds, ETFs, managed accounts and the like. Not too much new here. Most of these instruments invest in the same blue-chip stocks or 20-year T Bill. So much for diversification. So, how do investors go beyond the same old, same old and find exciting new ways to invest?

Personal finance reporter at SmartMoney, Sarah Morgan, recently covered the foreign exchange (Forex) investing opportunity. She wrote, “New research suggests that retail foreign exchange traders – who now account for $4 trillion in daily trades – can dramatically increase their odds of winning by simply copying the moves of more successful traders, and several new currency-trading sites now allow traders to do just that.”

Sarah’s article, “New Tool For Currency Traders: Mimicry,” examines the opportunities to take advantage of the Forex market, well-known for its complexity on one hand and profit potential on the other. The challenge has always been how to take advantage of this asset class if you’re not a trader. Making money as a retail Forex trader is tough business. Less than 30 percent of Forex traders are profitable and most churn and burn in less than three months, which doesn’t sound too promising, and we’re back to doom and gloom. But, what about a way to follow and take the trades of the experts? Call it mirror trading, auto trading, copy-cat trading or mimicry. It’s about leveraging the success of top Forex traders and making it your own. A new way to create a portfolio of people – professional Forex traders who know the ins and outs of the market, follow rigorous risk management practices and tested investment strategies all aimed at driving alpha.

Now, as Sarah points out in her article, not all Forex investing programs are created equal. Investors need to review their options carefully to ensure they are picking the right program for their investment needs. In any mirror trading program, the program is only as good as the expert traders. Sarah says, “Javier Paz, senior analyst at Aite Research Group, recommends Currensee, which he says is easy to navigate and sets a higher bar for its ‘expert’ traders than other services. To become a so-called expert that others can follow, traders must demonstrate at least three straight profitable months and use appropriate risk management techniques. Plus, the firm pays these successful traders for their performance, so their interests are aligned with their followers, he says.”

As we all know, there is no magic bullet in the world of investing. Sadly, the Magic 8 ball that sits on my desk can do no better than tell me that “all signs point to yes.” Well, being an eternal optimist, I’ll take it.

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Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results. Investor returns may vary from Trade Leader returns based on slippage, fees, broker spreads, volatility or other market conditions.

Last week, Forex analyst John Forman hosted a live webinar about autotrading. John provided his perspective on what should raise some red flags for investors when they’re leveraging automated tools and strategies.

In a nutshell, John talked about the seven perils this type of service. While you can hear the entire webinar here, I wanted to give my thoughts on how relying on automated systems can affect your outlook as a trader and what you want to consider as a potential customer of one of these systems.

My interest lies in how these risks relate to currency investment programs such as the Trade Leaders™ Investment Program. The moves of the Trade Leaders, some of the top currency traders in the world, provide trade signals that appear in your portfolio. But, being prudent in your decision-making requires that you understand the process and why some methods can help you succeed, while others warrant more examination.

Briefly, the seven perils John shared were:

1.     Trading types (actual versus hypothetical)

2.     Knowing your skills and vetting traders/systems

3.     Managing risk

4.     Identifying fees and expenses

5.     Understanding presented performance and returns

6.     Accepting transparency and measurement

7.     Leveraging investor controls

In my opinion, the three most important of these are 2, 3 and 4. Ultimately, if you are comfortable in your abilities as an investor, are aware of the risks present in trades that might be executed automatically and can accurately understand how your returns and performance are measured, you’ll be well poised to take part in a system that offers you the benefits of autotrading. The biggest caution as you look to take advantage of an autotrading system is to know how the fees work. Are you paying on every roundturn? Is the “expert trader” getting paid on volume? Are you paying additional pips to add to the autotrading company’s bottom line? Buyer beware. Do your homework and know how much the service will cost you. Transparency is one of our key cornerstones of the Trade Leaders program. We made a conscious decision to keep our fee structure simple and straightforward and it’s clearly communicated in our marketing materials, on our website and by our team members who talk to new clients every day. You can see it for yourself here.

I welcome your thoughts on autotrading and the perils - or successes - you’ve experienced. What do you see as the most important consideration as you decide to try an autotrading system? I look forward to hearing from you.

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Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results. Investor returns may vary from Trade Leader returns based on slippage, fees, broker spreads, volatility or other market conditions.

The rout in the markets yesterday (Thursday, May 6, 2010) will not soon be forgotten. At one point the Dow Jones had fallen 998 points or just shy of 1k. Risk aversion was in full force in all markets including in currencies where EURJPY went from approximately 120 to 110 in one afternoon. At one point it even gapped down an entire big figure.

As an investor this has to shake your confidence in the markets. It was just a few years ago that the markets dropped half their value and it hasn’t take long for the next shake-up in the markets to occur. As a trader you have to be careful for many reasons. One be sure to write down the handle of your execution, not just the “54”, but 114.54 since these markets are basically wild right now. Second you can certainly make incredible sums in a short span but losing money can not only put a major dent in your principal but also shake your confidence as well. If you want to be a trader for the long-term then survive these markets.

Now was it a computer glitch that caused the excessive reaction in the markets? Was it a fat finger? One can argue all they want about how automated the markets have become but at the end of the day it is still humans that compile these programs and write the instructions. Were we due for a correction? Technicians have been calling for one for a few weeks as the upward move in risk was on light volume. Or has the markets just had enough of Southern Europe, notably Greece, especially as protests have become deadly? In truth it was probably a combination with other factors contributing as well.

Ironically today we saw the strongest employment reports in a few years out of both the US and Canada. Economic growth is more sustainable today than it was when the markets collapsed in ‘07/’08. Interest rates around the globe are at arguably absurdly low levels. Yields in emerging markets in many cases hover 5% (is that worth the risk for an emerging market?) and G7 countries appear to be in no rush to raise rates.

While the next few days will likely see continued excessive volatility the question has to be asked, does the current situation present an opportunity for traders and investors? Remember the crash of 1987, how long did markets stay down in 2001/02 and even 2007/08? Markets each time were met with extraordinary trading circumstances that we’ll never forget but the smart investor understood that the potential for gains when risk-taking emerged would present itself. It may be too early to state that the time to reinvest is now but markets will return to normal, traders will trade and one day we will remember where we where when the market crashed on Thursday, May 6, 2010.

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Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results.

1 Comment

Here at Currensee Towers we're all about Forex education.  We're always learning and we like to help share that learning with traders in the Currensee community and beyond.  So this week's webinar - Creating your own Autotrading Strategy with Dr. Todd Hanson of LiveTradeSignals.com - is free and open to the public.  Dr. Hanson will be taking your Forex Autotrading questions live. It's at 4pm US Eastern Time on Wednesday April 21, and you can register free here.

Here's the skinny:

Join Currensee and Dr. Todd Hanson for this informative discussion of automated trading and how to set up your own autotrading strategy. Dr. Hanson will present an overview of automated trading principles, deliver a live demo of LiveTradeSignals.com’s offerings and take your questions live. You will learn...

  • The definition of automated trade signals and strategies
  • The critical pieces needed to develop a sound automated signal or strategy
  • How to employ an automated trade signal or strategy to seize potential market opportunities

In addition, all webinar guests will get an offer from the Currensee Marketplace to try LiveTradeSignals.com’s service at a special price.  We hope you can join us.

About LiveTradeSignals and Dr. Todd Hanson:
LiveTradeSignals is the vision of Dr. Todd Hanson, PhD, who saw the opportunity to present real trading techniques to anyone serious about trading. Dr Hanson took his Doctorate in Applied Mathematics from the University of California at Berkeley with a dissertation based on mathematical models for systems trading. In the years since his Doctorate, those systems and techniques have expanded, becoming more refined and effective. Dr. Hanson has become a recognized authority in the industry, with his opinion regularly sought by media outlets including CNBC, Reuters, Barron's, Fox News, and many others.

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Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results.

I have to say that I wish I was trading foreign exchange a bit more than I am at the moment. Actually make that a ton more than I am at the moment. These markets are moving and whether you or trading the AUD, CAD or the Yen we’re seeing enough significant moves to get traders excited and hopefully enjoying profitable trades.

One of the beauties of trading forex instead of say equities is that you shouldn’t be concerned on the direction of the moves either. If you are Long USDCAD this may not be hedging or offsetting other trades. In trading equities you may short the SPX but you are likely to be Long equities elsewhere in your portfolio. Liquidity, tight spreads and 24 hour market access are other good reasons to be involved in forex trading.

On Currensee you can see the positions of both the Community and your team members. My team members have over 100 positions on as I write. That is a nice tidy sum and many of those are with a bit of leverage of well. I’ll have a trade on as well the next time I receive a signal from my intra-day model but last week we missed some opportunities when my Expert Advisor failed to generate signals.

As we all know using Expert Advisors has become common place for individuals trading currency. If you can build a strategy and have your code written properly then you have a mighty convenient tool. It seems that we are all lacking time now-a-days and these EA’s seemingly allow you to do two things at once. Unfortunately for yours truly having that code written properly has become a stumbling block. We’re now reaching out to other experts and will hopefully have this rectified in the not too distant future.

Back to the trading environment, one look at the economic calendar, listed on the Research Dashboard on Currensee, shows a far less crowded calendar of events this week. A CGPI (PPI) figure out of Japan, US retail sales and GDP figures out of the Eurozone don’t exactly measure up to the direction that can be provided from NFP, ECB and G7 meetings. This should be viewed as a positive item for traders with winning strategies right now. There will be fewer speed-bumps to derail those trades that have been put on.

This should keep the focus on sovereign debt concerns, benign global interest rates and other hot items impacting markets right now. Following these items is easy enough using the Feeds widget on Currensee. This provides various top economic headlines from around the globe from multiple news organizations. Among the headlines that are Feeding as I write are stories on the Toyota recall, Chinese economic growth and Trichet’s visit to Sydney. More than a few items that traders may want to pay attention this week. Thus if you are looking for trader positioning, economic news releases or live news feeds the place to be is on Currensee.

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Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results.

3 Comments

A big trend right now in the industry is automated Forex trading of signal providers. Most of the Forex brokers today offer their own proprietary solutions and there are various independent providers like Zulutrade, collective2 and others that offer the ability to automatically execute signals.

I’ve spent some time over the past few months looking at these automated trading solutions and, as a trader I have to tell you, I don't see how anyone will be able to make money with these platforms, as the lack of transparency and accountability is astonishing. I’ve looked at a few leading signal providers and they trade without stops, keep losing positions open forever and hide poor performing months under different names. Also, the lack of properly presented performance information makes it impossible for the educated investor to reach an informed conclusion that will make him money.

The main problems these platforms have, are that they 1) rely on trading signals that are executed in demo accounts and 2) don't rely on a specific trader that manages real money. In these scenarios, replicating a signal lacks the most important components of trading, which are money and risk management and trading on a demo account versus a real account. This simulated trading style relieves the trader from worrying about his losing positions as it's not real money anyway and the market will eventually turn around.

We see a change in this market of traders following with the launch of Covestor’s and Kaching’s new services. Here at Currensee, we're working on an innovative way to give our members the ability to follow real trades made by real people with real names and real performance using a real Forex trading account. We call it full transparency and are seeding this change and will be the first company to offer such capabilities in the Forex space.

If you are a consistently good trader and you are interested in learning more about how you might participate in this new service, we'd love to hear from you!

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Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results.

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Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results. Investor returns may vary from Trade Leader returns based on slippage, fees, broker spreads, volatility or other market conditions.

1 Comment

Automated Adam, Discretionary Derrick...meet Team-trading Tom.

There are many types of traders on this earth. Regardless of whether you trade forex, futures, or equities, you understand one thing. Your success depends on your long term ability to determine accurately which securities to play in, how much you enter a position with, and when you enter and exit a position.

For automated system traders, the initial parameters of mixed oscillators and indicators can be a large determinant to how you perform even after you've optimized it. You understand the market can be bipolar and act completely irrational and work against your system when you least expect it. You make money from the market largely due to the statistical edge you've gained through proper back testing and scrutinizing the losses far more than your possible winnings. Even then, you realize that not all systems will be forever profitable for the lone reason that the market is essentially human and no mathematical model can accurately and fully describe human behavior.

If you are the discretionary trader, then you realize what the automated trader does but you also see patterns; some may even "feel" them. Profitable intuitive traders can "feel" the current of the market's waves much like a surfer "feels" the ocean's flow. Discretionary traders are also adept with support & resistance, chart patterns, candlestick patterns, Elliot wave theory, and Fibonacci points - on top of risk management theories and the usual list of indicators and oscillators.

Now. There is a third type of trader. One who can be one of the aforementioned types of traders on top of being a team player. This trader is capable of gauging support and resistance without needing to draw a line at all. This trader is capable of connecting to those which are better than them, those who are equal to them, and those who want to be as good as them. This ability to collaborate adds a "whole 'nother way of lookin' at the game." This trader realizes that this information resource is invaluable since they realize that they can see what most others cannot. They may have the insight of a discretionary trader or the discipline of a automated trader. However, with this new level of analysis, traders will have the ability to filter out their methods of trading with social indicators and can see the community bias on the balance of the market.

Years ago when I starting doing forex, since it was all new to me, I spent a lot of time just reading website after website looking for information and learning everything I could get my hands on. It was to the point that I woke up every morning and immediately starting thinking forex. I was not trading live yet, but I learned everything I could. This included risk management involving gambling theory, chart patterns, various indicators, and trading systems. I starting getting into it, digging myself a hole until I was buried. Why was I drawn to it so much? It was a few things: I liked how everything could be visual on graphs, the way money exchanges hands has mesmerized me since I was in elementary school, it involves technology, but most of all it involves people. People watch birds; I watch people. Not in a creepy way but to observe human social interactions and motivations. I think I've always been like this. So, when I had the chance to jump on board with Currensee, I was all over it.

This opportunity lets me see things in a completely new way. If I had to describe myself, I'd be mostly an automated trader. I like developing a mechanical means of reading the market where discipline is absolute and it can work for me non-stop. At Currensee, I'm a bit of all these types of people. I've taken it upon myself to beat my biggest weakness, discretionary trading and discipline. I've narrowed it down to the necessity for me to follow my rules and to learn from my mistakes. And, now, I'm teamed up with other people. I can trade real-time with them while messaging, posting and starting new discussions. I can even make strategies around them if I care to. I can also learn from traders who are better than me and teach traders who don't know as much as me. All while getting information on the community's trades and opinions on fundamental news and currency pairs.

If you asked me a few months ago if I thought I'd mix up my automated trading approach, my answer probably would have been "hell no." It works and why change something that's not broken. I've gotta say that team trading has opened up a whole bunch of new ideas and strategies for me. I've connected with people around the globe - people who trade differently than me. And I'm challenging myself by using several different approaches - something that's hard to do with a machine.

So, that's my take. I'm curious to know what you think. Is your trading style open to some team spirit?

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Be sure to read the full risk disclosure before trading Forex.  Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results.

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Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results. Investor returns may vary from Trade Leader returns based on slippage, fees, broker spreads, volatility or other market conditions.