Tag Archives: Forex news

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Currency Trading

Over the weekend the LA Times became the next major news outlook to tackle the forex market with a story titled Foreign currency trading is easy — an easy way to lose money. This one isn't quite so inflammatory as others I've blogged about in recent weeks, and I found the 615,000 estimate for American forex traders interesting. Maybe journalists are starting to get a better handle on things. That doesn't mean this particular article isn't without its issues, however.

Taking on forex marketing
I give the LA Times full marks for taking on the subject of marketing in the retail foreign exchange trading arena. In fact, I wish they would have gone a bit further with that topic. It is absolutely true that "easy" is often featured in the ads run by major forex brokers, leading the unaware to believe that they can just open an account and be on their way to riches or supplemental income.

The example provided in the article of a woman who got sucked in by this sort of marketing is an apt one. It offers us a couple of important lessons. Obviously, the first one is trading isn't as easy as some would lead you to believe. Certainly, it's easy to place trades and all that, but no one with any experience at all will call the path to successful trading a walk in the park. The second lesson is that new traders shouldn't open accounts with borrowed money (credit card charge in this case).

Betting money you don't have
Here's where things start going off the rails. The article describes trading on leverage as allowing traders to "bet money they don't have". This verbiage suggests a misunderstanding of how things operate in retail forex trading. It suggests a model like the one in the stock market where leveraged trading means borrowing to buy more shares than one could otherwise purchase. This simply isn't the case in forex. There's no borrowing to buy or sell anything.

The margin requirement in forex is a surety against loss. It effectively limits the amount of money a trader can lose on a single position, especially since most brokers these days have automatic closures that kick in when losses are too big. On top of that, many brokers indemnify customers against losing more than what's in their account on the off chance that some incredibly dramatic event causes a big gap move. Stock and futures brokers don't generally have these kinds of protections.

In other words, in forex the chances of you having money beyond what is in your account at risk are very, very, very small, if not non-existent. Traders who lose all their money don't generally do so because of one bad market move. They do it because of a series of poor trades.

Blaming it on the broker
The next step in the article is to focus blame on the brokers. We've all heard traders complain about their brokers. Most of the time it's sour grapes from someone who is looking to place the blame for their losses on someone other than themselves. The fact that the woman in the LA Times article said "They always had tricks to take my money" in talking about her broker lowers her credibility with me.

Yes. There absolutely are scammers out there. Anything popular in the way forex has become is going to attract an unsavory element. There's a steady stream of CFTC action against forex operations you've likely never heard of before. That latter part is the thing I'd focus on, though. It's not the big brokerage houses the regulators are constantly nailing for taking people's money. Certainly, there have been some issues with some of them, as the article notes, but the increased scrutiny they are under now is making for an increasingly fair market.

As for the higher turnover experienced by the forex brokers, I'll refer back to the marketing methods. Folks with unrealistic expectations don't tend to stick around long.

Brokers making money off their customers
Do forex brokers profit off their customers? You bet. Because these dealers make money on the spread, every time a customer buys at the offer price and sells at the bid they make a small profit. As I documented in my Cost of Trading post, however, the trader expenses for forex are competitive with those of other markets.

The LA Times article indicates that Gain (forex.com) made an average of $2913 per active trader customer in 2010 and FXCM made $2641. It then goes on to compare that against average customer account sizes of $3000 and $3658 respectively. I have three problems with this side-by-side analysis presumably to make us horrified at how greedy the brokers are and how they systematically bleed customers dry.

First, notice how the article uses the term "active trader" when looking at how much Gain and FXCM made, but only uses "average customer" to describe account size. That suggests to me looking at separate data sets which may not, in fact, be comparable.

Second, do we have specifics for how those revenues were made? Was that spread income. Was it carry interest? Was it something else?

Third, without having much more information about the distribution of the data for the average income and account size figures above, we really cannot make any judgments. The income figures could be seriously skewed by very active traders with large accounts while the account size figures could be weighed down by numerous inactive small accounts.

Also, the article tosses out the statistics that about 70% to 80% of Gain and FXCM customers lose money on a quarterly basis. That certainly sounds horrible, but do we have a comparison with other markets like stocks?

If you really want to see if the brokers are up to no good, figure out what they should be making based on transaction volumes and average spreads and compare that to what's being reported. If there's a big gap, then an explanation will be wanting.

Investing and business headlines this week were dominated by talks of currency manipulation and the G20 meeting. There were concerns over underestimated inflation in China, the weaker Eurozone economies dragging down stable partners, and what the safest (in relative terms) economy to invest in. It was a hectic week in news, indeed, but here’s to hoping that we won’t hear about quantitative easing (QE2) for a little while.

Here are our Top 10 headlines of the week we could not help but share:

Happy Friday!

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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.

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To the week of August 8th, we bid you adieu and good riddance. It’s been a little hectic around Currensee World Headquarters. In fact, a few times certain people even got a little nutty under the stress. We’ve been working around the clock, and there’s some big (huge!) new developments coming soon to Currensee. We can’t pull the curtain just yet, but stay tuned. Exciting times are a’coming!

In the meantime, here’s some of our favorites bits of news and commentary from the Forex front:

  • There’s been a whole lot of steam surrounding Dodd-Frank Wall Street Reform Act. While some are fuming it’s Obama’s personal crusade against Forex (look no further than Exhibit A and Exhibit B), others say it’s much to do about nothing. How are you sleeping at night, or not, traders?
  • There so many to-do’s and no-no’s in Forex, it’s hard to keep track. Forget your brokerage account for two seconds and get back to basics: your good ol’ checking account. We recently read about what motivates financial decisions, and a couple of words stood out: survival, stability, fun. Don’t the same rules apply in the Forex game?
  • To all you aspiring “Wall Street ballers”, you don't want what you think you want. Raghee asks all the big questions: What do you want from your trading? What are you prepared to do to achieve this? Do you have the risk tolerance (or stomach) to really pursue it?
  • Speaking of having a stomach for Forex, it was a recurring theme this week to talk about a condition we’ll name "Forexitis". Disturbing dreams of being beaten by red candlesticks? Irritated eyes, or just generally irritable? Forex and hypochondria is never a good combination. Is Forex really that bad? Heck, we survive every day. Kind of.
  • Casey Stubbs WANTS YOU (yes, you) to take his "follow the Forex rules" challenge for 10 days. Join in on the “Forex diet”, and then tell us if you came out a better trader or cracked under the pressure.

    Photo by Josh Mazgelis

  • A couple of tidbits from DailyForex, the first one on treating your Forex trading plan as a business (because it is). The second is really a no-brainer - trade what you see, not what you want to see. Two solid, if not pretty obvious, pieces of advice. So why do so many traders fall short in these departments?
  • Boston has an "Innovation District" (no surprise there), and it’s not in the North End? (Gasp!) I mean, Fort Point is a cool neighborhood (they have a pretty cool view of the Boston Tea Party ship), but we’re the Italian district of Boston! No competition. Hey Fort Point, we bet #NorthEnd can become a trending topic on Twitter faster than #FortPoint any day. #ChallengeAccepted!

Have a piece of news or blog you want to share, or write one of your very own? Share it! We’re all about collaboration – it’s kind of our thing – and sharing the Forex good vibes. So drop us a line – you know where to find us.

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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.

First week of August: check. And what a week it was, traders! In case you couldn’t tear yourself away from your charts, here is some reading that had us on the edge of our seats and grumbling at our computer screens:

Have a piece of news or blog you want to share, or write one of your very own? Share it! We’re all about collaboration – it’s kind of our thing – and sharing the Forex good vibes. So drop us a line - you know where to find us.

Now step away from that chart and those oscillators. Go paint something in natures (waves, perhaps) or look for shapes in the clouds – there’s disconnecting for 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.