What is a Lot?
A standard lot has the following characteristics:
* 1,000 USD
* Leveraged at the rate of 100 to 1
* Total controlled currency of $100,000
A mini lot has the following characteristics:
* 100 USD
* Leverage of 100 to 1
* A total control of $10,000 of the base currency
A lot has no expiration date or time restraints due to the automatic roller policy.
For comparison purposes, the lot when trading in the stock market are the number of shares you purchase in one transaction.
In a forex mini-account, the lot or contract size traded are 10,000
of the base currency whereas for a regular forex account, the lot or
contract size traded are 100,000 of the base currency. Therefore, the
mini-account contract is 1/10th the size of a standard forex contract
My recommendation is when first trading currencies, start trading
just 1 lot. This may be more than enough to handle. Once you become
more experienced, you can increase the size of your lots according to
your trading plan. For instance, one professional trader trades 2 lots
if he is trading against the trend and 5 lots if he is trading with the
trend
What is the H-system forex trading system that you use?
I won't give the specific details of this trading system NOT because
I don't want to share but mostly because I don't feel like giving it
out will be of any help to anyone for the following reasons:
- It is important for everyone to create a system that fits
their personality and trading style. I'm not a successful trader yet
but I've heard that doing so can lead one closer to success. - I don't want to feel responsible for someone using this system and then losing money because of it.
- I
am using real money to trade this system and I've spent a lot of time
backtesting and forward testing. Since I just started trading it for
real, I still don't feel confident that this system will be a success
(see #2)
What I will say is that this system has very
simple rules. It uses technical analysis but nothing that anyone hasn't
heard of. Here are the rules I will state:
- Trade the GBP/USD only
- Trade using
the 30min or 60min charts (so far trading the 30min is just as
profitable as the 60min but the 30min has a higher risk/reward) - Trade during the hours of 2am EST and 11am EST only
- Always enter with 3 lots at the same entry price (unless slippage occurs)
- Always exit 2 lots after 30 pip profit each (60 pip total)
- Once
the 3rd lot reaches 30 pip profit, trail the stop using the last candle
high (if in a short position) or the last candle low (if in a long
position) - Place stop loss at the 34 EMA for all 3 positions on entry. Adjust the stop loss every 30 minutes if the 34 EMA has changed.
- If
trade was opened right before a hot zone (economic announcement), get
rid of the stop loss and use a mental stop. If 1 minute after the
economic announcement the price is below the stop loss in a long trade
or above the stop loss in a short trade, exit. This rule is to allow
the emotion to clear before exiting a position that may reverse.
The entry is just on price with only 1 confirming indicator. I'm
looking into using an additional indicator for confirmation but as of
yet, it hasn't proved to be useful.
You can see my trading history and results here:
http://www.forexproject.com/H_Trading_System/
Is your money at your forex broker safe?
The quick and dirty answer to this is no. Just ask retail traders whose monies were frozen when Refco went down.
I was reading an article in the Wall Street Journal today that brings
up the fact that we as retail traders need more protection. The CFTC
or Commodity and Futures Trading Commission have a "segregation" rule
which means that brokers must keep client funds separate from the
firm's operating funds. This rule only applies to U.S. traders who
deposit funds for trading on-exchange futures or options on futures.
If you trade over-the-counter derivatives or off-exchange products such
as FOREX, there is no rule against brokers mixing your funds in with
the firms operating funds. This is what Refco was doing.
So the bottom line is that our money is absolutely not safe
and there is nothing that says that a broker firm cannot use your
deposit money to operate their business. The unfortunate thing about
all of this is that neither Congress or the CFTC have taken any steps
to expand the segregation rule to FOREX traders.
This is very disturbing and probably reason enough to only deposit
what is absolutely necessary to trade. In addition, if at any time you
can withdraw money or profit, for this reason alone, you should do
it.
This article was written by FXCM's chief compliance officer so I
would be very interested in knowing if FXCM follows their own rules and
applies segregation to their client's funds. I'll try to find out.
I sent the following email excerpt to James Sanders, Compliance Officer
at FXCM and the author of the Wall Street Journal article I cited:
I read your article in WSJ regarding the "segregation" rule and how
Congress nor the CFTC have done anything to apply this rule to FOREX.
My questions are:
- What if anything can we as retail traders do to put pressure on them?
- Does FXCM apply the segregation rule to funds deposited by your clients for trading FOREX?
James was nice enough to respond to my email and here is his response:
- You can write to your local Congressional representatives and the Chairman of the CFTC.
- FXCM keeps customer funds separate from firm operating funds as a
matter of practice but this would not provide the funds with any
special protection from creditors in the event of a Refco-type collapse.
So even though a firm keeps customer funds separate doesn't mean jack.
The creditors will still be entitled to your funds before you are.
What is a Pip?
A pip is the smallest unit of price for any foreign currency. For
example, for the USD/CHF one point (or pip) equals .0001 Swiss Francs
and for USD/JPY, one point (or pip) equals .01 Japanese yen
What is the interbank?
This originally, as the name implies was simply banks and large
institutions exchanging information about the current rate at which
their clients or themselves were prepared to buy or sell a currency.
INTER meaning between and Bank meaning deposit taking institutions
normally made up of banks, large institution, brokers or even the
government. The market has moved on to such a degree now that the term
interbank now means anybody who is prepared to buy or sell a currency.
It could be two individuals or your local travel agent offering to
exchange Euros for US Dollars. You will however find that most of the
brokers and banks use centralized feeds to insure reliability of quote.
The quotes for Bid (buy) and Offer (sell) will all be from reliable
sources. These quotes are normally made up of the top 300 or so large
institutions. This insures that if they place an order on your behalf
that the institutions they have placed the order with is capable of
fulfilling the order.
Where do I begin?
There is quite a learning curve when you first start your forex training and it can be quite overwhelming. With that said, there aresome simple steps to start your training.
- Buy a Forex book or read about Forex on the web. There is such an
enormous amount of information on the web and it can be difficult
sometimes to disseminate all of it. Sometimes it's a lot easier to buy
a book and sit down and read it cover to cover. Even if you don't
understand all of it, you will eventually. - Open a Demo Account. This can in no way simulate real life trading
but at least it will get you comfortable with the trading platform,
price movement, currency pairs, and buying/selling. Make some random
trades at first. I don't think it is that important at this point to
have success. The goal right now should be for you do get a feel of the
volatility of the market and how quickly your assets can be affected. - Continue reading as much information as you can get your hands on.
Try applying what you've learned to making good trade decisions with
your demo account. - Open up multiple demo trading accounts and get accustomed to each
particular platform. Start using the one that you feel most comfortable
with. - When you demo trade, try to stick to the more popular trading pairs
such as USD/JPY and EUR/USD. Stick to 1 lot trades as multiple lots add
complexity. - Continue reading as much information as you can get your hands on.
- You're never really going to know that your ready until you jump
into trading for real. If you can afford to, open up a live
mini-account with a minimum of $1000. Stick to what you've learned and
don't get hooked on listening to other peoples opinions. It's not their
money, it's yours. They may be able to tell you when to enter a trade
but that is by far the easiest part. The hardest part is getting out of
the trade. - Don't get discouraged if you blow through your mini-account unless
it was your life savings. Don't think your going to lose but plan on it
anyway. - Continue to self motivate yourself. If I were you, I would avoid
reading non-beginner forums at first as many times it's traders
bragging about their big winning trade (not mentioning their losses) or
trying to sell you their latest get rich trading system. - The community of forex beginners trying to learn is enormous. Find
some people like yourself and learn from each other. If you can find a
reputable mentor, it can accelerate your learning.
What forex broker do you use?
Right now I'm using FXCM. The only other broker I've ever used was Gain Capital. I'm currently looking at using Oanda.
What are support and resistance?
Support and resistance represent key junctions where the forces of
supply and demand meet. Supply could also mean bearish, bears, and
selling. Demand could also mean bullish, bulls, and buying.
Support is a level in which the demand is thought to keep the price
from declining below this "support" level. Resistance is a level in
which the supply is thought to keep the price from advancing furthur
above this "resistance level."
There can be and usually are multiple levels of support and
resistance. These principles are used heavily in technical analysis.
What is the base currency?
The base currency is the first currency in a currency pair. This is the currency that the exchange rate is applied to.
For example, the USD is the base currency in the USD/JPY pair; the EURO is the base currency in the EUR/USD pair
What are the commonly traded currency pairs?
EUR/USD Euro / US Dollar
GBP/USD Pounds Sterling/ US Dollar
USD/JPY US Dollar / Japanese Yen
USD/CHF US Dollar / Swiss Franc
USD/CAD US Dollar / Canadian Dollar
AUD/USD Australian Dollar / US Dollar
NZD/USD New Zealand Dollar / US Dollar
