Minimal posting lately as I have been spending time with my lovely newborn daughter. Here she is...
Tuesday, May 19, 2009
Say Hello To My Little Friend....
Minimal posting lately as I have been spending time with my lovely newborn daughter. Here she is...
Friday, May 8, 2009
Forex Hedging, R.I.P.
Forex Hedging, R.I.P.
By Ed Ponsi, FXEducator.com
New rules are about to go into effect in the Forex market; how will these changes affect you?
This is from the NFA, dated April 13, 2009:
"New Compliance Rule 2-43(b) requires an FDM to offset positions in a customer account on a first-in, first-out basis, thereby prohibiting a trading practice commonly referred to as "hedging." A customer may, however, direct the FDM to offset same-size transactions even if there are older transactions of a different size. Rule 2-43(b) is effective for any positions established after May 15, 2009. Offsetting positions that were established prior to the effective date do not have to be liquidated, but once either position is closed out after May 15, it may not be reestablished as a hedge."
http://www.nfa.futures.org/news/news...ArticleID=2 273
What does this mean to you? The NFA is banning the practice of simultaneously establishing a long and short position on a single currency pair, popularly known as "hedging." Forex brokers (referred to here as FDM's, or Forex Dealer Merchants) have allowed this practice for years, which can be useful under the proper circumstances. For instance, suppose that a trader is bullish EUR/USD in the long term, but is bearish on the same currency pair in the short term. Under the old rules, a trader could maintain a long position and a short position in EUR/USD simultaneously. The NFA is concerned that brokers have found a way to allow traders to establish a "flat" position while charging two commissions. This will no longer be allowed as of May 15.
The strangest comment I heard about this came from a message board where a poster derided the decision, saying the NFA was "favoring the brokers again." Just for the record, there never was a rule that stated FDM's had to allow their clients to establish simultaneous positions. Who do you think came up with the idea to allow traders to "hedge" in the first place? The brokers, of course, but now that option is about to disappear.
Questions of the Week
Q) Hi Ed, I have a day job from 9-6pm and won't be able to take advantage of the active movement of price during those hours. I would like some help on what markets are suitable for 7pm-12am trading and what market data is preferred. Thanks, Narendra
Ed Ponsi) Hi Narendra, thank you for your question. If you are referring to 7pm-12am Eastern time, then you could trade during what Forex traders refer to as the Asian session. Many U.S. East coast traders come home from work, enjoy dinner, and then sit down at their computers to monitor the action from the Far East, which begins around 7pm. Asian markets become active at that time because while it is evening in New York, it is also morning in Tokyo, Singapore, Hong Kong, Sydney, and other major Forex trading centers in Asia. The Japanese Yen and Australian Dollar pairs become particularly active at this time, but major pairs like EUR/USD and GBP/USD also see some volatility.
Another option is to become less of a day trader and more of a Forex swing or position trader. Taking a longer view and using longer time frames (4-hour, daily, weekly charts) allows traders to enjoy the benefits of Forex trading without being tethered to a computer. Many traders simply place entry orders into the trading platform, along with associated stop and exit orders, and might not even be present when those orders execute. If I'm using a trading strategy that requires a specific entry point, I can set up a series of One-Cancels-Other orders, also known as OCO orders. When I use this method, my protective stop and target orders are not activated until the entry is executed. When the stop and target are activated, only one or the other can be executed – as soon as this execution occurs, the remaining order is cancelled.
Because Forex is so liquid, with an estimated turnover of $3.2 trillion USD per day, the chance of having the price gap beyond your stop is greatly reduced, but it still could happen. This style of trading is not for everyone, so just like any other trading tactic, try it repeatedly in a demo account before attempting this with real money. Good luck!
Q) Hi Ed, I have never traded currencies, but I might be interested. Is there a good robot that can trade currencies for me? Or are the ads I have seen about Forex robots a scam? Thank you, John
Ed Ponsi) Hi John, thank you for your question. I'm sure you remember the old saying that if something sounds too good to be true, it probably is too good to be true. I know how great the idea sounds, that a machine will somehow place all the trades for you, but think about this – are real Wall Street traders making critical buy and sell decisions based on a robot? Have you seen anyone on the floor of the NYSE or the NYMEX or any exchange using a box with red and green arrows? The truth is, most of the outfits that sell this junk are scammers. In fact, one particularly slimy vendor is even placing ads suggesting that I recommend their software. If they have to lie to you just to get your attention, how good could the product be?
The fact is, there is no magic bullet or Holy Grail in trading. No robot or green light/red light system can beat the markets for more than a short period of time, because these programs do not adjust well to changes in the market – and markets change constantly. The only answer is to get a real education in trading. An educated trader can adjust his or her techniques and adapt to changes in the markets, and can out-trade any so-called robot. You'll have to be willing to do some work, learn techniques, and put some effort into the process, but it is well worth it. The only people getting rich with trading robots are the scam artists who sell them, so avoid this nonsense at all costs.
By Ed Ponsi, FXEducator.com
New rules are about to go into effect in the Forex market; how will these changes affect you?
This is from the NFA, dated April 13, 2009:
"New Compliance Rule 2-43(b) requires an FDM to offset positions in a customer account on a first-in, first-out basis, thereby prohibiting a trading practice commonly referred to as "hedging." A customer may, however, direct the FDM to offset same-size transactions even if there are older transactions of a different size. Rule 2-43(b) is effective for any positions established after May 15, 2009. Offsetting positions that were established prior to the effective date do not have to be liquidated, but once either position is closed out after May 15, it may not be reestablished as a hedge."
http://www.nfa.futures.org/news/news...ArticleID=2 273
What does this mean to you? The NFA is banning the practice of simultaneously establishing a long and short position on a single currency pair, popularly known as "hedging." Forex brokers (referred to here as FDM's, or Forex Dealer Merchants) have allowed this practice for years, which can be useful under the proper circumstances. For instance, suppose that a trader is bullish EUR/USD in the long term, but is bearish on the same currency pair in the short term. Under the old rules, a trader could maintain a long position and a short position in EUR/USD simultaneously. The NFA is concerned that brokers have found a way to allow traders to establish a "flat" position while charging two commissions. This will no longer be allowed as of May 15.
The strangest comment I heard about this came from a message board where a poster derided the decision, saying the NFA was "favoring the brokers again." Just for the record, there never was a rule that stated FDM's had to allow their clients to establish simultaneous positions. Who do you think came up with the idea to allow traders to "hedge" in the first place? The brokers, of course, but now that option is about to disappear.
Questions of the Week
Q) Hi Ed, I have a day job from 9-6pm and won't be able to take advantage of the active movement of price during those hours. I would like some help on what markets are suitable for 7pm-12am trading and what market data is preferred. Thanks, Narendra
Ed Ponsi) Hi Narendra, thank you for your question. If you are referring to 7pm-12am Eastern time, then you could trade during what Forex traders refer to as the Asian session. Many U.S. East coast traders come home from work, enjoy dinner, and then sit down at their computers to monitor the action from the Far East, which begins around 7pm. Asian markets become active at that time because while it is evening in New York, it is also morning in Tokyo, Singapore, Hong Kong, Sydney, and other major Forex trading centers in Asia. The Japanese Yen and Australian Dollar pairs become particularly active at this time, but major pairs like EUR/USD and GBP/USD also see some volatility.
Another option is to become less of a day trader and more of a Forex swing or position trader. Taking a longer view and using longer time frames (4-hour, daily, weekly charts) allows traders to enjoy the benefits of Forex trading without being tethered to a computer. Many traders simply place entry orders into the trading platform, along with associated stop and exit orders, and might not even be present when those orders execute. If I'm using a trading strategy that requires a specific entry point, I can set up a series of One-Cancels-Other orders, also known as OCO orders. When I use this method, my protective stop and target orders are not activated until the entry is executed. When the stop and target are activated, only one or the other can be executed – as soon as this execution occurs, the remaining order is cancelled.
Because Forex is so liquid, with an estimated turnover of $3.2 trillion USD per day, the chance of having the price gap beyond your stop is greatly reduced, but it still could happen. This style of trading is not for everyone, so just like any other trading tactic, try it repeatedly in a demo account before attempting this with real money. Good luck!
Q) Hi Ed, I have never traded currencies, but I might be interested. Is there a good robot that can trade currencies for me? Or are the ads I have seen about Forex robots a scam? Thank you, John
Ed Ponsi) Hi John, thank you for your question. I'm sure you remember the old saying that if something sounds too good to be true, it probably is too good to be true. I know how great the idea sounds, that a machine will somehow place all the trades for you, but think about this – are real Wall Street traders making critical buy and sell decisions based on a robot? Have you seen anyone on the floor of the NYSE or the NYMEX or any exchange using a box with red and green arrows? The truth is, most of the outfits that sell this junk are scammers. In fact, one particularly slimy vendor is even placing ads suggesting that I recommend their software. If they have to lie to you just to get your attention, how good could the product be?
The fact is, there is no magic bullet or Holy Grail in trading. No robot or green light/red light system can beat the markets for more than a short period of time, because these programs do not adjust well to changes in the market – and markets change constantly. The only answer is to get a real education in trading. An educated trader can adjust his or her techniques and adapt to changes in the markets, and can out-trade any so-called robot. You'll have to be willing to do some work, learn techniques, and put some effort into the process, but it is well worth it. The only people getting rich with trading robots are the scam artists who sell them, so avoid this nonsense at all costs.
Subscribe to:
Posts (Atom)
