Are You Ready for the Curveballs in the Spot Forex Market?

Are You Ready for the Curveballs in the Spot Forex Market?

Hello traders! In honor of the beginning of Major League Baseball's opening games, this week's article will cover a few of the "curveballs" that Spot Forex traders need to be aware of before they start their trading career. For those of you unfamiliar with what a curveball is, it is a ball thrown by the pitcher that looks like it will do one thing, but curves in midair and does something else. Basically, it is something that can be confusing.

Many of these curveballs cause considerable confusion for the first time Forex trader, and are things we cover much more extensively in the six day Online Trading Academy Forex Trader class. The following will be a few of the basics.

The first curveball I will discuss is the fact that different Spot brokers will have different prices for the same currency pair at the same time.

 

Figure 1 (The websites these quotes are taken from are: www.dailyfx.com, www.forex.com, and www.fxstreet.com)

Take a look at the EUR/USD quotes. Notice that they are all slightly different, but viewed at the exact same time! In the grand scheme of things, I personally don't worry about this slight difference. The only adjustment to my own trading is that I don't take breakout trades in the Spot market because what could look like a 1 or 2 pip breakout on my platform may not be a breakout on other platforms.

The second curveball I will discuss is the fact that the charts can be confusing because we are trading pairs, not one individual instrument. The direction on the charts refers to the strength or weakness of the first currency in relation to the second.

 

Figure 2

On the USD/CHF chart, the DOWNWARD sloping trendline indicates a weakening USD vs. the CHF, while on the EUR/USD chart, the UPWARD sloping trendline indicates a weakening USD vs. the EUR. Same strength or weakness, just a different direction on the chart depending on which side of the currency pair the USD is on. This can be a major hurdle for the new Spot Forex trader to overcome, mainly because most people in class are familiar with stock charts. If a stock chart is trending up, the stock is getting stronger; if it is trending down, the stock is getting weaker. Nice and easy right? But if the EUR/USD is trending UP, the USD is getting weaker. Nice curveball!

The last curveball we'll discuss is a few differences in brokers. Besides the price differences between brokers we discussed earlier, there are a few others to be aware of.

 

Figure 3 (The source for this Figure is http://www.forexbrokercomparisons.com)

As you can see from this table, different brokers will have different features:

1. How much money it takes to open an account.
2. Leverage available to you - using high amounts of leverage is great when you are right, but could be disastrous when you are wrong!
3. Different pip spreads.
4. The ability to open up standard, mini, or micro accounts. Not every broker offers all three!
5. Scalping - some brokers are happy to accommodate scalpers, other brokers discourage this active trading technique.

Obviously, there are many more differences between brokers. One of the most often asked questions in class is "What broker do you use?" or even "What broker is the best?" This is like my Feb 8th article, "What is your Favorite Pizza?" The best way to find the best broker that fits you is to sample their demo platform and then trade small position sizes until you are comfortable with their performance.

On a side note, you must be careful when using anonymous internet sites to get broker ratings/reviews. We have no way of knowing if the person on the web who is giving glowing reviews to a broker works for that broker! Or if that person who gives scathing reviews to a particular broker works for a competitor. The best way, in my opinion, to find out about individual brokers is to talk to other traders face-to-face. If they are trading live money with a broker and are happy with the software, executions, customer service, etc., then I would consider opening an account there.

I hope this newsletter helps with some of the curveballs in the Forex market. Until next time, Rick Wright

About Rick Wright

Rick studied economics and psychology at Iowa State University, and entered into the brokerage business in 1992. He earned the NASD Series 4,7,9,10,24,55,63, and 65 licenses. He helped grow an online brokerage business which was eventually sold off. Rick has also held positions as broker, branch manager, and several VP positions in the brokerage business.Rick began trading equities in 1997, and was introduced to the Forex market in 2002. Currently trading from home in Dallas, Rick is also a frequent contributor to various TV and business talk radio shows.Rick's goal in class is to accelerate your learning curve of trading, instead of figuring things out with your own money. He will show you several examples of trading mistakes that he and others have made, which cost thousands of dollars in the past so you won't make the same mistakes.You will learn how to recognize the differences between long and short term trends, where to enter trades, and where to exit based on previous price action.