anyone?
what I have discovered myself... AUD/USD future trades 1-2 tick spread on CME, NZD/USD 1-2... Sooo.. the max spread for AUD/NZD is 3.
FXCM quotes 6-7 as I watch it now. Even more baffling is that it was 2.1, 3.2 and 7.0 respectively... 2.1 + 3.2 <> 7.0
so the question still is - is there smaller spreads exist and if not - still curious how do you "forex people" trade this crap and most important - why?
Cheers
P.S. this not sarcastic or rethoric.. I am genuinely trying to understand what am I missing here..
I think what you are missing is what many people in this business miss. You cannot look at spreads alone to determine trade size, or somehow use spreads alone to determine who you trade with. In the Forex, for the most part, you control the Leverage and your Cost Basis in the trade.
High leverage, big spreads, big cost basis (equity used to make the trade) and big profit targets with tight stops, are all things that can eat you alive. Yet, this is how many people trade. Because of the leverage, in this business, your money management skills are just as important (if not more important) than your actual trade signal development skills. You can have a system that works 100% of the time to a target of 50 pips, but if each signal produces a draw of 30 pips a high percentage of the time AND you set the typical (clueless) 20 pip stop, then your 100% trading system can easily be drawn down to a paltry 30% winner.
Money Management is the 8,000lb Gorilla that many newbies ignore and never truly study in this business. Money Management, in the Forex, is King Kong. Nobody in their right mind ignores King Kong walking down the streets of New York City. Yet, Forex Newbies do it all day long.
1 pip is the smallest unit of FX measure and extends four decimal places to the right. In here, we deal in tiny, fractional units of whole dollars. Yet, it is your Leverage and Cost Basis (equity used to make the trade) that determines the power of the pip against your account balance, good or bad. 1 pip could have a Per Pip Value (PPV in my Revenue Model) of $1.00 equity net gain or net loss to your account. Or, in the case of my last trade profile, your PPV could be $7,506.00 equity net gain or loss. Thus, a simple 3 (three) pip move translates to $22,518.00 net gain or loss to the account. A 50 pip move could mean $375,300.00 net gain or loss, but ALL of this ALSO depends on the Leverage used during the trade.
There is no fixed formula for which broker to use based on spreads and starting account balance other than those that will allow you to open an account with $400.00. My advice is the same - stay away from shops that fix spreads and manipulate
their data feed to your fat client (your installed trading platform). If you are new to the Forex, doing some homework and locating the handful of Intermediaries out there that offer as close to a true STP as possible, is time well spent.
A fixed spread by definition means that data feed is not real Interbank. Real Interbank FX prices are always evolving, 24hrs a day, 7 days per week. There is no such thing as a fixed price in FX. There is no such thing as an Open, High or Low price in FX. The only thing that is real in FX are the continually changing Bid/Ask/Last. Brokers and Intermediaries have to establish order. So, they create out of thin air the concept of a Bar of Data (1 Daily Bar, 15 Minute Bar, 30 Minute Bar, 1 Week Bar, etc.). These bars do not exist in the Interbank system, only on the Intermediary server that deals-up pricing to you through a data feed, the Trader. If you use an Intermediary that fixes the spread, then the prices you see in your trading platform are by definition fictitious analogies of what true Interbank pricing looks like with every tic.
Intermediaries don't need massive swings in Interbank prices to make a business model work for them, because they are relying on volume and the spreads that THEY create on THEIR servers, as real Interbank prices move up and down. They can slightly trail the real Interbank market with spreads, or they can slightly lead the Interbank market with spreads that produces profitable opportunities for them, while your spreads look fairly fixed. This is why no two Intermediaries
have the exact same fixed spreads. Spreads are primarily created for Retail Traders they allow for the creation of a viable business model for Intermediaries who profit from the spread differentials upon each trade you make.
In the real Interbank market, spreads are either extremely tight or non-existent and the true Interbank players
push their Bid and Ask out to the Vendors (Intermediaries) who then "mark-up" (create a spread) prices
before passing them on to your via their data feed directly into your trading platform. Other FX Intermediaries will lessen the "mark-up" and charge you a commission per trade in lieu a wider range of spreads. If you are a Retail Trader, it is very hard to avoid this. This is simply the
cost of doing business in FX as a Retail Trader.
So, don't worry about spreads. Be more concerned with Timing, Direction, Magnitude and the Probability that your trade will strike a target that is far enough in excess of any spread that you will ever encounter in the Retail market. You can still scalp here, but you need to find an Intermediary that offers something at least resembling an ECN and Straight Through Processing or your orders. Typically, those guys are charging a commission per trade or sometimes per side, so pay attention when you do your homework.
Don't waste valuable braincells on spreads. Spend time finding a good Intermediary who will simply pass your order to Interbank or at least to a viable and strong liquidity pool with depth and breadth of liquidity. This takes homework.
Hope that helps.
Thank you for very thorough answer! Appreciate it.
