Why Forex ?

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damdam

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Hi guys,

Quite a stupid question but ;-)

I trade stocks/futures and I never traded Forex.I trade mechanical (SVM and few indicators with Matlab).

Can you kindly explain me why Forex is so popular ? for what I see, the large majority of traders loose ever more than with options ? What do I miss ?

I did some backtest and with few optimizations my strategies would work as well with Forex but I have not jumped yet LOL ;-), with Matlab I could set up a automatic trading system that trades 24/7.

Thanks
 
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The two major reasons why forex is so attractive are 1) Legitimate 24-hour trading, and 2) Low capital requirements. There are brokers that will let you trade a single unit (1 pound, dollar, euro, etc.) if you wish.
 
highly liquid market
somewhere in the region of 3trillion a day traded across global markets; London biggest share of trading volumes per day
 
damdam said:
Hi guys,

Quite a stupid question but ;-)

I trade stocks/futures and I never traded Forex.I trade mechanical (SVM and few indicators with Matlab).

Can you kindly explain me why Forex is so popular ? for what I see, the large majority of traders loose ever more than with options ? What do I miss ?

I did some backtest and with few optimizations my strategies would work as well with Forex but I have not jumped yet LOL ;-), with Matlab I could set up a automatic trading system that trades 24/7.

Thanks
Click to expand...


Four words:

Timing
Direction
Magnitude
Probability

There are only a handful of other markets that you can trade, where determining these four (4) giants are easier. Without them, one cannot run this business successfully over extended periods of time.
 
Yes but lot of markets are liquid enough and Forex is the absolute Zero game, unlike stocks, no value is created, that does not help the odds.
 
damdam said:
Yes but lot of markets are liquid enough and Forex is the absolute Zero game, unlike stocks, no value is created, that does not help the odds.
Click to expand...


No value is created in the currency market? I'd re-think that proposition.

Where is the value proposition in a stock and why does that increase the odds of being a better Trader or Money Manager?

Lastly, the currency markets, for the most part, is not a zero-sum game. Other wise known as Constant Sum, it means that consumption on one side, reduces availability on the other. This is not nearly the case with currencies. However, with stocks, you can literally become the market in a particular publicly traded company, if you have the cash to purchase all [remaining] shares outstanding - of course, you will have to make some kind of cash tender offer on the remaining strong-holds.

Contrarily, who can "purchase all currency units outstanding" in the majors? Thus, the currency market cannot be a Constant Sum or Zero Sum proposition as a purely practical matter. The fallacy that I often see when using the Zero Sum label for the currency markets, is when the definition is not extended to included all units available for transfer and only focuses on those units transacted by two parties exclusively.
 
TraderNumber7 said:
No value is created in the currency market? I'd re-think that proposition.

yeh, no value added, it is a zero-sum game : if you buy&Hold every pairs you are still at zero ten years later, every gains are other players losses.Buy&Hold works on stocks not on currency pairs, there is a slight upward slope for stocks and for most markets(few %).

That is not good for odds in Forex.Even if you bet randomly you are more likely to get a positive return on Stocks than on Forex.In Forex you have to have an Hedge to get a return, this is why forex is not an investment.
Click to expand...
 
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damdam said:
TraderNumber7 said:
No value is created in the currency market? I'd re-think that proposition.

yeh, no value added, buy&Hold works on stocks not on currency pairs, there is a slight upward slope for stocks and for most markets(few %).That is not good for odds in Forex
Click to expand...

Well, ok, but that's not the definition of Constant Sum.

I get the argument. If you had bought something in 1940 and 'held' until 2010, you'd be up in many cases. Ok, I get that. But, if you had bought say, GBPUSD on 9/1/1988 at 6605, and sold on 11/1/2007 (some 19 years later), you would also be 'up' some 4,538 pips. Enter that position with $96,300.00 (USD) at 100:1 and you walk away with $4,370,094.00.

Can you hunt down the stock for me that net out 4,538% ROI in the same 19 year period? Or, the stock that net out 238.84% annual (static) ROI for the same period?

If someone could have made that trade, it might be a little bit difficult to convince them that "no value" was "added." :cool:

That's about a $230k annual salary equivalent and in this economy, I can think of a ton of people who would take that annual paycheck each year. :) Pretty good odds for Forex, I would imagine.
Click to expand...
 
damdam said:
Yes but lot of markets are liquid enough and Forex is the absolute Zero game, unlike stocks, no value is created, that does not help the odds.
Click to expand...

think you're missing the point

FX is purely speculative

it's not investing

it's all OTC execution only
 
Taken as a whole, the currency market is NOT zero sum for the simple reason that people can hold currency without having a liability exposure. I have dollars in my back account. There is no one on the other side with whom I need to eventually convert those dollars to something else just as in holding stocks or owning a house or having ten ounces of gold. And of course the banks, central banks and governments are constantly making and/or destroying money all the time, so it's not a constant sum game either.

TRADING forex is another story all together. When you trade you are entering an agreement to do a future exchange, which creates requirements on both sides (just like the futures market). Of course you never actually do the exchange since the contract is rolled forward daily.
 
Rhody Trader said:
Taken as a whole, the currency market is NOT zero sum for the simple reason that people can hold currency without having a liability exposure. I have dollars in my back account. There is no one on the other side with whom I need to eventually convert those dollars to something else just as in holding stocks or owning a house or having ten ounces of gold. And of course the banks, central banks and governments are constantly making and/or destroying money all the time, so it's not a constant sum game either.

TRADING forex is another story all together. When you trade you are entering an agreement to do a future exchange, which creates requirements on both sides (just like the futures market). Of course you never actually do the exchange since the contract is rolled forward daily.
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Excellent points and that's why we either Pay the Roll or Make the Roll. depending on our position (Long or Short) for any particular pair. But, I like your Non-Zero-Sum explanation a little better than my own.
 
The original poster was asking about the advantages of forex and the conversation drifted to the topic of the "zero sum game." Why is the zero sum game a disadvantage? Either way you look at it, the two currencies in each trade you make are assets with different perceived values, otherwise you wouldn't be trading them. All assets have risk, so even if you're trading stocks which aren't considered zero-sum, the company that you're investing in doesn't necessarily have an inclination to go up over time. This preconceived notion, or "cognitive bias," is one of the things taught in behavioral finance to make money with contrarian trades.

Anyway, back to the topic- the initial posters made a good point. Forex offers leverage, bidirectional trading, etc.- As far as making money, find a model of how the market works (whether it's technical or fundamental) and test it out. There are plenty of good strategies in these forums, but you will find that, because they are mostly technical analysis based, the types of opportunities do not differ vastly from those available in the stock market. Choose what fits you.

Kris Matthews
 
damdam said:
Hi guys,

Quite a stupid question but ;-)

I trade stocks/futures and I never traded Forex.I trade mechanical (SVM and few indicators with Matlab).

Can you kindly explain me why Forex is so popular ? for what I see, the large majority of traders loose ever more than with options ? What do I miss ?

I did some backtest and with few optimizations my strategies would work as well with Forex but I have not jumped yet LOL ;-), with Matlab I could set up a automatic trading system that trades 24/7.

Thanks
Click to expand...

because idiots think its easier to trade when its not and people can leverage up to the hilt and blow there account to smithereens
 
N Rothschild said:
because idiots think its easier to trade when its not and people can leverage up to the hilt and blow there account to smithereens
Click to expand...

So you are implying that one could not overleverage their equity or futures account and blow it up? Just as easy in my opinion.

Just because there are profitable forex traders does not make us idiots, it makes us ahead of the other 90% who trade whatever markets they choose.

Peter
 
wackypete2 said:
So you are implying that one could not overleverage their equity or futures account and blow it up? Just as easy in my opinion.

Just because there are profitable forex traders does not make us idiots, it makes us ahead of the other 90% who trade whatever markets they choose.

Peter
Click to expand...

your last paragraph doesn't even make sense.

and of course you can over leverage in futures but not like in forex..you can get 500:1 leverage in FX, futures is like 10:1
 
You're right. After reading it again it makes little sense, but hey it's late, the weather here has been disastrous, and I'm cranky, so I'm entitled a little rambling. :)

Peter
 
N Rothschild said:
and of course you can over leverage in futures but not like in forex..you can get 500:1 leverage in FX, futures is like 10:1
Click to expand...

Futures leverage can approach 50:1, for example, if you're day trading the indices. Even overnight margins are still more in the 20:1-30:1 area. In the US brokers aren't allowed to go more than 100:1, and one of the biggest forex brokers in the world caps leverage at 50:1 for everyone.

Of course all that matters is employed leverage, not permissible. Most of the reasonable forex traders I've heard from don't go much more than 10:1.
 
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