Sunday, January 30, 2011

Forex Trading Systems

Despite the apparent simplicity of the forex market: buy a currency at one value and sell it at a higher value to make money, or conversely, sell a currency at a value and buy it back at a lower value, there are literally hundreds of extremely complex “systems,” for sale. These forex trading systems suggest it is possible to predict the direction the market will take. These systems are inherently very complex because they are attempting to predict a very complex pattern.

Many of these systems are not available without an outlay of money, either wth a deposit at a broker or buying the system outright. Which in itself raises a question: are they worth the money? Unfortunately there is only one way to find out for sure - Buy one and see.

In any event, if it doesn’t work, the cost of the system will likely pale in comparison to the trading losses and if it does work you will hardly notice the expenditure, so there is actually a good argument for trying several systems and seeing if any of them do work.

Once the decision is made to begin trading in foreign currencies, this implies a willingness to risk a substantial amount of capital and a few hundred dollars spent on someone’s system is neither here nor there.It is not worth investing in the forex market as a day trader using a “mini account,” because a few hundred dollars at a high leverage can be wiped out in moments and any broker who suggests an investment of this size should be avoided like the plague.

The minimum lot is 100,000 units. A $1,000 deposit gives you the opportunity to buy one lot with US dollars as the quote currency, assuming a leverage of 100:1 – with no margin for error, which means a reputable broker should not accept a deposit of less than $2,000 - $1,000 for the trade and $1,000 to cover your position and the spread (broker's commission) – a 1% move against your position and the broker will shut you down.

Some things to bear in mind when considering buying a forex system or choosing a broker’s forex trading system.

* Who is selling the system and are they in any way able to be contacted?
* Who is saying the system works - Is it an acquaintance of yours whom you know to be successful as a currency trader or a random blogger on the internet?
* It is in a broker’s interest to have you make as many large trades as possible – the bigger the trade and the more often you make trades, the more money the broker will make and most forex trading systems will fail - They work on a commission only basis. It makes absolutely no difference to the broker whether you are profitable or not – they will get paid.
* Trading with a demo or practice account is different from trading with actual funds. Some of the demo accounts work using historical information rather than genuine, “real time,” information, and we all have 20/20 hindsight. Also, whether we care to admit it or not, we behave differently when real money is on the line. It’s human nature – if it makes no difference if you lose the money, (i.e it’s fake money in a demo account) the emotional attachment will not be there and you will make different decisions.

1 comment:

  1. eToro is the most recommended forex broker for newbie and established traders.