Do I want to trade Forex?

I am a complete noob to Forex but not to trading stocks. I've flipped through a couple books on Forex at the store but they all sucked. They were all about chart patterns and whatever and not actually about how Forex works.

I want some info about how Forex works. Is the trading just like with stocks? Is there really no commission? How do taxes on Forex work when tax time comes? What exactly is a "pip?" I hear Forex brokerages give you 100:1 leverage... how do people not completely screw themselves after 5 minutes with such huge leverage?

I've heard that the Forex market is open 24 hours a day, which sounds cool, because basically I would like to be able to come home from work and trade a bit in the evening and maybe make $20-30 a day or something just to start out, which I think will be nice with no commissions.

But, nearly everything I've heard about Forex falls under one of these categories:

- It's impossible to make money in Forex
- All Forex brokers are scams
- Forex brokers take positions against you.
- Forex brokers screw you in some other way (spread, whatever)

And nearly all the Forex sites I've looked at look way too shady for me to actually want to open an account with them.

So does anyone have any recommendations for where I can learn about how Forex works? Or open a practice account where I can trade in real time WITHOUT actually depositing money?

edit - oh, and are chart patterns and TA the same in Forex as they are with stocks? ie. if you can trade stocks, can you trade Forex?

And anything else a Forex noob needs to know.

Thanks.

 

One of the four items below does not fit. I know, kinda like an SAT question. Which one is it? Hint: I trade a regulated forex product and make money at it. (By the way, 2006 volumes in CME currency futures are way up over 2005, euro by itself by 65 percent, and euro and others on GLOBEX by 45 percent.)

The other three items are exactly true as stated.

 

Stock index futures are superior in every way for a trader compared to forex.

 

A pip is the smallest unit of movement. A pip in forex is like a penny in stocks.

There's no commission because you buy at the ask and sell at the bid. Sometimes in stocks you do that anyways and pay a commission on top. The broker will always make the bid/ask spread off you.

Open a play money account with Oanda. After you're happy with it, use them for your real money account. They pay continueous interest and have the smallest spread on EURUSD

Leverage is high because the underlying currency moves are small. A stock can have a wild 20% swing in one day if there's a news event on that company. In FX, a 2% move is a huge one day move. You need higher leverage to make it worthwhile trading it. 100:1 is nuts. 10:1 is risky. 5:1 is where most professionals are.

The most active time to trade is London to New York. So that's 3am-9am EST

 

The above reply mentions Oanda. Oanda is one of the forex retailers – “brokers” as you (the thread starter) say in your post, although Oanda is not a “broker,” nor are any of the other fx retailers – that sells unregulated forex trading. It is a seller of the trading, not of the currencies, because you don’t take (or make) delivery of the currency you “trade.” Indeed you cannot, else the transaction would fall within the legal definition of a future and hence be illegal (b/c it is not brokered on a licensed exchange by a firm licensed for that purpose).

Oanda gets a pass on this board because a small number of very credible ET members who contribute to the fx forums use it without complaint. But do not take them or Oanda as representative of retail fx. First, a newbie lacks the skills of the ET members I refer to. (Those skills may help explain why they avoided the dishonest retailers.) Second, if Oanda is as honest as portrayed (and I do not dispute that), it definitively is not representative of the fx retail industry overall. Oanda would be no more than the exception that proves the rule – a rule you yourself recognize: retail forex is a scam.

 

OANDA is also a scam with its 25 pip spreads. Unless you have a back-tested strategy which you're confident will work in a specific currency pair then there are NO benefits to trading currency as opposed to trading stock index futures - unless you don't have enough money to open a futures account.

 

These two posts sum up everything a newb has to know about retail forex, IMO.

Another way to put the point in the first para. above is "90% of retail forex traders do not understand that, for them, there is no market - they are not participating in a market. They are participating in a game of cards against the 'broker', a game in which the 'broker' can see their hand'.

I vote for sticky

 

25 pip spreads wtf?

More noob questions:

What are stock index futures and how do they differ from stocks? Is trading them basically the same as trading stocks with regard to chart patterns and TA? How do commissions and taxes on stock index futures work? what is the minimum $ to entry? Leverage? T+3 rules? PDT rules?

 

Yes, it's an excellent post. I have approx 300k with Oanda and ABN-AMRO's marketindex and haven't had any significant problems. I'll admit that 150k is as large an amount I feel comfortable with parking at Oanda.

Exotic option trading is the primary rationale behind my trading with Oanda/ABN. The ability to trade the touch/no touch and forward start markets on durations from 5 minutes to 180 days. I can buy and sell risk-reversals quickly and hedge with spot at 1-3 pips [you cannot trade itm verticals with barriers]. I use Oanda HF data with my dbase engine and to quickly derive hedge ratios and trade spot automatically against the options. I would've used these accounts as source of funds to trade at HotSpot and CME, barring the option-trading capability. The API is robust, and free provided you do more than 12mm units r/t per month.

Yes, I have seen 20-25 pips wide into major releases, but that's toned down considerably. I trade the vol-ramp many hours pre-report, so it's no issue for me, as I am in no way categorized as a news-trader.

Once I gain critical mass I will go interbank again. Until then I am more than satisfied with their reliability.

 

I agree that most retail forex is a scam, but how do you compare stock index futures to trading currency futures? Completely different game.