FX Vs. Stocks, Futures, Etc....

Discussion in 'Forex' started by T-Bone Trader, Jun 1, 2009.

  1. In your opinion is FX easier than the other financial products to trade? Why?
  2. Far harder. In the FX market, the little guy operates outside the flow of the money and has zero visibility to the flow until it's passed.
  3. I agree - to a certain extent

    But don't you think that with the extra leverage (used carefully of course) and the 24/5.5 trading ability, we're at a slight advantage compared to other forms of trading?

    Plus the fact the technicals are more accurate IMO
  4. Eric215


    Most people seem to think that it is more difficult, I happen to disagree. For me, FX is by far the most profitable market to trade. It is my belief that there are market inefficiencies which produce profitable opportunities almost every day. Plus, with the low maintenance margin requirements for spot FX it allows for a more efficient use of capital, which can lead to larger profits on less capital, or another words higher % returns. Everyone is different, but spot Fx is definitely my market of choice. I also trade gold futures and Ym, but my main income, or bread and butter, is from FX.
  5. FX is harder if you over-leverage (this is a risk that you add). It is one of the least risky markets since the 24/5 open hours allow you to manage stops much better without big gaps. Also unlike stocks, currencies can't go out of business over-night.

    Btw, everything I mentioned about currencies applies to the SP500 as well (in fact the JPY crosses are basically proxies to the SP500).

    The key here is keeping leverage low. Otherwise, fx offers the best and most stable trends (over the long term). Most of the risks that you can't eliminate in other markets don't even exist to begin with in fx.
  6. nsideus


    I found FX harder to trade than other instruments. People like to mention leverage, but that's a two-sided blade. If brokers make that much leverage available to you, it's likely you'll use it all on a trade gone wrong unless you are among the most disciplined of traders.

    I started in stocks but moved to Forex because I thought the leverage would help me and I liked the markets being open all the time. But after 2 years of trying to make it work, I dropped out and now only trade options on stocks/etfs/futures. Options give you "enough" leverage if used correctly and positions can be constructed to make you money in any situation. I like being able to trade any market (stocks, metals, the dollar, etc.) rather than FX which is all basically long or short the dollar. The only FX related market I trade is the straight dollar index now.

    As for the market being open all the time, it doesn't help that much. The market makes most of its moves at certain times during the day (europe and us open) and is pretty boring the rest of the day. If you like to keep open positions for longer than a day, any erratic movements during those quiet times can knock you out of your position.

    As for technical analysis being more accurate, I think that is true only for the larger patterns that you see on the daily/weekly charts. I use only technical analysis, and both in my discretionary trading and automated trading attempts in Forex, I didn't have much success. But there are those large patterns that seem to be very accurate (the ascending triangles that the euro rode up to 1.60, the h&s the gbp/usd showed before collapsing, etc.).

    I'm out of FX and think I've found my niche in options. Maybe FX is harder, or maybe options just better match my style and risk level.
  7. Good point Nsideus. Options are unique because you just have to "not be wrong" if you write them. I like FX and futures better because they tend to be more liquid.

  8. S&N,

    Very solid points - could you explain some of those risks that are in other markets but not in fx? Thx!

  9. Let's see if I can get this down (it's late here.) :D

    1) Default risk is ever present with single stocks and there really isn't a great way to manage it or predict it. If a stock starts droping due to a problem with a company you will probably be facing a huge gap at the open that will blast plast past your stop. Look at SDA in Sept 08: http://stockcharts.com/h-sc/ui?s=SDA&p=D&b=2&g=0&id=p32783478784

    This drop was caused by news that the company has bet against the USD and lost a year's revenue. If you had large exposure to this stock you might have been in trouble and no stop loss would have saved you from losing a huge chunk. This is why many traders use options to reduce their exposure, however, this carries time risk (perhaps the worst of all risks!)

    2) Liquidity Risk. In the stock market there are times when you simply cannot find any buyers to unload your shares on. This risk is more pronounced in other even less liquid asset classes. In the art market there are only very few major auctions. It could take months to consign a work and in that time the price would already have dropped 20% or more. Real estate has similar risks.

    This is where Fx shines. You will rarely encounter a time when you cannot buy and sell millions of units of currency. The liquidity is huge!

    Liquidity risk if a big deal, since if you can't sell your asset it basically has no value.

    3) Manipulation Risk. This is related to liquidity risk, since a market that is less liquid is more easily manipulated and choppier. This is why fx is considered to be the most trending market over time. It takes a lot of money to move it. Even 300 million does not have a lasting effect.

    4) Leverage Risk. With stocks the leverage (volatility) is already baked into the asset class (you get plenty of volatility without using any leverage at all). This is why most traders last longer with stocks. You can hold them forever regardless if they go from .50c to 20 bucks... you will never owe your broker any margin.

    This is where you can really shoot yourself in the foot with fx and SP500 futures. The leverage offered by most brokers is insane and should never be used. In fact, I'm not even sure that leverage really increases returns much since compounding is really the way to riches anyway

    Hope this helps :)
  10. nsideus


    Options prevent losses resulting from the price gapping past your stop point. Your risk is built into the trade up front, you don't have to rely on another order being filled to manage risk on the backside. The fixed risk also prevents catastrophic losses from single stocks going to 0.
    #10     Jun 2, 2009