Go back and read the post again... slowly this time. See where he wrote : "Contracts not options. So one account would catch the move in the direction the other account - going to zero." So this thread is not about options straddles, ok? Absolutely not, only Forex traders high on cocaine ("Wolf of Wall Street" style) would do such a stupid thing! If the Euro is at 1.2500 and you expect a big move up or down, (let's say a 300 pip move one way or the other), then you could place a stop BUY order at 1.2575 and a stop SELL order at 1.2425, for example. The strong move would then trigger one of these 2 pending orders and hopefully reach your profit target sooner or later, if your analysis was correct. But you do not open 2 opposite positions at the same price on the same currency pair, that's total nonsense! In fact, Forex brokers love that kind of absurd positions, because they collect double spreads (and now consider you a total amateur...)
First of all, what JC evidently wrote in his book was a synthetic options straddle. Using FX as a fixed-loss instrument with no possibility of margin call in essence makes it akin to an options play. Secondly, google "option straddles" and educate yourself about the topic. Third, you are proposing an FX pairs "strangle" which can easily be (and often are) two off-setting positions when price action whipsaws both sides open and you have locked in -54 pips including the two spreads, which should be ignored but that's a later detail. Fourth, profitable FX trades pay no cost including pay no spreads when profit objectives are met. So in the case of a straddle, the -300 side absorbed the spread as it actually lost -298 pips and -2 pips spread but what difference does that make? Meanwhile, the profitable side went +302, 303, 312, 352, 402, 1002 pips PAST the breakeven mark + spread. So in that case, no bid/ask spread was "paid" by the trader because nobody ever exits to the exact pip high or low turn. First rule of FX trading: you "pay" nothing to trade... the spread is merely absorbed in stops that exit losing or winning trades. The idea of "pay" for a spread is merely semantics, it is nothing out of pocket.
Again, this thread is not about options! Why are you assuming that I am not already familiar with option straddles (and all there is to know about options)?? Oh I see, so now you are saying that the trader could lose on both positions (granted, it is also a possibility) but on the other hand you want us to believe that YOUR "winning" position will keep winning! Yeah, sure. Hahahahahaha You must be kidding, right? Win or lose, the trader ALWAYS pays the spread and the commissions! If the market moves in your favor and you close your position for a 10 pip profit for example, you are probably thinking that you are not paying any spread, while in fact your broker already collected your spread, right from the start! Because instead of receiving a 12 pip profit you receive only 10 pips, your broker pockets the difference (here a 2 pip spread). It's the same principle in a casino, the owner collects the vig even if you win.
#1: the concept of synthetics is apparently over your head right now. So enough about that straddle stuff. I don't do it or advocate it anyways, but the guys who understand already get it and everyone else simply does not. #2: I trade eight different pairs of FX, the spread varies from <2 to >3 in my choices. I use a 500-volume chart to filter and a 100-tick chart to trigger. I use a -$10 / -$100 initial stop (mini or full-size contract selection) based on $$ per pip value, spread means nothing to me. I seek 2x, 3x, 5x or greater the initial risk on each trade's profit exit. When price hits my targeted level, I crowd the trailed stop and soon exit. However much further in what was my favor price may go, matters not. I harvested my predetermined measure of profit (or more) and it cost me nothing out-of-pocket to do so. #3: who gives a shit? I hope the broker collects his/her measly 2-pip spread on every trade and it helps change their lives forever. What the hell do I care about that? I got everything out of the trade I wanted, and it cost me nothing out-of-pocket to turn the round.
If you say so. You still don't get it, do you? You always pay the spread, win or lose. Brokers collect the spread from the winners and from the losers. If the market moves 10 pips against you and you close the position, you lose 12 pips (10 + 2 pip spread). On the other hand, if the market moves 10 pips in your favor and you close the position you collect only 8 pips (10 - 2) , the broker keeps 2 pips in his pocket. In both cases your friendly broker collects 2 pips, win or lose, regardless of your stop, your exit point and/or your risk/reward ratio. There is no such thing as a "no out-of-pocket-money" trade, not even in the Twilight Zone, you always pay something the minute you initiate a new trade. Get it now?
When I go to McDonalds without a free coupon for big macs, the sandwich costs me $5 or so. That's what I pay in cash to eat a big mac. The exchange of my cash for that sandwich cost me something of material importance, i.e. cash. The definition of "payment" and "cost" When I go to McDonalds with a free coupon for big macs, the sandwich costs me nothing. The cash register person collects a paper coupon from me... but I paid nothing of material importance to me in exchange for procuring that sandwich. For all I care, my FX brokers can collect their pip-spreads multiple times daily for the rest of my career. Those spreads mean nothing to me, they cost me no dollars out-of-pocket NOR are they subtracted from the complete trade sequence. I realized every single pip of potential gain desired and lost nothing. FX trades cost me nothing of material importance, hence I "pay" nothing. Just like free big macs with paper coupons. Mmmmmm... free big macs!
Well, it sounds to me like you are doing it wrong. My initial stop on a EURUSD trade is -10 pips. When the stop is hit on a losing trade, I am out -10 pips. Generally speaking, the market went -15 or -20 or -50 the other direction far more often than just exactly -12 from my fill before it halts right there. My profit objectives might be +30 pips, +40 pips, +50 pips. When the market goes far enough in favor to stop me out on trailed orders followed behind, I collect +30 or +40 or +50 for the effort. That's how it works for me... been that way since I first traded FX back in 2003.
Wrong again! Instead of receiving 50 pips for a winning trade for instance, your broker gives you 48 pips only, and keeps 2 pips. So 2 pips were indeed SUBTRACTED from your winnings, whether you like it or not. It does not look that way because those 2 pips were subtracted from your account right from the beginning of the trade, when you initiated the new position. Scalpers who make 50 round-trip FX trades a day end up paying close to $250,000 a year on the spread alone (assuming they trade just 1 standard lot per trade!). Junk food is extremely bad for your health, you should know that by now.
Yes, but the market only need to move 8 pips against you to trigger your 10 pip stop. You on the other hand must win 12 pips to collect 10 pips. See the problem here? But make no mistake, 90% of traders lose money in the long run because of this seemingly harmless spread (and/or commissions), but that's another story....