I am very new to forex trading but I have been reading about the topic for a while. I decided to download a 90 day trial of MIG Trading Station. This is the first interactive software I have been exposed to since reading. When I try to go long/short in the software, my profit will automatically be negative before a price change has even occured. Does anyone know why this might be? It's not commissions because that is marked as 0. It is just the profits column which goes negative.
I did find out that is in fact the spread. Thank you for that. It seems that forex trading has a huge disadvantage when compared to the stock market. If one were to decide to day trade in the stock market, there are commissions but very small. In forex trading however, it seems that day trading is not as good since each time you make a trade, you lose a big portion. This is due to the spread as I was mentioning before. Therefore... Why would somebody daytrade in the forex market and losing a lot of money due to the spread when they could just daytrade in the stock market without having to pay that extra money? I'm thinking I have missed something because it doesn't make sense to me. Here is an example so you can tell me if this is right or not. If spread for a currency is currently 7 pips and you want to go long for a size of 0.5 then after buying, you would start off as $-35. Therefore you would need the market to move upwards 7 points just to break even! This seems like a lot since after looking at some history data of GBPCHF, a typical 15-min bar will only be on average about 10 pips from open to close. So how can a daytrader who trades within minutes (like 5 or 10) profit when he has to at least wait for the pips to change enough to profit?
The stock market also has a spread, as well as commissions. If you look at a stock price there is an ask price, which is the price the lowest seller wants for their stock, and there is a bid price, which is the price the highest buying is willing to pay for the stock. Exactly the same as what you see in your forex quotes. The reason the spread you're paying is so high is because you trading a combination of currencies that isn't directly traded between banks. To trade GBP and CHF, a transaction is made with GBP/USD and with USD/CHF - so you are effectively paying the spread for two transactions. If you want a lower spread, trade a pair with a lower spread, such as EUR/USD or USD/JPY. Otherwise, just bear in mind that the crosses like GBP/CHF may have a larger spread, but the price movements they go through are relatively as large. Thus you can aim for larger profits that make up for the larger spread cost. Although you'll also need a larger stop loss, so you should trade with smaller amounts. If you can't trade with smaller amounts, then get a different broker, or get more money.