why trade forex?

Discussion in 'Forex Trading' started by chiefraven, Feb 15, 2008.

  1. I really like forex, especially because i can trade whenever.... but since the spread is pretty wide.. even if it's just 2-3 pips... that's still a lot of money.... say maybe 50 bucks round trip. entry and exit included.... now.... it seems like forex is not good for short term trade because of this fact.... and because other than the time when there's news out, forex doesn't really move all that fast.... maybe 10-20 pips would be a modest move... now if you are already down 6 pips becasue of the cost.... then say 20-6... that's only a 14 pips profit... now the risk and reward doesn't seem that great to me.

    can someone explain why they are trading forex?
  2. good post & question.
  3. for example,

    if the spread is 3 pips for gbpchf(i'm not sure if this is true, but pretend it is)

    that would be a 3*9 = 27.... 27+27 = 54 bucks
    for a round trip

    say you lose 10 pips due to stops being hit: that would be 90 bucks loss

    54+90 = 144

    now say we have 2 losing trades like this... that's 288 bucks

    now say we catch a 40 pips move... i'm sure you guyus would agree it's pretty decent for a short term daytrade.... but if yo udo the math...

    40pip * 9 = 360

    360 - 54 which is the cost of this trade = 306

    306 -288 = $18

    that's only a 162 dollars gain after 2 small stops being hit.

    and that's considering we only lose 10 pips on the trade.... and what if we didn't catch a 40pips move?

    getting in and out of trades would only hurt your chances of a successful day it seems, since cost of each trade is so high in comparison.

    as you can see. eventhough we lost 20 pips, and made 40 pips... we are only up 18 dollars.

    i would love to trade forex, but it seems the risk and reward ratios are not that great..

    of course there will be days when you can make a ton.. but i'm talking about a general day where the price go up and down and up and down in small chunks.
  4. agree, doesn't seem to make sense due high cost of doing biz. CME fx might be a good alternative, is that preferred method?
  5. I'm not sure I understand how you apply the round trip fee. Are you just adding in the spread twice? I'm confused.
  6. sim03


    Your math is wrong, both above and in your next post. You are incorrectly double-counting the spread when estimating transaction costs.
  7. Also most majors are down to 1 - 2 pips on average. You were quoting a cross-rate which usually has slightly higher pips. Every product out there has slippage and a spread.
  8. If you want to trade Forex go for strategies that aim to catch at least 100 pips.

    This trades may take several days and you'll need stops of at least 50 pips, thus reducing leverage.

    Those who aim of catching 10-20 pips with high leverage, get whipsawed, losing their money.
    Besides brokers may easily change you quotes to get trough your 20 pips stop loss.
  9. i dont know if i would want to hold forex overnight due to all the news and how crazy forex react to them..

    what timeframe do you guys usually use if yo udaytrade?

    i was looking at 2min,3min, but since that may be too small of a move, maybe 10min, 15min?
  10. For bigger pip gains try creating 4 hour charts. Quite a few people seem to like 1 hour but I find 15mins complements 4 hours for fine tuning quite well.
    #10     Feb 15, 2008