Getting Started in Currency Trading Winning in Today''''s Forex Market_5 ppt

Demo Account Yes NoMini Account Yes No Minimum Full Account Minimum Type ECN Market Maker No Dealing Desk IB... 8 Opening a FOREX Account Chapter In the fall of 1974 I accompanied a frie

is de rigueur Perhaps fortunately, the NFA anti-hedging rules are running offthe news traders to overseas brokers.

FOREX is the most laissez-faire of all markets, and that cuts both ways

No one wants to be cheated, but if you cannot take the knocks, do not play thegame The profit opportunities are enormous, and that attracts all kinds.Opportunists and strongly driven business people are in plentiful supply in theFOREX market

ATCbrokers

www.atcbrokers

An ECN, ATC uses the MetaTrader platform but offers other platforms,

as well They have had some difficulties getting their ECN feed to work withMetaTrader but as of this writing seem to have it down to a science

ATC originally used the feed from HotspotFX but when HotspotFXclosed their retail business, they went to FXCM They continue to add addi-tional liquidity providers for their high-end accounts

Service is superb; ATC is willing to work with serious traders to an extentmost others are not Costs are average for an ECN Expect spreads to get eventighter as they add liquidity providers

Oanda

www.oanda.com

Oanda started with quite a poor reputation in the late 1990s but it now isconsidered one of the best retail houses They are extremely well capitalized Thereare lots of educational tools on the web site for beginners Customer service is

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FIGURE 7.5 ATC Brokers

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adequate; you are a number to Oanda Telephone support is iffy, but e-mail isoften quick and efficient The platform, Java-based, is extremely clean and easy-to-use, a real boon for a beginner The technical tool set is good if somewhat lim-ited in comparison to others such as NinjaTrader and MetaTrader Box options are

a unique feature Their API for developers is excellent but pricey with respect tocurrent industry standards where an account will get it to you no charge

Oanda claims to have no dealing desk (NDD), which would make it anECN, if that is the case But the author’s sample trades sure looked like a marketmaker The line of demarcation between market maker and ECN is beginning toblur as brokers attempt to distance themselves from the market-maker moniker.The author uses Oanda to trade micro-lots when he wishes to test a newtrading idea

MB Trading

www.mbtrading.com

This company was originally EFgroup—which was an IB for MB Trading

MB re-acquired EFgroup in 2008 They are an ECN

They are currently phasing in MetaTrader as their FOREX platform after

a trying time with their in-house Navigator MB Trading offers mini (10,000)lot trading, although the author did not understand the mechanism by which a10k lot could be fed into or drawn out of an ECN feed Commissions are lowbut rollover costs are high

MB also offers the NinjaTrader platform and a free and good API fordevelopers (With the power of the programming languages of NinjaTrader’sNinjaScript and MetaTrader’s MQL5 most traders can develop what they needwithout an API.)

The reviews indicate different customer service experiences from awful” to “they’re the greatest.” Mine was in-between The staff is apparently quiteyoung for the most part

“gosh-FXDD

www.fxdd.com

FXDD is a market maker They offer a micro MetaTrader platform for a $400ante, which may be attractive for openers if the MetaTrader platform appeals to you.FXDD has an extensive web site with a plethora of learning and reference materials

TradeStation

www.tradestation.com

If the TradeStation software, tool set, and programming script is to yourliking, you can trade FOREX with it also They clear their trades through Gain

A G u i d e t o F O R E X B r o k e r s

Capital at the present time A number of dealers are said to be integratingTradeStation at some level, including Oanda in association with SnapDragon,www.snapdragon.co.uk, although the author has not seen any as yet in opera-tion Reviews and customer service are mixed MetaTrader and NinjaTraderhave somewhat eclipsed TradeStation’s attraction as a means of developing trad-ing tools and systems and back-testing but their EasyLanguage holds its ownand is certainly the easiest to learn

Deutsches Bank

Now you can trade with the huge Deutsches Bank (DB, www.dbfx.com), amajor player in the Interbank market DB does more than 20 percent of theworldwide FX business Initial reviews have not been encouraging but mayrelate to rollout pains as retail FOREX is new to them—worth watching Theaccount minimum has just been lowered to $5,000 as of this writing

DBFX partners with FXCM for technology but the author was assuredthey use their own liquidity providers and data feed DBFX currently claims to

be an ECN

Customer service is friendly, responsive, and better than industry average.You can expect to see other banks take advantage of leveraging theirFOREX trading to attract retail clients

The Big Three

These three companies seem to account for perhaps 50 percent of the retailFOREX business When you are big, you get noticed These folks are eitherloved or hated They all appear to have strong financial positions All three areprimarily market makers to smaller accounts but at varying levels, migrating toECN, and/or liquidity provider, and or NDD, and/or straight-through processing,

for larger accounts and institutional business

Gain Capital

www.gaincapital.com

Gain Capital is essentially a market maker to small accounts, an ECN tolarger and institutional accounts Their in-house platform is stable but seems quiteout-of-date now They do offer third-party integration with other vendors such asthe excellent NinjaTrader, TradeStation, eSignal, and MetaTrader Gain hasrecently raised their account minimum to $25,000 You can still trade with them

on www.FOREX.com, a wholly owned subsidiary for smaller cap traders.FOREX.com shares data feed and most platform features with Gain; as do all the

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FOREX Capital Markets (FXCM)

www.fxcm.com

FOREX Capital Markets is the classic love/hate broker-dealer Everyonegoes after the 800-pound gorilla on the street in any business You will see theFXCM trading platform on many other dealers—typically IBs or partners ofFXCM

For the Professional

When you are ready to enter the big time in FOREX, these broker-dealers arethe Gold Standard of the industry

Dukascopy

www.dukascopy.com

Dukascopy offers a unique centralized-decentralized clearing system but isessentially a large ECN An interesting article on this new approach is onwww.e-FOREX.net in the January 2007 edition It has enormous potential torevolutionize retail FOREX They provide a wide variety of FOREX servicesand products under one roof Their web site was recently redesigned, vastlyimproving navigation, which had been an issue They offer both a Java and web-based platform The recommended browser for the web-based platform isFirefox The author did, indeed, have issues with both platforms on InternetExplorer

If you like their clearing services and trading platform, a great deal ofcustomization is possible with two API packages

Not for small traders, the minimum account is $50,000 E-mail inquiriesregarding sales were answered quickly on one occasion, not at all on another

A G u i d e t o F O R E X B r o k e r s

Customer service per se was much better It is a Swiss company but with ble eastern European interests according to some blogs

possi-Spreads are excellent; costs are attractive to large traders

English is a second language for most of the customer service and supportstaff Communication can be difficult although they seem to try hard to pleaseand accommodate Sticklers for detail, as would befit a Swiss company

prom-Fraud, Scams, and Off-Exchange

Even though there is no exchange (central clearinghouse) for currency trading,broker-dealers who operate from telephone boiler rooms are still referred to asoff-exchange Beware of these practitioners and avoid them like the plague.Most of them have no web site or a few shoddy pages built in straight HTMLand operate primarily via telephone solicitations They typically sell FOREXoptions (See Chapter 19, “Options and Exotics,” for information on legitimateFOREX options trading.) They are almost never registered with the CFTC,NFA, or any recognized regulatory body If in doubt you can always Googletheir name for more information

You can spread-bet on FOREX through legitimate, licensed bookmakers

I offer some web site links in Chapter 13, “The FOREX Marketplace.” The newonline gambling laws may affect the ability of U.S citizens to participate inspread-betting

Broker-Dealer Due Diligence Form

You may wish to use the Broker-Dealer Due Diligence Form in yourresearch (See Table 7.2.) Feel free to customize it to fit your specific needs andwants, for example, adding specific platform features, indicators, currencies, ororders you require A copy of this spreadsheet in customized xls format andsuitable for printing may be downloaded from the Getting Started section ofwww.goodmanworks.com

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Demo Account Yes No

Mini Account Yes No

Minimum

Full Account

Minimum

Type ECN Market Maker No Dealing Desk IB

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Summary

It is critical the prospective trader, especially the beginner, perform due diligence

on a broker-dealer thoroughly before depositing money and making a trade.Begin your due diligence with a study of the reviews, and then select severaldemo accounts to download The best reviews are www.forexpeacearmy.com andwww.goforex.net Keep in mind four things when reading reviews: (1) Unhappycampers tend to be more vocal than happy campers This is especially meaning-ful for the Big Three The sheer volume of trade will result in a large number ofcomplaints (2) A large sample (25 reviews) is probably more reliable than a smallsample (5 reviews) (3) Note the dates on the reviews If you see complaints aboutthe same problem over several months, that is probably not good If a specificcomplaint is mentioned two or three times, then it disappears, that is probablygood (4) To make the sample more meaningful throw out both the best reviewand the worst review The former is probably a shill; the latter, sour grapes.The recommended process for getting started is:

Due Diligence →Demo Account →Micro-Account →

Mini-Account →Full AccountHow long the entire process takes is up to you Do not be rushed It isyour money so get it as right as you can the first time Six months from due dili-gence to full account is not unreasonable in the author’s opinion

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Do not leave questions unanswered and hope for the best On the otherhand, do not e-mail a flurry of questions the answers to which are found on theweb site or by spending an evening with their demo account and documenta-tion If your experience is similar to mine, they will not be answered anyway.Trading is about finding good trades, executing them properly, and fol-lowing them to—hopefully—a tidy profit Once you begin trading you willwant to devote 100 percent of your effort to those activities, not readjustingyour processes because you found out something about your broker-dealer youshould have known at the outset No broker is perfect; do not expect to findone If you do—call me!

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Opening a FOREX Account

Chapter

In the fall of 1974 I accompanied a friend to the local Denver office of E.F

Hutton to open a new commodity futures account The broker handed myfriend the account form—an 81⁄2⫻ 51⁄2card On the front side one was toenter Name, Address, Telephone, Social Security Number, Employer, Position,and Estimated Net Worth On the reverse, a two-paragraph disclosure requir-ing a signature and the date After filling out the form my friend handed itback to the broker, opened his briefcase and counted out $30,000 in one hun-dred dollar bills The broker calmly re-counted the money and handed it to thecashier along with the account card The cashier issued my friend a receipt and

an account number, wished him good trading, and we were done

Times have changed Opening an online retail FOREX account is easybusiness—barring a glitch in the software—but the information required ismuch more extensive than it was in the halcyon days of 1974

Do not open a live account until you have completed a thorough due

diligence of the broker-dealer and worked several hours with their demo ing platform Sadly, you will need to follow this entire process even if you areopening a $100 micro-account Fortunately, you will not need to redo theprocess if you decide to open your full trading account with the broker-dealer

trad-in question

Should you desire to have your account managed by a third party, such

as a professional money manager, that also requires additional forms Thedue diligence required to select capable money managers is a book in and ofitself, beyond the charter of this tome, which assumes you want to make yourown trading decisions Professional accounts may be managed by individualmanagers or placed in a FOREX trading fund Many hedge funds now tradecurrencies, either with other investment vehicles or FOREX-only Pleasesee Chapter 13, “The FOREX Marketplace,” for FOREX managementresources

Be sure you are opening a FOREX spot account and not a FOREXforwards or futures account—unless one of the latter is your choice Almostall FOREX dealing is in the spot market, both at the institutional andretail level

The forms for each dealer do vary in number and in specific content—ifonly slightly It goes without saying: Read carefully any document before signing

If you have questions, ask the broker for clarification If in doubt, ask yourattorney or your accountant Like all legal forms today, they are wordy and com-plex FOREX can be a dangerous game, and the broker wants to protect yourinterest and, especially, theirs As the regulatory environment firms, you canexpect forms to get wordier and longer to incorporate the requirements of newlaws, rules, regulations—and to cover the broker’s back

Opening the Account: Steps

Attorneys are not cheap, but they are plentiful You can be assured your dealer’s account forms generated substantial fees or hours for their legal team.Account forms are online and can be printed out in hard copy The brokermay request two sets, one of which is returned to you, or should be If they onlyrequest a single set of account documents, verify that you will receive a copy.Print an extra clean copy for your records in case the online forms change or aremodified

broker-O p e n i n g a F broker-O R E X A c c o u n t

Forms are usually in Adobe Acrobat PDF format If so, the broker-dealer’sOpen an Account page will have the link to the PDF reader if it is not alreadyinstalled on your computer

TIP: Grab a screenshot of each page you view on your broker’s web site forthe account registration process Do this by holding down the ALT⫹PrintScreen keys You can then copy it to a Word document with CTRL⫹V

You will generally encounter four steps to opening an account, althoughthey may go by different names or phrases:

1 Select an Account Type: As stated, you must first select the account type.

Because most forms are online, the selection of an account type tells theautomated registration module what to dish up next

2 Personal Information: This is the bread-and-butter name, address,

tele-phone, fax, e-mail, employer, position, Social Security number Formsbeyond Individual and Joint will require more kinds of personal andaccount information

3 Financial Information: This step is getting more and more involved.

The broker wants to make sure you are qualified to trade currencies—even if it is a $100 mini-account I am even seeing broker-dealersrequiring what could be called mini-financial statements from prospec-tive customers If you want to play the game, there is no way out, atleast legally A tax form is usually included in this step, also

4 Review: You will be asked to review the documents carefully before

sub-mitting Again—ask the broker any questions you might still have orquery your attorney, accountant, and/or financial planner

Review your documents twice If the broker finds something wrong atStep 5 you will have wasted a great deal of time Some brokers accept applica-tions quite quickly, in one or two days Others, sticklers for details, can take up

to a week or longer

Two threads run through these documents The desire of the broker toprotect both parties and the NFA’s Know-Thy-Customer Rules, which are get-ting stricter

TIP: Start a folder and keep copies of everything! I like to keep a time log

of all communications with the broker including correspondence, telephoneconversations, and e-mail Brokers hold the upper hand, so if there is a disputeyou need all the ammunition you can muster

I have not seen electronic signatures appear in the industry Given theNFA’s Know Thy Customer emphasis of late, I doubt they will appear at all.You will be asked to snail mail, fax, or scan and e-mail the forms with appro-priate information and signatures to the broker You will need to include a scan of

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your driver’s license or other picture ID I do not like this either, but it is the waythings work with electronic registration; there is a downside to everything

• Acceptance: Once your documents are accepted, you will be notified

that your account is ready to fund and trade Typically acceptance takesonly one or two days unless there is a problem

• Funding: Now you are ready to fund your account and begin

trad-ing Funding is either by cashier’s check or bank wire Personalchecks may be accepted by some brokers, but they take a long time

to clear, and they add a step to the process Better to take the 30minutes for a trip to your bank for a cashier’s check or a wiretransfer (See Figure 8.1.)

Some brokers have been accepting PayPal and eGold Yes, they deduct thefee from your opening balance Again, the KTC rule is probably going to sendthese methods to the sidelines

Before actually trading, spend one last hour with the demo account Keep

at the ready a small notebook or document with the following information atyour side; it may either be handwritten or copied from the broker web site: