Currencies and indices

[tatenda dzoro]

I'm a relatively new currency trader but I've heard talk about how currencies are slower than indices. I've spent a few months in the market and sometimes i feel currencies drag. Would anybody knowledgeable on currencies and indices tell me their view of the whole comparison and also any good material to read before delving into indices, which indices to target (if trading indices is good at all.

 

[tomorton]

Its a big question, too much for a post or two back.

So can it be broken down? - what are you trying to do?

 

[tatenda dzoro]

Are synthetic indices worth taking, especially in this time where the world is under siege from corona virus and fx markets r a little more unpredictable
How different is the spread btwn the 2
The good and bad of indices
Do i need serious study if I'm to embark on indices trading or most of my knowledge from currency will serve me

 

[tomorton]

Well, OK, though every trader will have a slightly different view.

All indices have an upward bias. They all tend to rise over a long enough period of observation. This does not mean they rise all the time but when "normal" conditions apply, they can just keep tracking smoothly upwards for weeks, months or years. This gives bullish trend-following strategies a good advantage on indices but makes shorting more risky.

Currencies don't have any upwards or downwards bias. This means their trends can be short and prone to unexpected failure. But maybe this is good if you prefer a range-trading strategy or reversals.

In the UK we get not very good leverage from brokers but its better for major currency pairs - 1:30 for the majors, 1:20 for indices.

 

[tatenda dzoro]

Thanks bud, so I've been using a trend line trading strategy, with mixed success on the currencies front. I only got serious when a national lockdown was pronounced (I'm in Zimbabwe), and I reckon the virus may be behind my mild success.
Confirm synthetic indices are not affected by news and also, which ones are the best to trade and which ones should I be more careful around
Also any broker you would recommend?

 

[tomorton]

Indices are very much affected by news - news concerning the economy of the index's home country but also by news affecting the US economy, often regarded as the leader, so if US indices are turning downwards, expect other countries' indices to follow them down soon.

I only trade the Dow, not for any significant advantage, its just that I only need one index. The US indices move together and the other indices generally follow them. Dow spreads from brokers are narrow as it is so heavily traded. Some traders are more familiar with the S&P500 or the Nasdaq's close-up behaviour but I don't seek to put the index under a microscope in that way, any one of them would do for me.

The brokers I have used for years are spreadbetting firms that only operate in the UK.

 

[tatenda dzoro]

Well, i was gonna ask about Dax etc but you've pre-emptied that, thanks.
Main focus was/is on indices like volatility indices and high frequency volatility indices, could u please tackle my previous questions but this time with reference to volatility indices

 

[tomorton]

There's no way to generalise on volatility that will make any sense unless you have a strategy that needs either low volatility but not high, or high volatility but not low.

You can track volatility with ATR. I use ATR20. Right now the ATR20 (daily) for EUR/USD is about 0.00664 - about 66 pips. This represents about 0.6% of the value of EUR/USD.

ATR20 (D) for the Dow is about 597pts, which represents about 2.5% of the Dow's value.

So the Dow is recently more volatile. That's good for some strategies but bad for others.

 

[tatenda dzoro]

Thank you so much for educating me, I'll read around and hopefully reach a good decision on whether to enter the fray or refrain. Eyelids r heavy, good night mate