Lower Risk Levels Forex versus Futures

[hyperscalper]

Hi,

I used to work a lot in futures and provided software for clients. But most of them were small traders.

If we take the Euro FX contract, this is a notional equivalent to $125k in EUR/USD Forex spot. This means that each tick/pip movement is $12.50 and 10 pip moves are very common in the Euro.

So this meant that my clients would take 1 contract (they couldn't take less) exposure and with a minor move of -10 pips they would Stop Out. This happened repeatedly until they would wash out.

So I realized they were really "over exposed" for their account strength, and finally decided to move to Forex where the EUR/USD exposure can be reduced to as much as 1/100th that of the Euro FX contract. $100k+ or smoothly down to as low as $1k or, of course, any aggregate exposure levels in between.

This made it possible for traders to choose the levels of exposure which were more appropriate to their account sizes, and to use multiple entries to develop an equivalent exposure of 1 Futures contract. This, in turn makes trading more "survivable" in the critical learning curve.

It's something which Futures traders should consider, moving to Forex where the exposures are more scalable and more appropriate to the smaller trader's account size and "risk profile".

Of course, Forex is Currency Pairs, so the market is not fully equivalent to Futures where lots of underlying commodities exist.

HyperScalper

 

[drtro]

If you are washing stops and repeatedly losing trades, you should change your strategy. Exposure isn't going to help you. It'll just let you lose your money slower.

 

[bootsyjam]

Let alone the fact that you cannot see any true volume or orders in the market like you can in futures. If anything, it shows that futures trading currencies requires deep pockets, or that you need to be a scalper.

 

[hyperscalper]

Fine grained exposure control in Forex

Let alone the fact that you cannot see any true volume or orders in the market like you can in futures. If anything, it shows that futures trading currencies requires deep pockets, or that you need to be a scalper.

Transactions or "trades" in a Time and Sales are not directly available in Forex, that's true. Actually I have a technique which does generate a Virtual Time and Sales, which is a "correlate" of a real Time and Sales.

As for Orders Volume, Forex Depth of Market definitely offers this information when you are using a real ECN or Exchange. Now, of course, the issue is how to use that information. Hint: only a computer can correctly interpret it and, as with any Depth of Market, traders only fool themselves when they think they can scan it "with the naked eye" and get useful trading information from it.

But the original point remains the "survivability factor" which is considerably better in Forex for the average trader, since position "exposure" can be controlled on a much more fine-grained basis, and positions can be incrementally built up at different prices.

Naturally, if you have a large or huge account, this doesn't matter; but for most ordinary traders, my point is that control of your "level of commitment" or "exposure" to the market is critical to survivability.

I guess I would say anybody doing FX Futures should instead be operating in Forex Spot. For other Futures underlying commodities, of course, Forex isn't relevant.

Good Trading !
HyperScalper

 

[bootsyjam]

Hi hyperscalper,
I'm not going down the well trodden route of spot fx volume data, I'll just say that unless your custom volume indicator has the feeds from major institutional banks who drive the fx markets with 100s of millions of orders then I'm not too sure what use it would be. After all, Oanda volume is not the same as as the collective volume from 5 institutional banks trading in spot fx for their numerous clients.

As for survivability, well yeah you'll lose less on Oanda because you can trade for 1p per point.
But if you're trading for a year or 2 and not really making any money anyway then so what? You haven't lost loads but what have you gained? Are you closer to figuring it out without the proper info in front of you?

Something to ponder-if all the professional traders who make money are trading futures, using the DOM and price ladders, analysing volume and price flow then shouldn't you be trying to replicate what they are doing? Are the spot fx traders in the big institutions using the same data as you? The same platforms? In terms of data, they do not use the same data as they have access to their client order books. They know when a big order is coming into, or leaving the market. You can bet that they aren't sitting there on Oanda/random MT4 broker with a volume feed showing who knows what buyers/sellers. If you do not have the same access to platforms and data as they do in spot fx, then how can you make money on a consistent day to day basis?

The only markets you can see what the big boys are doing are the futures markets. All we do in any market (spot fx/futures etc) is try to ride on the coat tails of that big volume. If one style of trading gives you an idea what the big boys are doing, and the other one doesn't then I know what I'd go for.
If one style of trading is showing me the same info as the pros who makes 000s a day then I'll go for that. I'll sit there and figure it out what they are seeing and apply it.

Yes, in terms of survivability the problem with futures is that the sizing is much bigger. Fx markets in futures are still fairly volatile and liquidity can be quite thin. So in that case I can highly recommend the ZN (US Treasury 10 year note). Very thick markets, price moves quite slowly and doesn't tend to overshoot as much as the emini, 6e (eurusd) and others. $15 per point, a stop loss of 4-6 points. And if people say that they don't have the funds for this then i would say go away and save up. Not many people trade spot fx very profitably on a consistent basis. Have a friend who is a floor trader on the CME and he also used to run an fx brokerage company over there (you know, offering MT4 etc). He made loads of money off of that and I always remember his comment: "I don't know any retail fx traders who make any money."

Like I said I'm sure that is not 100% accurate but it certainly tells you something.

Trading spot fx without the same access to data as the big boys is not a recipe for success. The lower sizing simply allows you to maintain the illusion that you're making progress and this can last for a long time. You need to make money consistently, day in day out, or at least every 2-3 days don't you? How can you do this consistently without the same data as the big boys? A secret trading theory? Well if it's a secret and the big boys aren't using it then I can't see how it works as they won't be using that same info, and they drive the markets.

You'd be better off taking the plunge into futures when you have the capital and stop wasting time on a pipe dream.

Apologies, this is not a personal attack on yourself and I'm sorry if this post is confrontational.
I feel passionately on the subject (clearly!) and if you are one of the spot fx traders making money on a consistent basis then my hat is most certainly off to you!

 

[hyperscalper]

Hi hyperscalper,
....If you do not have the same access to platforms and data as they do in spot fx, then how can you make money on a consistent day to day basis?

....The only markets you can see what the big boys are doing are the futures markets. All we do in any market (spot fx/futures etc) is try to ride on the coat tails of that big volume. If one style of trading gives you an idea what the big boys are doing, and the other one doesn't then I know what I'd go for.
If one style of trading is showing me the same info as the pros who makes 000s a day then I'll go for that. I'll sit there and figure it out what they are seeing and apply it.

....Trading spot fx without the same access to data as the big boys is not a recipe for success. The lower sizing simply allows you to maintain the illusion that you're making progress and this can last for a long time. You need to make money consistently, day in day out, or at least every 2-3 days don't you? How can you do this consistently without the same data as the big boys? A secret trading theory? Well if it's a secret and the big boys aren't using it then I can't see how it works as they won't be using that same info, and they drive markets.

You'd be better off taking the plunge into futures when you have the capital and stop wasting time on a pipe dream.

Apologies, this is not a personal attack on yourself and I'm sorry if this post is confrontational.
I feel passionately on the subject (clearly!) and if you are one of the spot fx traders making money on a consistent basis then my hat is most certainly off to you!

OK, many good observations but a lot of assumptions I wouldn't agree with.

Small traders do not, and should not try to, make money in the same way as Large and Institutional Traders, so making that claim is debatable.

You ask this question: "How can you do this consistently without the same data as the big boys? A secret trading theory? Well if it's a secret and the big boys aren't using it then I can't see how it works as they won't be using that same info, and they drive the markets." The Big Boys do not drive the markets. The Huge Boys, also known as Market Makers drive the markets. Big Boys are still retail players like the rest of us, doomed to "follow" the leader.

My answer is Yes, I have a "secret trading theory" which yields indicators which are reliable. Again, the "big boys" trade differently from smaller traders. And, technical analytic "creativity" might just find indications which haven't occurred to the "quants" and the "big boys" they work for.

Market Maker drives market direction, and the Big Boys are just large Retail players, and things filter down to us Smaller traders. Everyone except Market Maker is a "follower" of the leader. So the game is to predict where Market Maker will move price. And that is reflected on the Depth of Market which tells us on which side of the market Market Maker is more or less eager to transact.

In the intersection of Futures and Forex, with the FX contracts, I can say unequivocally that Forex is more consistent and equally, if not more, profitable due to higher flexibility in resource allocation and risk management.

There are "big boys" and they are all "retail" players, and then there is Market Maker. The large institutional players are still retail, and are required to follow the market, just as we smaller traders are required to Follow the Leader. The Leader is the Market Maker liquidity provider, and you will no doubt claim that Forex is too heterogeneous to be driven by a "single plan".

But I can tell you with no doubt what Trend is in the Forex market, based entirely upon analysis of only a limited subset of Quotes available on a Retail Book. Just how that would be possible is way too complex to discuss, and I'm not interested in convincing anyone else, only to make money in our own proprietary trading business using this "secret" analytic information

Good Trading !
HyperScalper

 

[bootsyjam]

Well i didn't go into too much detail-Market Makers/Big Boys/Potayto potahto!
Yeah there are the Other traders, those who are taking huge positions that move the market that are not necessarily based on current intraday price action, then there's the big traders, be they banks trading on their own accounts or placing the trades for the Other traders, and then the large traders jumping on the coat tails of the Others, and then the smaller retail traders all trying to catch a piece of the action. . So Others/Institutions Placing Orders for the Others, then the Big Institutions/Big Retail Traders trying to jump on and then there is the smaller levels. Us.

If you're using a broker (I use LMAX) that has datafeeds coming through from institutions then perhaps you do have more of an insight that trading using MT4 via a small retail broker feed. It will give you an eye on the volume of people who really do make money, so if a 'secret' indicator is based on that then fair enough.

Happy Trading!

 

[hyperscalper]

Well i didn't go into too much detail-Market Makers/Big Boys/Potayto potahto!
Yeah there are the Other traders, those who are taking huge positions that move the market that are not necessarily based on current intraday price action, then there's the big traders, be they banks trading on their own accounts or placing the trades for the Other traders, and then the large traders jumping on the coat tails of the Others, and then the smaller retail traders all trying to catch a piece of the action. . So Others/Institutions Placing Orders for the Others, then the Big Institutions/Big Retail Traders trying to jump on and then there is the smaller levels. Us.

If you're using a broker (I use LMAX) that has datafeeds coming through from institutions then perhaps you do have more of an insight that trading using MT4 via a small retail broker feed. It will give you an eye on the volume of people who really do make money, so if a 'secret' indicator is based on that then fair enough.

Happy Trading!

We could discuss detail, speculation, theory but there's money to be made !

So I use both Dukascopy, where my Analytics are most stable, but I am executing on LMAX where the Book is noisier, momentary spreads tighter and execution wholesale.

LMAX offers little to no advantage for ordinary trading. But for specialized tight micro scalping with semi-algorithmic and computer assisted Order Entry, there's no substitute. You have "good taste" in brokerage and I hope you're using it to its fullest potential my friend...

I'm not your average Joe trader, not that there's anything wrong with being one of those guys. I run highly specialized software which has been years in the works, so I won't be giving you "average Joe" answers Impressing people used to be, but is no longer, my cup of tea ...

Good Trading !
HyperScalper