New to forex (not trading) - some general questions

[predator001]

I am considering venturing into Forex.

I have traded succesgfully for almost 2 decades now (both professionally and as a private trader). One of the reasons why I have always avoided Forex has been the whole 'day trader' (a.k.a reckless gambler) "stigma" - which is as far aware from my trading philosophy/methodlogy as one can get. My image of a forex trader (largely formed by all the videos posted on youtube - offering forex trading advice) - is that of an easily excitable, highly strung (possibly ADD) individual reacting to every move of the market - using fibonnaci retracements, bollinger bands, (*shudder* - candlesticks/stochastics) and other rudimentary 'tools'. Don't get me wrong, I am not risk averse (my speciality is derivatives) - I just like to put the odds in my favour.

I am essentially a swing/position trader and only use short term fluctuations for occasional scalping or position adjustments. My methodology is a mixture of quantitaive and technical (but not TA in the sense of technical indicators etc).

Ok, hopefully, that gives enough of a background of where I'm coming from. I was recently talking to a friend, and he got me interested in the Forex markets. I am interested in starting trading forex markets - but if I am to do it, I want to do it well, or not at all.

First step in doing it well, is to do extensive research on data. End of day data would suffice, as I am not intested in following intraday fluctuations. This is where I hit my first snag. Forex data has no volume (it appears), so a major component of my data analysis is gone.

My question are:

1). Where may I get a good source of historical data (eod/intraday)?

2). Is it possibe to obtain volume data for Forex trades (historical data)?

3). I will be using my own custom developed trading platform, and am looking for a broker that will provide an API for market data and direct access to an ECN. At the moment, I am using IB (have used them for years). Is there a credible alternative broker that provides an API for DMA? (note: I am not interested in third party trading platforms, only an API that I can interface with)

 

[Rhody Trader]

1). Where may I get a good source of historical data (eod/intraday)?

Most of the well known vendors carry forex quotes in some for or another. Which to use may depend on your specific requirements. Just be aware that there can be small differences in the prices depending on whether the data source is an aggregate one (multiple bank/broker feeds) or a singluar one. The ideal solution is to get the data directly from the broker you'll be using, if it's available, though for the swing type trading you say you focus on that may not be an issue.

2). Is it possibe to obtain volume data for Forex trades (historical data)?

Not for the spot market. You can get futures and ETF volume, but they obviously only represent a fraction of the market. You may or may not find that sufficient to your needs. You will sometimes run across a volume study in the spot forex market but it will almost invariably be "tick" volume, not actual quatity traded.

3). I will be using my own custom developed trading platform, and am looking for a broker that will provide an API for market data and direct access to an ECN. At the moment, I am using IB (have used them for years). Is there a credible alternative broker that provides an API for DMA? (note: I am not interested in third party trading platforms, only an API that I can interface with)

At this point many, if not most, of the bigger brokers offer API access. You're probably best of identifying a broker you think suits your needs, then looking for the API.

 

[predator001]

Hi Rhody, Thanks for the response.

I initially thought of trading the futures markets (eliminates credit risk), but I think that the futures market represents a very tiny fraction of the OTC market. Also, I would like to start Forex trading with much smaller lot sizes than would be possible in the futures market.

I maybe getting cynical after years in the market, by the idea of the Forex broker setting prices does not sit very well with me - to put it bluntly, I dont trust the brokers not to try to rip me off. Are there any checks and balances that can prevent an unscrupulous broker from providing ridiculous prices in a fast market say? I am assuming that if a brokers price strays too far from the 'true' value, the anomaly would be "arbitraged" away - this happens in the futures market because the instruments are fungible (standardized). I dont know if this kind of "inbuilt protection" is available to Forex traders, trading with a Forex broker - do you know?

To put the question bluntly, how do you (or any other Forex trader) protect themselves from getting "shafted" by their Broker (obscene bid/ask spreads, bad fills or quotes that differ 'significantly' from the 'true' price). Without getting too technical, its easy to work out the true price of a currency pair by using curves in the money market/bond/swap markets.

Last but not the least. I am particularly tempted by forex options. But the exchanges (PHL is the only one that offers FXOpts AFAIK) have very low liquidity, and teh floor traders often "take the mickey" (i.e. outrageous quotes). I am wondering if the same thing exists with Forex options. There is a lot of info about spot forex trades for private traders but very little info for forex option trades. Do you have any info on this?

Last but not the least - when trading options, one simply MUST have open interest and volume information, otherwise it is quite easy to find yourself "landlocked". Do forex options data providers provide volume/open interest information?

Thanks

 

[Rhody Trader]

I maybe getting cynical after years in the market, by the idea of the Forex broker setting prices does not sit very well with me - to put it bluntly, I dont trust the brokers not to try to rip me off. Are there any checks and balances that can prevent an unscrupulous broker from providing ridiculous prices in a fast market say? I am assuming that if a brokers price strays too far from the 'true' value, the anomaly would be "arbitraged" away - this happens in the futures market because the instruments are fungible (standardized). I dont know if this kind of "inbuilt protection" is available to Forex traders, trading with a Forex broker - do you know?

To put the question bluntly, how do you (or any other Forex trader) protect themselves from getting "shafted" by their Broker (obscene bid/ask spreads, bad fills or quotes that differ 'significantly' from the 'true' price). Without getting too technical, its easy to work out the true price of a currency pair by using curves in the money market/bond/swap markets.

If you're dealing with a reputable and regulated brokers (in the US mostly that means they are registered with the NFA) then you don't need to sweat these things. You have legal recourse and my experience is that the vast majority of those who complain about manipulations are folks looking to shift the blame away from their own poor trading. If you really do worry about a broker fiddling with the quotes or whatever, go with an ECN that does straight pass through. And yes, you could theoretically arb between a retail broker and the futures market (or multiple brokers against each other), but I haven't heard many suggestions that there's much opportunity there.

Last but not the least. I am particularly tempted by forex options. But the exchanges (PHL is the only one that offers FXOpts AFAIK) have very low liquidity, and teh floor traders often "take the mickey" (i.e. outrageous quotes). I am wondering if the same thing exists with Forex options. There is a lot of info about spot forex trades for private traders but very little info for forex option trades. Do you have any info on this?

Last but not the least - when trading options, one simply MUST have open interest and volume information, otherwise it is quite easy to find yourself "landlocked". Do forex options data providers provide volume/open interest information?

I'll admit, I don't really focus much on the options side of things. The retail versions I've seen offered by brokers seem to be more of the binary type rather than traditional puts and calls, but that doesn't mean the latter isn't available somewhere. There are always futures options. In terms of volume/OI and getting landlocked as you say, it strikes me as being more a question of consistently quoted prices from the broker in question - much as it is with the spot.