Welcome To Forex Market
Tuesday 2 November 2010
While these impediments make stock trading more difficult than many of us would like, some good traders can and do overcome these hurdles. Yet I often hear stock traders complaining about how the specialist ruined their trade (in language that would scorch your ears), or how they’ve been “slipped” out of their profits, or that they placed a perfect entry, only to be foiled by a partial fill, or that they missed an opportunity to sell short because of the uptick rule.
What if these hurdles didn’t exist? What if they were removed from the playing field, so that traders could relax and stop worrying, and instead get on with the business at hand? What if traders could just trade? What would that be like?
I was about to find out. One day after the closing bell, I had a few drinks with a trader friend who had quit the stock market to focus solely on the forex market. The conversation went something like this:
And so the journey began. As much as I used to enjoy trading stocks, I don’t miss the headaches. It took a while to get used to the “feel” of the forex market, as it trades very differently from the way stocks trade. At first, I tried to trade forex the same exact way that I traded stocks, and for a few months I lost money. Once I adjusted to the different speed of the forex market, things eventually fell into place. You see, individual stocks move like jack rabbits — one moment they are standing still and the next moment they are zigzagging and flying around.
The forex market is huge compared to the stock market, so it takes a while longer for it to get moving. Once a currency pair does begin to move, it can continue moving in one direction for an incredibly long time. The good news was that much of what I already knew about stock trading was transferable to the forex market. A chart was still a chart, and a trend was still a trend. The important concepts of risk management that I had learned from working on the equity desks in New York were still applicable.
At first, trading the forex market felt like visiting a foreign country. I was worried that it would feel as if I were visiting a distant planet. The difference in the market’s reactions to economic news was startling. I was coming from an environment where traders had mere split seconds to react to news events. When trading stocks during a news release, if you don’t get in right away, you are not likely to get in at all.
In the forex market, at first it almost seemed as if I had too much time to react to news and events. I actually had time to think about what was happening and to analyze the data. Better still, the forex market’s reactions to news events usually made sense. As a certifiable “news junkie,” it seemed that I had found the perfect trading vehicle. It was almost too good to be true. It was a strange new market, yet something about it seemed so familiar.
What if these hurdles didn’t exist? What if they were removed from the playing field, so that traders could relax and stop worrying, and instead get on with the business at hand? What if traders could just trade? What would that be like?
I was about to find out. One day after the closing bell, I had a few drinks with a trader friend who had quit the stock market to focus solely on the forex market. The conversation went something like this:
“It’s called forex, short for foreign exchange. I just grab on to the trend and ride it for all it’s worth.”
“Haven’t I seen that on TV? Something about green and red arrows?”
“Don’t be a rube. When was the last time you saw someone on a trading floor looking at green and red arrows?”
“Okay, I get it. So what’s so special about forex?”
“Ed, you’ve got to try this market! It’s huge, it’s liquid, and it’s open for business 24 hours per day. You’ve never seen anything like it!”
“That’s what I’m afraid of. I’m pretty happy right now trading stocks, so why would I want to switch to forex?”
“Because it’s liquid! I can always get in, I can always get out, and I never get a partial fill.”
“You never get a partial fill? Yeah, right.”
“It hasn’t happened yet. And I haven’t been slipped yet either. My fills are always at the exact price where I place the order.”
“You’re lying! Where are you trading, in Disneyland?”
“You have no concept of how liquid this market is. It hardly ever gaps!”
“Okay, but how does it trade? Is it random, or does it trend?”
“That’s the best part! The trends go on and on!”
“Kind of like you?”
“Very funny. If you don’t believe me, open up a practice account and see for yourself.”
“What are you talking about?”
“They have these practice accounts. You can trade real time, on their price feed, without any risk. It’s a great way to get a feel for this market. It’s free!”
“So I go to their office and trade their practice account while they try to sell me stuff, right? Sounds like a nightmare.”
“No, genius, you trade the practice account from your home. You download it to your computer.”
“Hmmm. No more tantrums. No more chair throwing. No more letter keys flying past my head while I try to decide if I should raise my stop. Maybe I’ll give this market a shot.”
A New Beginning - Forex
And so the journey began. As much as I used to enjoy trading stocks, I don’t miss the headaches. It took a while to get used to the “feel” of the forex market, as it trades very differently from the way stocks trade. At first, I tried to trade forex the same exact way that I traded stocks, and for a few months I lost money. Once I adjusted to the different speed of the forex market, things eventually fell into place. You see, individual stocks move like jack rabbits — one moment they are standing still and the next moment they are zigzagging and flying around.
The forex market is huge compared to the stock market, so it takes a while longer for it to get moving. Once a currency pair does begin to move, it can continue moving in one direction for an incredibly long time. The good news was that much of what I already knew about stock trading was transferable to the forex market. A chart was still a chart, and a trend was still a trend. The important concepts of risk management that I had learned from working on the equity desks in New York were still applicable.
At first, trading the forex market felt like visiting a foreign country. I was worried that it would feel as if I were visiting a distant planet. The difference in the market’s reactions to economic news was startling. I was coming from an environment where traders had mere split seconds to react to news events. When trading stocks during a news release, if you don’t get in right away, you are not likely to get in at all.
In the forex market, at first it almost seemed as if I had too much time to react to news and events. I actually had time to think about what was happening and to analyze the data. Better still, the forex market’s reactions to news events usually made sense. As a certifiable “news junkie,” it seemed that I had found the perfect trading vehicle. It was almost too good to be true. It was a strange new market, yet something about it seemed so familiar.
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About Forex And Beginning