Why I Don’t Trade Forex

99.9% of people (small retail clients) lose money in Forex and the ones who say they don’t are lying or trying to sell you something.

Here is a quick EDU on why you shouldn’t trade Forex without doing your research first:

1) it’s an unregulated industry. This means your broker can screw you over and you have no recourse.  There are some honest brokers out there, but there are also some dishonest ones.

2) since it’s unregulated, brokers can make their own rules. One example of this is fake liquidity pools. When you trade stocks or futures, you are trading against everyone else. When you trade Forex, your broker can set it up so that you are only trading against other clients of that brokerage. The bid/ask (prices) that you see may not be the “real” prices: they are the prices created by the broker for you. You’ll also notice that while stocks and futures show you the volume for each bar on the charts, Forex never shows any volume. That’s because Forex is not one big game for everyone to play. It’s a bunch of small games played by scam brokers.  Of course, they will never admit this, so I encourage you to Google it and learn more.

3) many Forex brokers also take positions against their clients. Since 99% of people lose money, your broker is betting on you also losing money, and they’re taking the opposite side of your trades (so when you lose, they win)

4) on that note, Forex brokers will go “stop hunting.” Say you have an order to sell if a position goes against you by a certain amount. Since Forex brokers can use fake liquidity pools, they can move the bid/ask to hit your order, thus closing your position for a loss even if price never actually went that far. And since they are taking the opposite side of your trade, they just made money while you lost money. Let me give you an example of this using stocks so you can see how ridiculous it sounds. Ok, AAPL is trading today at $520. Say you buy some, but you put in a stop order at $500 in case price drops that far and you want to get out. So you’re sitting there watching AAPL, and suddenly it hits $500 and your order is closed and you lose $20 per share. But the stock price never actually hit $500, your broker just lowered their own price of AAPL for a moment to trigger your loss. Obviously stock brokers can’t do that, but Forex brokers can.

If you want to trade currencies, trade currency futures. Futures is a regulated market and no one can screw you over. The down sides to futures are that there are minimum sizes and they force you into using leverage which, if you are a small trader, might be more than you are comfortable with.

If you want to trade Forex, be sure to do your research and find a reputable broker.

Trading is hard enough without having to deal with shady behavior from your broker, too.

April 14 2011

Considering opening a position of SH (short SPY) depending on what price does in the next few days.

If price is going to go down, there’s no reason I shouldn’t make some money on it while I’m waiting for it to go back up to my target profit (or at least get close enough where I can sell some covered calls).

April 8 2011

Day one of teasing complete.

I should write a few 134 or 135 calls. Since I’m going to sell around there anyway I might as well get paid to wait for price to hit that level, right? I could write like 9 calls and then sell the leftovers manually.