I have been a member here over 18 months. I don’t post that often, but when I do its generally worth reading although it may take awhile.
The financial markets are moving from a leveraged to a de-leveraged environment.
This is going to affect different players in the financial markets in different ways.
For example, investment bankers, whom invest via long term debt by borrowing on short term debt are going to be heavily squeezed. Very few deals will get done by investment bankers over the upcoming months.
Probably more interesting to people here is how it will affect FX speculators such as us.
In a smooth flowing market banks which have close access to central banks lend their money out freely and gladly.
Currently, the banks with close relations to the central banks are hoarding the money. Overnight rates that were generally 3 to 4 percent are now 20 percent or more. This tight supply gets increasingly limited as it goes down the food chain to those further distanced from the central banks to where finally the brokers end up, generally, paying the highest rates.
Therefore, those with the most money supply will have the greatest liquidity. Those with the least money supply will have the least liquidity, obvious right?
It’s very important that FX traders understand this new reality. If you are a serious trader you will have at least two and maybe as many as four platforms. With multiple platforms you know who is providing the best liquidity out there. Most brokers only have 1 liquidity provider; some have 2 and 3 but more is unlikely.
You will most likely get the best liquidity out of those FX providers who have high levels of volume. Ask your FX provider what their total volume is on average on a daily basis. If they don’t want to disclose that or how many liquidity providers they have DO NOT FUND WITH THEM OR GET YOUR MONEY OUT. Companies with high volumes and many liquidity providers will be proud of that fact…those without them will try to BS you and tell you it’s confidential.
The bottom line is…..a company’s claims of pip spreads are meaningless if they cannot provide the liquidity to keep those spreads and pricing competitive.
The only way a FX trader can know this is by opening an account and running the platform yourself. Any serious investor will do this as it is the only way to determine if a given platform and broker/bank can meet your particular trading style. It’s where the rubber hits the road. Secondly, if you think their demo account represents their actual trading environment you are wrong.
Anything but actually trading on a platform to your satisfaction is marketing hyperbole. Caveat emptor……if you go with a platform and they hunt your stops, or you can’t trade during volatility, or the spreads are way off what is quoted..well, its really no one’s fault but yours, unless its fraud AND you can prove it in a court of law AND you can get your money back.
For experienced investors FX is generally earmarked as our high risk money, where the rest of our capital is generally in something safer (bonds right now, as 1 example).
Remember this rule about FX. Never put any more money into it than you can afford to lose. Of course, thats a general invesment rule, but doubly so for FX!
If the only discretionary capital is an amount to open 1 account with and you do not have much experience….you are best just staying out of the game.
On the other hand, if a month ago you said..ok, I am going to give this a shot and can risk 100,000 USD in the FX game..Maybe now you should pull that number back to 30,000 or 40,000 and spread it over a platform or two an take the first few months just testing it.
Right now volatility is much higher than in previous months. Therefore, if volatility increases the leverage you use should decrease. Generally, I enter FX trades at 2 to 1 or 3 to 1. Now, I am one to one or even less (I should note I often have several trades open at time…but the number of trades I make simultaneously has also decreased).
Finally, if you are doing business with a provider with low liquidity you better believe they are scrambling for ways to make money and stay afloat. Believe me…they will eat their own first..and that means you.
The financial markets are moving from a leveraged to a de-leveraged environment.
This is going to affect different players in the financial markets in different ways.
For example, investment bankers, whom invest via long term debt by borrowing on short term debt are going to be heavily squeezed. Very few deals will get done by investment bankers over the upcoming months.
Probably more interesting to people here is how it will affect FX speculators such as us.
In a smooth flowing market banks which have close access to central banks lend their money out freely and gladly.
Currently, the banks with close relations to the central banks are hoarding the money. Overnight rates that were generally 3 to 4 percent are now 20 percent or more. This tight supply gets increasingly limited as it goes down the food chain to those further distanced from the central banks to where finally the brokers end up, generally, paying the highest rates.
Therefore, those with the most money supply will have the greatest liquidity. Those with the least money supply will have the least liquidity, obvious right?
It’s very important that FX traders understand this new reality. If you are a serious trader you will have at least two and maybe as many as four platforms. With multiple platforms you know who is providing the best liquidity out there. Most brokers only have 1 liquidity provider; some have 2 and 3 but more is unlikely.
You will most likely get the best liquidity out of those FX providers who have high levels of volume. Ask your FX provider what their total volume is on average on a daily basis. If they don’t want to disclose that or how many liquidity providers they have DO NOT FUND WITH THEM OR GET YOUR MONEY OUT. Companies with high volumes and many liquidity providers will be proud of that fact…those without them will try to BS you and tell you it’s confidential.
The bottom line is…..a company’s claims of pip spreads are meaningless if they cannot provide the liquidity to keep those spreads and pricing competitive.
The only way a FX trader can know this is by opening an account and running the platform yourself. Any serious investor will do this as it is the only way to determine if a given platform and broker/bank can meet your particular trading style. It’s where the rubber hits the road. Secondly, if you think their demo account represents their actual trading environment you are wrong.
Anything but actually trading on a platform to your satisfaction is marketing hyperbole. Caveat emptor……if you go with a platform and they hunt your stops, or you can’t trade during volatility, or the spreads are way off what is quoted..well, its really no one’s fault but yours, unless its fraud AND you can prove it in a court of law AND you can get your money back.
For experienced investors FX is generally earmarked as our high risk money, where the rest of our capital is generally in something safer (bonds right now, as 1 example).
Remember this rule about FX. Never put any more money into it than you can afford to lose. Of course, thats a general invesment rule, but doubly so for FX!
If the only discretionary capital is an amount to open 1 account with and you do not have much experience….you are best just staying out of the game.
On the other hand, if a month ago you said..ok, I am going to give this a shot and can risk 100,000 USD in the FX game..Maybe now you should pull that number back to 30,000 or 40,000 and spread it over a platform or two an take the first few months just testing it.
Right now volatility is much higher than in previous months. Therefore, if volatility increases the leverage you use should decrease. Generally, I enter FX trades at 2 to 1 or 3 to 1. Now, I am one to one or even less (I should note I often have several trades open at time…but the number of trades I make simultaneously has also decreased).
Finally, if you are doing business with a provider with low liquidity you better believe they are scrambling for ways to make money and stay afloat. Believe me…they will eat their own first..and that means you.
