Posts by trader7757

Budget Deficits, Media Hype, and E-Mini Trading

By , 5 September, 2011, No Comment

The last several years have been a difficult time for a sizable portion of the United States citizenry. As a nation, we have muddled through TARP, quantitative easing, real estate short sales, QE2 and a host of other anachronisms in hopes of solving a catastrophic price decline in the real estate markets caused by questionable bundling of mortgages that were then offered for sale to interested third parties (who were unaware of the questionable viability of these investments.)

Yes, we have a wide range of programs designed to solve one simple equation.  All the programs are designed with one stated purpose in mind; put more money in the system in hopes banks will loan more money, people will spend more money.  Banks have moderately increased their lending, but the consumer has not felt comfortable enough to return to pre-2008 spending levels.  Thus, we are stuck with an unenviable GDP of 1%.   I would also like to point out that corporations are sitting on very high levels of cash, but so far have not been enticed to spend their high cash levels on hiring new employees.

So we find ourselves in a bit of quandary, or “Liquidity Trap” as Paul Krugman often describes in his column.  Though, I would also note that during the last two FOMC meetings the Fed has declined to make substantive changes in their approach to the economy.  Though the Fed’s balance sheet is in excess of 2.5 trillion of rolling treasury debt, which they will continue to invest, they apparently feel that the market has enough liquidity to begin a recovery…but money is not necessarily the issue.

Now enter the politicians; both the right wing Republicans and Tea Party members have made this year’s election a referendum on the national debt.  There is no actual crisis that is going to occur this year or in the near future, but we desperately need to readjust our spending habits.  What we don’t need is a massive decrease in government spending as we are teetering on the brink of recession.  But you would think, reading and listening to most of the campaign literature that we are at our last chance to break our spending cycle or else all is lost.

And that exact moment is when the train runs off the rails.  We certainly need to begin work, hard work, on our national deficit; but the deficit does not have to be solved overnight, after all, it took a considerable amount of time to accumulate our current level of debt.  For the inevitable outcome of this story, read about Herbert Hoover’s presidency, his actions, and the ensuing depression.

My point is a simple one.  We need to spend less and take in more.  The Democrats see government as the way out of this problem.  The Republicans want to cut taxes and spur business development.  In different situations these approaches have been used, with nominal success.  Reagan got the economy going strongly through tax cuts, as did Bush II, but in doing so they managed to pile up a large level of debt.  Democrats have thrown a mountain of money at this problem, with negligible positive results.

Finally, if the politicians were serious about solving our problems they would address runaway health care spending, which has been increasing exponentially over the last ten years.

But no, we are going to kick the can a bit farther down the road, and let the next guy worry about our problems.  That is really a shame, too, because we finally have some attention placed upon our fiscally irresponsible congressmen…but there is no one in congress ready to step outside the party line. So we find ourselves with the inevitable…gridlock and finger pointing.

E-Mini Trading Consolidation Patterns and Channels

By , 18 August, 2011, No Comment

Trading in a channel means various things in e-mini trading because trading channels come in a variety of shapes, characteristics, and size. It’s important to clear up semantic jargon when reviewing channels or consolidation patterns. What one trader may classify as a retracement is frequently classified as a flag, in technical trading jargon. Just the same, it’s a consolidation. There are also narrow channel periods when the market takes a break before restarting a trend. And finally, there are lengthier periods of range bound channels which present some difficult trading issues.

As an e-mini trader, it is imperative to understand which type of pattern you may be entering. Has there been an uptrend or downtrend in the market or has the price action has started to move sideways? Has the trend taken a short break and moved upwards or downwards (depending on whether the price action is bullish or bear) and there are indications that it may resume its initial trend? Or, has the trading range stayed narrow and readily identified for several hours?

The message in this short article is to talk about the last type of consolidation channel. Short sideways movement and retracement patterns are all very easily traded and will be the subject of other articles;there are long explanations required to understand these patterns. Long, range bound channels will be the focus of our attention today. My theory on these lengthy range bound channels will be simple; they are a danger point that will gladly vacuum money from your pocket.

Lonthy periods of price action in a definable channel should be an tip-off to most e-mini traders that the market is at near equilibrium. It is also common to notice the volume in these extended channels is often light. Yet I watch traders on a daily basis pound away at these narrow channels hoping the market will break out to the upside or to the downside. It rarely does. As a matter of fact, though trading channels often have a plethora of small breakouts, which sends the retail traders into a near buying or selling frenzy, they usually and casually retrace back into the original channel , leaving the retail trader with a loss or, at least, in a very unfavorable position relative to their breakeven point.

Trading action inside these channels sometimes appears logical and rhythmic, following what seems to be a predictable serpentine pattern bouncing off the resistance and support that are the channel parameters. Again, these patterns entice many inexperienced traders and to entering trades inside the channel. Most of the action inside a trading channel, or range bound consolidation pattern is random in nature. Traders who enter a trade inside the channel often learn a harsh lesson in the randomness of channel trading. In short, I avoid trading inside a channel and wait for better opportunities, trades with higher probability for success.

There are a large number of articles I read before writing this article. Most were published by trading educators extolling the virtues of channel trading, so I must assume that my position on channel trading is a minority opinion. On the other hand, I have been fortunate enough to trade with some of the best traders in the world and they avoid trading in channels at all costs. Quite simply, the risk reward ratio is not particularly favorable and at some point the price action will break out of the channel. If you are on the right side of the breakout or breakdown, you will have a wonderful day. On the other hand, if you’re on the wrong side of the breakout or breakdown, your day will be less than wonderful.

In summary, we have pointed out there are various types of channels and some are very tradable, while the extended sideways consolidation-type pattern offers little for most traders. Further, I have stated that trading in extended channels is a low probability proposition and I avoid trading these patterns.

E-Mini Trading: Let’s Start at the Beginning with No Hype

By , 16 August, 2011, No Comment

It’s not unusual for me to peruse prominent (and some not so prominent) e-mini trading education sites and see what’s being promoted and how it’s being promoted. Often times, I find the promises and guarantees espoused on these sites appalling. On the other hand, there are a handful of training educators who seem honest and realistic in the manner in which they portray e-mini trading. That being said, many of the sites promote e-mini trading as something akin to the California gold rush. It is not uncommon to see e-mini trading portrayed as a method to “get rich quick” with a minimal amount of effort.

For the record: E-mini trading is not a get rich quick scheme and takes a considerable amount of effort and time to become proficient and profitable. Further, if an individual believes he or she can read an e-book or two and then slay the markets they are hopelessly mistaken. In this article, I would like to present an accurate portrayal of what e-mini trading “is,” and what e-mini trading “is not.” Some may find my description of the path to e-mini trading success daunting and be terribly disappointed. That’s okay with me because every potential new trader should have a clear idea of this high competition arena they are considering for a career.

Let’s start with a clear idea of what e-mini trading is not:

• E-mini trading is not a “get rich quick” profession. The stark truth is that the majority of people who embark on a career in trading lose some or all of their money.
• There are very few individuals who are “natural” traders. The vast majority of new traders will find many of the concepts in e-mini trading unnatural and confusing. It takes time and experience to become a consistently profitable e-mini trader.
• Most trading books or manuals present a specific system for a new trader to study. The system approach to trading is fraught with danger. These systems may work very well under certain market conditions, but the market is a creature of many moods and very few systems work well in all market situations. The vast majority of mechanical e-mini trading systems fail miserably in non-trending or consolidating markets.
• Most consistently profitable traders are highly disciplined in their approach to the market and have developed their trading style and discipline through years of study and experience.

One common characteristic I see on many trading sites is a quote that suggests that you should be able to double your account value on a monthly basis. Some sites even suggest that you may earn even more than double your account value on a monthly basis. It’s not unusual to see headlines on these sites claim returns ranging from 300% to infinity.

It is highly improbable that you are going to double your account on a monthly basis. It’s improbable that I am going to double my account on a monthly basis. Granted, I have had some exceptional months in my trading career, but the notion that I can consistently double my account each month is preposterous.

Fact: In the first several months of your e-mini trading career you will be lucky to break even. Even more to the point, most new traders lose considerable sums of money during the early stages of their trading career. The statistics suggest that 50% of all new traders lose their entire trading account balance.

Many sites lay claim to have discovered a revolutionary new approach to trading that virtually assures profits. While the methodology of trading has evolved rapidly over the last several years, I am unaware of any revolutionary new approaches to trading that will ensure a new trader will stumble into a highly profitable trading career from day one of their trading experience. To be sure, rates of return for traders and investors have remained fairly consistent for the last 20 years despite billions of dollars of ongoing market research by large institutional trading organizations. In short, most of the “revolutionary” new techniques are recycled version of current oscillators of older trading techniques

Fact: Profitable trading still lies in the domain of highly skilled and experienced traders. I am unaware of any revolutionary new trading techniques that have dramatically improved the rate of success in trading, including the most recent wrinkle in trading marketing: the trading robot. The automated trading on Wall Street is generally performed by computers in the “Cray Supercomputer” class of computer. It takes very little analytical skill to reason that a trading robot that retails for $279 will fill your pockets with hundreds of thousands of dollars. Trading robots are just another example of the “next best” innovation. The algorithms that I have been able to analyze on several trading robots rely upon simple moving averages and well-known oscillators. This is hardly the stuff of any new revolutionary approach. They are quite profitable for the individuals who are selling these machines, but the empirical evidence has shown that they typically performed poorly.

Finally, many of the trading courses offered confine themselves to a strict systems approach to trading. I will spare the reader an extended discussion on the shortcomings of systems-based trading, but will comment that systems-based trading is generally effective during trending markets. Further, depending upon which source you care to quote, the market typically trends 30% to 40% of the time. During consolidation periods, commonly referred to as range bound trading, systems based trading often struggles mightily. Further, markets often undergo periods of very random trading and systems-based trading is poorly suited for this type of trading. In short, most system-based trading approaches work well under well-defined conditions. I would also point out that few traders require any special trading system to trade a trending market, as these markets are where the majority of trading profits occur and are relatively easy to spot and from which to profit.

Fact: It is my experience that successful and consistent traders learn to read and interpret charts, as opposed to confine their learning experience to the tight parameters of system trading. This is not a blanket indictment of all systems-based trading, but a generalization from my experience with systems based trading. Most profitable traders are proficient in a wide range of market conditions and to understand the trading style required to trade those market conditions ease efficiently. Further, learning to trade in a wide variety of trading conditions is generally accomplished through the experience gained by trading with another experienced and profitable trader, or through a mentorship program with a qualified and experience trader.

In summary, I have tried to emphasize that trading programs offered may not be a good choice for new traders. Specifically, I have warned against utilizing trading systems that offer inflated profit rates. Finally, I would encourage all traders to find an experienced trader who may be a friend, or hiring an experienced trader through a mentoring program. I have no doubt that there are trading courses that cover some of the deficiencies we have outlined in this article but as yet not been able to locate such a program. I encourage new traders to give some of the above points careful thought, because trading education is often an expensive proposition, but under the right conditions most individuals can learn to trade profitably and with consistency.

E-Mini Trading: Channel Trading, Bollinger Bands, and Reversion to the Mean Theory

By , 30 July, 2011, No Comment

As I mentioned in earlier articles, I am an enthusiastic channel trader, which flies in the face of what most e-mini traders consider prudent trading. Most e-mini traders avoid trading in channels because they can be unpredictable and unprofitable. Reversion to the Mean Theory has certainly had its abuse over the years by purveyors of stocks and bonds. It is not uncommon for unscrupulous stockbrokers to tell a potential client that a stock is overpriced because it is trading over its yearly mean price. There is no correlation between eminent price movement in a stock and its distance from the mean price. This use of the Reversion to the Mean Theory is a misrepresentation of how stock prices fluctuate.

On the other hand, the theory holds great value for trading in the short term, especially when used in conjunction with Bollinger bands. I generally set by Bollinger bands at 2 standard deviations from the mean and use a setting of 10 time periods. There are other settings, which may be 14 or 18, that give satisfactory results under unusual market conditions; but I find 10 to be the most dependable setting for my personal e-mini trading.

John Bollinger, in his article, “Bollinger Bands-The Basic Rules,” states that closes outside the Bollinger bands are continuation signals not reversal signals. In nearly all cases, closes outside the Bollinger bands tend to be continuation patterns, with certain exceptions.

In reasonably symmetrical continuation channels the Bollinger bands tend to define the highs and lows of the channel. As a quick aside, symmetrical continuation channels refer to channels where the price action is ricocheting off the top line of the Bollinger band and moving in a direct line, with little retracement, to the mean line or the bottom Bollinger band line. These channels are a delight to trade as they are usually very low volume formations and occur during the stand down period (from 11 AM CST to 12:30 PM CST with some daily variations). During the stand down period the market is often dominated by smaller traders. This is especially true on the YM e-mini contract. In a typical trade, the smaller traders will try to push the price action outside the Bollinger band and typically fail. It is at this time that I fade the failed breakout back into the channel.

With very few exceptions, the price action in the above-described scenario will revert to the mean average at the center of the Bollinger bands. I have used this technique for several years and can assure you that continuation channels seldom breakout or breakdown. A more likely scenario for this price action is a reversion to the mean centerline of the Bollinger bands or a move to the lower Bollinger band. (Or an exactly the opposite, depending on the direction of your trade.) The tendency for continuation patterns to revert to the mean defies many investment theorists judgment, but it is true, just the same.

It is important to understand that this principle I have outlined works only in continuation channels and is a disastrous principle to implement in a trending market, or even a choppy market. Its sole use is in a flat continuation channel. It’s also important to use a fairly tight stop should the market action choose to actually breakout or breakdown.

In summary, I have described a unique scenario in e-mini trading where Bollinger bands and Reversion to the Mean Theory can be utilized to initiate frequent and profitable trades. It takes some time and experience to learn as technique, but continuation channels tend to revert to the mean.

Real Live Trading Doesn’t Lie. Spend several days in my trading room and see if you can benefit from a fresh and unique view on trading e-mini contracts. Sign up for your free trading experience by clicking here.

Related Blogs

    E-Mini Trading: Should a Trading Room Be a Learning Environment, or a Simple Trade Calling Site?

    By , 20 July, 2011, No Comment

    I have been doing a lot of thinking lately about what the true purpose of my e-mini trading room should be. That is to say, should the e-mini trading room be a place where new traders actually learn how to trade? Or, should the trading room be a place where I call out buy and sell signals for traders in the room so traders make initiate trades?

    It’s not as easy of call as you might think.

    I have several individuals who come to my trading room to simply imitate the setups and trades I identify. And I suppose that’s not such a bad idea. On my $10,000 trading room account, I have been over $1000 per day for the last nine days. On the other hand, these individuals never get a handle on the trading methodology I use to identify e-mini trades. They come to my room to make money and are not in the least bit interested in how I accomplished that goal.

    There is another and much larger group of new traders who attend my e-mini trading room to learn how to trade. Make no mistake about it though; all new traders want to make money. But this group of traders would like to learn to trade on their own. In short, they want to be competent traders in their own right.

    To my way of thinking, the second classification of traders are thinking along the same line I envisioned the trading room. Perhaps I was naïve, but I assumed that new e-mini traders would naturally want to learn how to trade so they could practice their skills outside the trading room once they become consistently profitable. Perhaps it is just my own personal personality, but I wanted to establish my trading identity from the start of my career. Granted, I don’t object to initiating trades suggested by others because often times setups occur to which I may not give proper attention, or just plain miss.

    Unconsciously, I have had to serve two masters; one group that wants only e-mini trade calls; and another group who is interested in e-mini trade calls, but is more interested in learning my style of e-mini trading so that they will, in time, be able to trade on their own and not within the confinement of a monthly paid trading room subscription.

    In the interest of transparency and clarity, I have been giving thought to more clearly identifying the purpose of my trading room. If I had my way, I would focus only on helping new e-mini traders learn how to trade and eliminate the trade calling aspect of my e-mini trading room. It’s been a tough question for me to arrive at a clear answer because both types of e-mini traders can certainly benefit from the trading room. Further, why should it matter to me if some e-mini traders have no interest in learning to trade and simply want another individual to call trades they can copy.

    It’s an interesting question and the one I have failed to arrive at a satisfactory conclusion. I would welcome any thoughts on this matter.

    Real Live Trading Doesn’t Lie. Spend several days in my trading room and see if you can benefit from a fresh and unique view on trading e-mini contracts. Sign up for your free trading experience by clicking here

    Related Blogs

      E-Mini Trading: Displaying Price Data on Bar Charts. Which Method Is Best?

      By , 15 July, 2011, No Comment

      If you ask a group of 10 e-mini traders which type of bar they prefer on their trading charts you will find no shortage of strong opinions. Most traders were taught to trade on a specific type of bar, say a candlestick, and adjust to their trading to the art of reading candlestick charts. Generally speaking, once they have learned a specific system it is difficult to dislodge, especially if the e-mini trader has been having success with candlesticks. On the other hand, there are a wide variety of bar charting techniques worthy of consideration, and most people fail to do so.

      In this short article we will look at five types of bar charting techniques and give a short analysis of the advantages and disadvantages of each technique. We will be looking at:

      • Candlestick charts
      • Standard bar charts
      • Heiken-Ashi charts
      • Renko charts
      • Range charts

      It is my observation that the most popular charts and use today are candlestick charts. For the sake of convenience, we will be talking about bar charting techniques in relation to e-mini trading; though there are a wide variety of trading disciplines that employ the charting techniques we will discuss.

      Candlestick charts

      It is assumed by most historians that candlestick charts were developed in the 1500’s in Japan. Japan is considered by many to be the first country to develop a futures market of sorts in the rice trading industry. A candlestick is several components in its composition; a body, upper and lower wicks (though if the price closes at the top or bottom of a candlestick, it will not have a shadow at that point). It is also common to hear the wick formation referred to as a shadow. The body portion of a candlestick chart was traditionally painted black or white indicating the direction the body had moved. On most current charts, you will generally see upward movements in the body painted green and downward movements in the body painted red. There are groups of traders who have used traditional Japanese patterns in candlestick formations to predict movement in the market. The empirical evidence on accuracy of the predictive nature of candlesticks points toward a negative correlation and accuracy, though I would admit that a conclusive decision on this topic is yet to be formalized.

      Heiken-Ashi Candlesticks

      The Heiken-Ashi version of candlesticks also has its origins in the 1500’s in the Japan rice markets. They differ significantly from traditional candlesticks in that they are weighted in nature and are trend oriented. I have used them with success in my trading, though certain market conditions must exist for them to be used successfully. The formula for calculating Heiken-Ashi bars is as follows:
      • Open = (open of previous bar+close of previous bar)/2
      • Close = (open+high+low+close)/4
      • High = maximum of high, open, or close (whichever is highest)
      • Low = minimum of low, open, or close (whichever is lowest)
      As you can notice there is a heavy weighting on the latter portion of the bar and the system is especially effective in trend following systems. There are a set of specific guidelines for using Heiken-Ashi charting bars which is reasonably extensive and beyond the scope of this article. However, I recommend any trader investigate this charting system as it has many useful applications.

      Standard Bar Charts

      While I no longer trade this charting system, when I learned the trade it was the predominant system in use. There are many traders at present who still prefer standard bar charts, especially stock traders, for their charting needs. Standard bar charts are reasonably simple in their construction; there is a vertical line that shows the range of the traders chosen bar time. And a hash mark on the left side of the line to indicate the open, and a hash mark on the right side to indicate the close of that particular bar. This charting system is often referred to as an OHLC chart. While this may be the simplest of charting systems, it’s still important to note that all charting systems are essentially displaying the same data in different formats.

      Renko and Range charts

      These two charting systems are similar in many ways, though they have some very distinct dissimilarities that should be thoroughly understood before undertaking any serious trading with them. Like candlesticks and Heiken-Ashi charting, Renko bars also have their origin in Japanese trading. Quite literally, Renko means bricks. Renko bars are often referred to as bricks by e-mini traders. When using these bars you set a specific range to be charted. For example, you may set your Range and Renko bars to a setting of four. With a setting of 4, every time the market moves 4 ticks a bar is formed. But there is a fundamental difference between Renko and Range bars. Range bars chart market movement in either direction, while Renko bars chart only in one direction. For example, when using Renko bars the market would have to move 4 ticks upward or downward before a new brick is displayed. On the other hand, a range bar will chart the complete range, up or down, and form a bar indicative of this movement.

      In summary, we have taken a close look at 5 different charting tools. While an in-depth discussion of the advantages and disadvantages of each system would entail a very lengthy discussion, I have tried to point out some basic advantages and disadvantages of each system. Each type of bar charting system provides a definite purpose for the e-mini trader, and I recommend serious e-mini traders investigate the advantages and disadvantages of each of these charting systems.

      Real Live Trading Doesn’t Lie. Spend several days in my trading room and see if you can benefit from a fresh and unique view on trading e-mini contracts. Sign up for your free trading experience by clicking here.


      Related Blogs

        E-Mini Trading: How Long Should You Trade in Simulated Mode?

        By , 15 July, 2011, No Comment

        Most new traders want to test their new e-mini trading skills on a trading simulator. Most new students can easily obtain a trading simulator from a reputable futures broker. The general line of thinking is to master e-mini trading on a simulator and then move to trading an actual live account. From the onset, I want to say that there is nothing inherently wrong with trading simulators other than they are the trading equivalent of video games. In short, there are no consequences for making either good or bad decisions.

        For me, the lack of trading consequences leads to long-term problems.

        As difficult as it may seem to believe, I have several students in my trading room who have been e-mini trading on simulators for several years. I frequently ask them why they have not moved to trading with real money, and they respond that “they want to completely understand trading before moving to an actual live account.” Of course, the real problem in this equation is fear of failure, and putting off an actual test of their trading skills is a suitable substitute for dealing with the issue of actually winning and losing trades. Even the best traders make trades that lose money. I have been trading for most of my life, and have entire days that end up in the negative column. I don’t enjoy losing, but it is a fact of life in the world of trading. I have even had periods of time where my trading style was not in tune with the market and I have had losing weeks, and occasionally even a losing month. It doesn’t happen often, and never in recent years, but learning to deal with losing trades is part and parcel of learning to trade.

        On the other hand, I like for students to use an e-mini trading simulator for several weeks so that they can learn the features of a trading platform like:

        • How to place a trade at a specific price
        • How to set up stop loss orders
        • How to set up staggered profit targets
        • Learn the general operating features of a trading platform
        • Place simulated trades to get a feel for how the price action looks on a DOM.

        In short, simulators are great places to learn how to operate a trading platform and implement the trading strategies the new student has been learning. But when fear begins to replace the learning feature of a trading simulator, it is my experience that most traders seldom make the transition from simulator to trading actual money. Until traders can make that quantum leap from pretend trading to real trading they are doing themselves a great disservice and would probably be best served spending their time in an avocation more suited to their psychological and emotional parameters. Trading is not for everyone.

        So, if you have been e-mini trading on a simulator for more than a year I would have a heart to heart conversation with myself. After a year of learning, you should be able to initiate a good number of winning trades, and experience some losing trades. Each trading experience is a learning moment and in order to learn you have to be an actual participant; extended time spent on a simulator is little more than participating in trading as a spectator. This is something for you to consider and take to heart.

        In summary, we have pointed out some excellent benefits associated with simulated trading and pointed out that an extended period spent in simulated trading may not be beneficial to a new trader. It is my opinion that traders should learn to trade on live accounts. In short, get off the sidelines and onto the field of play.

        Related Blogs

          E-Mini Trading Versus Forex Trading: A Shocking Lack of Transparency

          By , 15 July, 2011, No Comment

          The lightly regulated Forex industry has been in recent years the target of both the SEC and the CFTC, with good reason. Exchange traded securities provide potential traders with a high level of transparency and information in regards to the equity product or series they intend to trade. Variables like a leverage, registration of broker-dealers, and capital adequacy requirements are just a few necessary requirements that would go a long way toward establishing much-needed transparency in the Forex industry.

          Forex trading has gained a large following in recent years as a popular day trading vehicle. It’s not unusual to observe a barrage of Forex firms touting their services on just about any financial news publication. As a longtime institutional stock trader and commodities trader I am often shocked at some of the outrageous claims and advertising techniques this industry utilizes. This type of advertising and verbiage is simply not allowed by the SEC or the CFTC. The Forex industry, on the other hand, is lightly regulated and offers no centralized exchanges like the securities industry in the United States and has virtually no regulation on advertising technique and claims.

          From the onset I want to point out that the United States stock and futures exchanges have their share of hucksters and fraudulent activity. You need only peruse the current SEC and CFTC enforcement actions to get an idea of the amount of illegal activities that occur in our highly regulated exchange based trading structure.

          On the other hand, the lightly regulated Forex industry has been in recent years the target of both the SEC and the CFTC, with good reason. Exchange traded securities provide potential traders with a high level of transparency and information in regards to the equity product or series they intend to trade. Variables like a leverage, registration of broker-dealers, and capital adequacy requirements are just a few necessary requirements that would go a long way toward establishing much-needed transparency in the Forex industry. Further, and from a personal standpoint, I believe a centralized exchange for Forex trading would be optimal for the industry.

          By means of comparison, the futures industry and stock trading exchanges have rigid leverage, registration and capital adequacy requirements. In addition, e-mini trading is all conducted through well-regulated and orderly exchanges that feature reliable data feeds that provide real-time information on volume, trading entities, and pricing to all participants. This transparency in the futures industry is a sharp contrast to the murky Forex industry which is dominated by individual banking interests. Quite simply, there is a shocking lack of transparency in the Forex industry. In an orderly market, all participants ought to have access to accurate real-time information and standardized trading contracts.

          Another concern of the SEC and CFTC is the leverage requirements in the Forex industry. The current United States industry standard for leverage and a Forex industry is 100:1. The most recent regulation proposes lowering the leverage standard to 10:1, which is a departure from the current leverage standard that is a quantum leap in scope. For a variety of reasons, Forex traders have been, by and large, fiercely critical of these regulations. Since the CFTC can only regulate firms in the United States, offshore firms would still be able to offer the absurdly high leverage requirements the Forex industry has enjoyed. The obvious result of this new regulation would be a mass migration of Forex traders from United States based firms to offshore firms that would not fall under the proposed US Forex reforms. There is, however, regulation under consideration that is very similar to offshore betting operations; in short, it is unlawful for US citizens to patronize offshore betting firms in order to circumvent current US law regarding betting. The proposed regulation for patronizing offshore Forex trading operations is very similar to the limitations of US citizens circumventing United States Forex regulation. In short, Forex traders based in the United States would be required to trade through domestic Forex trading operations.

          In short, I don’t trade Forex because of the lack of transparency and a centralized exchange. In my opinion, there is simply too much potential for manipulation of bid/ask quotes, front running, and outright fraud. Currently the Forex industry leads security related scams by a wide margin, even though it is a small portion of the total day trading aggregate.

          To summarize, the Forex industry has great potential to become a legitimate and profitable day trading option. In my opinion, the industry must institute strict regulation before its legitimacy can be truly realized. I think that in time all of the above addressed the problems will be rectified, but until there is true transparency in the Forex industry I believe I will abstain from participating. We have identified problems like over leverage, lack of registration, and the absence of a centralized exchange as problem areas in the Forex industry. Until these problems are addressed, I don’t think the Forex industry will reach its full potential.

          Real Live Trading Doesn’t Lie. Spend several days in my trading room and see if you can benefit from a fresh and unique view on trading e-mini contracts. Sign up for your free trading experience by clicking here.

          Related Blogs

            Page 2 of 61«12345»102030...Last »
            Easy AdSense by Unreal