Little more than a marketing ploy.
OK, so you have seen a pattern on a chart that takes your eye, you do a little research, take a cursory glance at today’s economic releases and decide that this trade “has legs”. But then you notice that your broker is quoting the currency pair one pip wider than he advertises.
What do you do? In that moment of indecision, the seeds of doubt are sown, and you pull out believing that somehow you are being “played”. That darn spread was all that stood between you and a profit.
I have never taken any notice of the spread quoted to me when making a trade. Of course, when I was trading interbank, spreads were much wider than they are today and were more a matter of honour between dealers than a marketing ploy which is what they are today.
I can honestly say that when I trade, I never even look at the bid or offer on the other side. If the market is at a level that excites me and fits with what I am trying to do, I am happy to proceed.
Traders nowadays particularly those new to the market need a “compass point” on which to focus and that is often spread. Why? Because they are told by their broker that they have the lowest and most consistent spread in the market.
I ask, “so What?”.
I often review the websites of new (and existing) brokers and find that those that lead with some reference to spread a complete turn-off. If spread is what you lead with, what lies beneath the shiny website. This is often very little!
For those entering the realm of foreign exchange trading for the first time, ask yourself a question. “What piqued your interest? Was it the constant advertising you see when you open an email from Gap or Ikea? You wanted a pair of jeans or a new table and you find yourself reading about forex and you start to think “how difficult can it be?”. Aha now “they” have got you.
But, once you start reading you are immediately pushed towards FX. Why not precious metals, commodities oil or equities? When first starting out that is the time, like a child thirsty for knowledge, that your mind is most open to ideas. Don’t just look at what the euro or sterling are doing, what about gold, sugar, crude or Apple stock. There are any number of possibilities and the basics are the same.
Every broker tells us how he has 300+ assets on his website that can be traded then proceeds to funnel what you should trade, down to about ten or in some cases five.
I am an advocate of starting off where there is moist help and information but look around the trading universe, while dominated by the dollar, euro, pound yen and Swiss franc, doesn’t revolve around them.
Politics, but only for long term.
There are several drivers of the foreign exchange markets (you see despite what I say above, even I cannot resist!), but most of us tend to lump them all together and are surprised initially that they don’t each have an equal effect on the market.
One of the first tasks for new traders is to decide what period most suits them. There are several factors which go into making this decision. How much time can be devoted to starting at a screen awaiting divine intervention?
All day? Then I would say, “get a life”.Ten minutes? To that, I would say get a money manager.
Obviously, the optimum is somewhere between but that then determines what kind of trader you would or should be. Scalpers need to be constantly involved and that is often reflected in their personality. Those with a more studious approach tend to show more interest in four-hour charts and above. You see time is a major factor across the trading space and it determines many different parts of the market.
Personally, I am most interested in politics. That makes me, in most cases, hold an ultra-long-term view. For example, last month when Sterling was rallying on the back of the possibility of an interest rate hike, I was adding to a short position in the full and certain view that since Brexit was going to drag the economy to its knees, a short position was the correct long-term strategy. 1.38? Sell! 1.39? Sell!” 1.40? Sell! And so on. Now it is looking good, but will I take profit? No not until I see 1.25, or Brexit has fully played out..