Have you, No? Me neither, so why do so many traders still insist on trading without stop losses? To be frank I shouldn’t get involved in discussions over stop losses as you eventually reach that polarised and prejudiced viewpoint of no return. You think that you’re right, someone else will swear black is white.
Now I can have a reasonable discussion on most trading issues with most fellow traders, for example, over the benefits of indicators and or pattern based recognition trading methods. I can accept that many ‘fundamentalists’ see indicators as “voodoo and mumbo jumbo”. I’ve even persuaded many doubters that the MACD can be as good a tool for recognising price action as candles and the naked eye; price failing to make higher highs or lower lows etc. and will happily chew over the fat of a discussion over leading, lagging, or left in the locker indicators.
But there’s two discussions I should never get involved in, one is stop losses, the other is the importance of spreads. Let’s discuss spreads today and pick up in part two of this article, on the subject of stops, early next week..
If you trade forex you should only use an ECN/STP forex broker. Am I paid to say that given my allegiance to FXCC? I suppose indirectly yes, but here’s the thing, whilst FXCC would be delighted with your business as a fellow trader I take a slightly different view, in as much as I’d be happier if you traded through any ECN/STP broker, even if it wasn’t FXCC.
You’d have ‘seen the light’ and woken up to the benefits of our industry and proposition over and above trading through a market maker with a dealing desk. At some stage you may try us and that’s in some respects all we can hope for, it’s then up to us to pull out all the stops (no pun intended) to retain your business..
The FXCC spreads are arguably as good as it gets in the industry, through our aggregator engine and liquidity pool of providers the bid and ask (the spread they offer) is hard to beat. You’re getting the true market level and price, if the spread on cable is 1 pip that’s what you’re offered. Other than the commission that’s the price you pay. But once you get down to fractions of a pip (plus a 0.5% commission either side of the round trip) is that as good as you can get? It is in my book, which is why I find the discussions and promotions of tight spreads irrelevant.
Here’s a question I ask many traders; “if your set up occurs on the GBP/JPY pair would you take it?” the answers I get back generally fall into two categories the; “ooh I don’t trade the GBP/JBY pair, the spreads are never tight enough”, or “sure I trade that pair with cable and the EUR/JPY, yes the best spread is only ever circa three pips, but if I’m aiming for circa 100 pips on a day trade what’s the point in avoiding it due to a couple of pips, it’s probably the best quote I’ll get on the pair anyhow.” If those two quotes came from two traders I know who my money would be on to have a successful career in FX trading.
Whilst we all have to adopt a professional and respectful attitude towards this industry if you’re trading through an ECN then all issues of the “cost of spreads” should be ignored as, to all intents and purposes, that issue has already been taken care off. You’re trading in the real market, getting true prices, with no re-quotes and instant fills. But there’s another issue with regards to fills and look away now if you’re (by the common misconception of the term) a scalper. Unless you’re a scalper then the ‘micro cost’ of the spread is irrelevant, let me explain…
The majority of retail forex traders do not experience success as scalpers, they squeeze the pips and money out of the market through day, trend or position trading/investing and not through scalping the loonie. So what’s important, the lowest possible fixed spread from a Market Maker dealing desk ( impossible to deliver) or the best spread available from a pool of liquidity providers, instant fills no re-quotes and transparency from a broker that goes to every length to help make you profitable?
Ooh, I reckon I’ll opt for the latter and that’s were I find it very difficult to argue with the ‘spread obsessives’. As a trend trader I’m aiming for a ROI (RR) of 1:2, somewhere between 150-200 pips profit per trade. Am I happy to let my broker have a half a percent commission on that trade knowing that their overall service is as good as it gets? Sure I am. Do I care if his spread is potentially beaten by 0.3 of a pip? No..not ever..