Trading Black Swans in Forex - page 5
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To-me it seems better being a Broker. Engcomp are you still a broker? If you're going from being a Broker to a Trader, does the indicate that Trading is better? I mean you've had time to observe the markets and its participants.
ubzen, I started out as a newbie trader after I got bored with being an engineer, which I had been for thirty years.
I became a client of Jackson’s, a broking house in Sydney, and was given a desk in a little side room, where I spent all day during trading hours.
One day I was approached by the manager who said, “you are here all day, would you mind taking some phone calls from clients when we are stretched?” So I became a Registered Client Advisor and took orders by phone.
Every now and again a client would ask, “what do you think about such and such?” and, being a trader, I had no hesitation to give my opinion.
When Jackson’s got wind that I was giving opinions, they said “our insurance doesn’t cover us for your opinions, you better get your own licence”.
It so happens that Jackson’s had a space on the ground floor of their building in Spring Street, Sydney that had been vacant for a while, so I negotiated a fair deal with them and got my own licence.
Is it better to be a broker or a trader? Depends how good a trader you are. Being a broker in my days was hard work and certainly deprived me of many great trades. But broking produces a sure income.
I managed to keep my trading activity alive through writing options, which requires little maintenance and makes money from the diminishing time value.
Am I still a broker? No. Furthermore, I have never traded or brokered forex until just recently.
In my brief experience with forex, one thing stands out – the old rules of shares and futures trading do NOT apply to this market. What the new rules are I don’t know, yet.
I still think you may have a gold mine of useful stories (the ones about loss), if you start a blog about loss stories I promise I will link to it from my blog.
I don't know anything about blogging.
Yes, there are a few more stories to tell. For example, the ugly side of human nature after the 1987 crash, when the winners thought they wouldn't be paid.
The queue stretched from my office through the front door into the street, like in those old bank run pictures.
To the credit of the ICCH (International Commodities Clearing House), everyone got their cheque on the spot even so the losers had yet to be corralled.
Or the story of The Sting. Every now and then, the SPI (Share Price Index) behaved very strangely just before the close, but on this particular day even more so.
The price of the SPI shot up sharply before the close of the SFE (Sydney Futures Exchange), which was 30 minutes after the close of the ASX (Australian Stock Exchange).
The next morning the SPI collapsed as fast as it had risen the day before. Both spikes were on huge volume, resulting in a multi-million dollar reversal of fortune.
The CAC (Corporate Affairs Commission, as the relevant regulator was then called) conducted an inquiry and discovered the following:
The strange behaviour of the SPI from time to time happened every time a major insurance company placed a large order for multiple blocks of shares.
It seemed that the brokers who got the order bought the SPI in anticipation of the market's reaction when the order hits the floor.
So on this occasion the insurance company placed a particularly large order and then sold all the SPI contracts the inside traders were willing to buy.
After the SFE closed, the insurance company cancelled the order. I understand the sting netted the insurance company fifty million dollars.
On top of losing all this money to the insurance company, the inside traders were fined by the CAC.
That's interesting. I thought, usually the big buyers of Australian shares always buy a large block of SPI too.
So that time they showed the large SHARE order to the broker they wanted to screw, when ASX was close but SFE was still open. And immediately sold a large block of SPI through some other futures broker as their SHARE broker started buying SPI. Next day they canceled the SHARE order before ASX's open and buy back the SPI when it crashed. Brilliant!
That's why Pre-ASX-Open and After-ASX-Close periods are the most dangerous times or most lucrative times for many SPI traders. I was a sucker trading SPI ten years and eventually lost a fortune.
That's scary, thinking about one entity moving any market like that. From what I've read, that sort of thing cannot happen in Forex because it's just too huge. But every now and then I read about brokers bluffing traders to trigger their stop-loses. So which is it, can Forex be manipulated or cant it?
ubzen, I have mixed with people who make money from things and people who make money from money.
People who make money from things are the people that create wealth. They are farmers, manufacturers, builders, architects, engineers, scientists, etc. At large, I have found these people to be honourable and trustworthy, the “salt of the earth”.People who make money from money do not create wealth. They specialise in moving money from one pocket to another. At large, I have found these people to be unscrupulous and not trustworthy.
Is forex “too huge” to be manipulated by the money movers? Not in my opinion. I think forex is a godsend for them because there is so much rogue money slushing around in the world that the old scams of equities and commodities pale into insignificance.
Since this game is totally beyond our reach, the trick is to sniff out when the game is being played and to ride the coattails of the players, unless you have a moral objection, in which case you will stay away.
As to your comment about brokers fishing for your stoploss, this is the oldest trick in the book; a hand-me-down from the bucket shops of the thirties. If you suspect your broker is doing that to you, drop him. There are plenty of decent brokers who are happy with the HUGE profit to be made from marrying Bids with Asks via the spread.
By the way, the modern term for "bucket shop" is CFD (Contract for Diference).
IMHO, FX is worse than CFD or futures or equity market or all these markets combined. It is unregulated market and nobody really guarantees the integrity of the data stream as the broker can spike it up or down to suit his positions.
Don't forget the fact that, unlike other markets where your winnings come from the tightly regulated and properly resourced Clearing Houses, in FX your winnings are to come out of the broker's pocket. Once you are winning consistent and substantial the broker will kill you by hunting your stops. Haven't you ever noticed the huge spikes?
I never keep more than 2,000 in my accounts and switched among three brokers regularly so that I cannot be targeted.
EuroTrader: IMHO....Once you are winning consistent and substantial the broker will kill you by hunting your stops. Haven't you ever noticed the huge spikes?
It's hard to believe Broker(s) could generate those huge spikes all by themselves. The brokers have to maintain the same Bid and Ask as the Central bank (or stick very close to it) otherwise people would take advantage of the difference because they'll know where the price is heading in advance. Well, it seems fx-Traders fall into 2 camps, those who trust the brokers and those who don't.
I don't know if the old days of the broker playing market-maker is history. IMHO,If the broker IS taking the opposite side of the trade then they borker$ may start fishing for popular stop-losses. This may be one reason good old support/resistance systems bite the dust after a while. This is why I don't subscribe to any fundamental or predictive trading methods. Well unless the fundamental is a Surprise and too big to ignore. Up/Down/Left/Right, I have no opinion, which ever way the market is going, thats where I'm going.
However, I've seen 3 of those huge spikes happen withing the last month. They moved the markets faster and further than any news release. I was in a frantic looking at all the new sites for information on which country got invaded but never found anything important going on. All the commentators were saying is the Eur/Usd rose and fell on Risk Appetite...Hun. I keep telling my self some Warren Buffet type may have loaded or off loaded a huge order but then again even he shouldn't have the ability to move the market like that.
Edit* come to think of it, maybe the Central Bank is playing us like a Violin.
I attach my interpretation of the black swan...
I attach my interpretation of the black swan...