REAL WORLD
Know Your Broker
Forex Trading Platforms And The Real World
by Chris Melendez
Here are some of the properties and pitfalls of online retail trading
platforms versus the institutional foreign exchange execution systems.
Today's foreign exchange markets are rapidly
acquiring new traders and investors. Many daytraders and equity investors
imagine they can easily become forex traders. But those who venture into
the world of foreign exchange are often handicapped by the lure of quick
money and by systems that are designed to benefit the trading platform
operator, not necessarily the individual trader.
The equity fallout of the last few years has drawn stock and commodity
traders to the foreign exchange market. But I consider the retail forex
market to be much like the Wild West; there are no benchmarks with which
the industry can align itself. There are no set parameters, nor are there
consistent rules. There is no central agency or body where standards can
be set and enforced. Platform operators are aware of all this, and that
is where problems arise.
There are important areas to discuss when it comes to trading platforms:
leverage, highs and lows, hedging, commission (or lack thereof), slippage,
re-quote, interest rates, and choosing a platform.
LEVERAGE
Unfortunately, leverage is often grossly misused, mainly because it
is not well understood. Leverage is a great tool to use in forex -- as long
as it is done responsibly. There are many firms out there today that offer
100 to 1 and even 400 to 1 leverage. That means that you could potentially
open an account with $10,000 -- and control $4 million in the market.
Figure 1: FIRST THOUGHTS. After looking at this chart, any retail
trader would think a low has been hit. But that may not be the case. There
are other factors behind the scenes.
...Continued in the June issue of Technical Analysis of STOCKS &
COMMODITIES
Excerpted from an article originally published in the June 2004 issue
of Technical Analysis of STOCKS & COMMODITIES magazine. All rights
reserved. © Copyright 2004, Technical Analysis, Inc.
Return to June 2004 Contents
