Building a collection advices for newbies in Forex Trading

[tommy0921]

Different Types of Brokers
- The first step in choosing a broker is finding out what your choices are. You don't just walk into a restaurant, knowing what to order right away, do you? Not unless you're a frequent customer there, of course. More often than not, you check out their menu first to see what they have to offer.

- There are two main types of brokers: Dealing Desks (DD) and No Dealing Desks. Dealing Desk (NDD) brokers are also called Market Makers, while No Dealing Desks can be further subdivided into Straight Through Processing (STP) and Electronic Communication Network + Straight Through Processing (ECN+STP).

What is a Dealing Desk Broker a.k.a. Market Maker?
Forex brokers that operate through Dealing Desk (DD) brokers make money through spreads and by trading against their clients. Also called market makers, Dealing Desk brokers literally create a market and artificial forex exchange rates for their clients. While you may think that there is a conflict of interest, there really isn't. Market makers provide both a sell and buy quote, which implies that they are indifferent to the decision of the trader.
Since market makers control prices, it also follows that there is very little risk for them to set FIXED spreads (you will understand why this is so better later). Also, clients of dealing desk brokers do not see the real interbank market rates. Don't be scared though, the competition among brokers is so stiff that the rates offered by Dealing Desks brokers are close, if not the same, to the interbank rate.
Trading using a Dealing Desk broker basically works this way:

Let's say you place a buy order for EUR/USD for 100,000 units with your Dealing Desk broker. To fill you, your broker will first try to find a matching sell order from its other clients or pass your trades on to its liquidity provider, i.e. a sizable entity that readily buys or sells a financial asset.
By doing this, they minimize risk, as they earn from the spread without taking the opposite side of your trade. However, in the event that there are no matching orders, they will have to take the opposite side of your trade. Take note that different brokers have different risk management policies, so check with your broker regarding this.

What is a No Dealing Desk Broker?
As the name suggests, No Dealing Desk (NDD) brokers do NOT pass their clients' orders through a Dealing Desk. This means that they do not take the other side of their clients' trade as they simply link two parties together.

NDDs are like bridge builders: they build a structure over an otherwise impassable or hard-to-pass terrain to connect two areas. NDDs can either charge a very small commission for trading or just put a markup by increasing the spread slightly.
No Dealing Desk brokers can either be STP or STP+ECN.
(to be continued)

 

[tommy0921]

What is an STP broker?
Some brokers claim that they are true ECN brokers, but in reality, they merely have a Straight Through Processing system.
Forex brokers that have an STP system route the orders of their clients directly to their liquidity providers who have access to the interbank market. NDD STP brokers usually have many liquidity providers, with each provider quoting its own bid and ask price.
Let's say your NDD STP broker has three different liquidity providers. In their system, they will see three different pairs of bid and ask quotes.
hgggggggggggggggggBidhhhhiAsk
Liquidity Provider A 1.2998 1.3001
Liquidity Provider B 1.2999 1.3001
Liquidity Provider C 1.3000 1.3002

Their system then sorts these bid and ask quotes from best to worst. In this case, the best price in the bid side is 1.3000 (you want to sell high) and the best price on the ask side is 1.3001 (you want to buy low). The bid/ask is now 1.3000/1.3001.
Will this be the quote that you will see on your platform?
Of course not!
Your broker isn't running a charity! Your broker didn't go through all that trouble of sorting through those quotes for free!
To compensate them for their trouble, your broker adds a small, usually fixed, markup. If their policy is to add a 1-pip mark-up, the quote you will see on your platform would be 1.2999/1.3002. You will see a 3-pip spread. The 1-pip spread turns into a 3-pip spread for you.
So when you decide to buy 100,000 units of EUR/USD at 1.3002, your order is sent through your broker and then routed to either Liquidity Provider A or B.
If your order is acknowledged, Liquidity Provider A or B will have a short position of 100,000 units of EUR/USD 1.3001, and you will have a long position of 100,000 units of EUR/USD at 1.3002. Your broker will earn 1 pip in revenue.
This changing bid/ask quote is also the reason why most STP type brokers have variable spreads. If the spreads of their liquidity providers widen, they have no choice but to widen their spreads too. While some STP brokers do offer fixed spreads, most have*VARIABLE*spreads.

What is an ECN Broker?
True ECN brokers, on the other hand, allow the orders of their clients to interact with the orders of other participants in the ECN.
Participants could be banks, retail traders, hedge funds, and even other brokers. In essence, participants trade against each other by offering their best bid and ask prices.
ECNs also allow their clients to see the "Depth of Market." Depth of Market displays where the buy and sell orders of other market participants are. Because of the nature ECN, it is very difficult to slap on a fixed mark-up so ECN brokers usually get compensated through a small*COMMISSION.

As I said

Hi all,
As a newbie, I follow people instructions and create a demo at fxdialogue because ... I create this thread to put advices and experiences in. I really appreciate your advices, and experiences. Post them in, so we can make this thread become collection advices for beginners.

Please add your points, don't just see and leave

 

[tommy0921]

20 Ways To Stop Losing Money
This is good for general trading, not specific to FX but rules are just the same.

Here's a reality check as we slam headfirst into the January markets. The vast majority of retail traders lost money in 2007 and will lose money next year, despite ample doses of education, enthusiasm and brilliant ideas. In fact, at least 80% of all at-home speculators will eventually give up and wash out of the financial markets.

How can you buck this enormous tide and make 2008 your most profitable year in the trading game? To state the obvious, the best way to start making money is to stop losing it.

In that regard, here are 20 ways to staunch the bleeding and get back into the winner's circle in the new year. Happy holidays, everyone!

1. Don't trust the opinions of market gurus.*Remember that it's your money at stake, not theirs. Listen to what they say, then step back and do your own homework.

2. Don't believe in a company.*Trading isn't investing, so you need to focus on the price action and forget the balance sheets. Leave the American Dream to Warren Buffett.

3. Don't break your entry and exit rules.*You made them for bad trades, just like the one you're stuck in right now.

4. Don't try to get even.*This isn't a game of catch-up. Every action you make has to stand on its own merits. Take your losses with detachment and make your next trade with absolute discipline.

5. Don't trade over your head.*If your last name isn't Kass or Cramer, stop trading like them. Just concentrate on playing the game well, and stop thinking about making money.

6. Don't seek the Holy Grail.*There is no secret trading formula, other than good position choice and solid risk management. So why are you looking for it?

7. Don't forget your discipline.*Anyone can learn the basics of the trading game. Sadly, most of us will fail because of a lack of self-control, not a lack of knowledge.

8. Don't chase the crowd.*Tune out the groupthink and dance to the beat of your own drummer. Get out of the chat rooms and off the stock boards. This is serious business.

9. Don't trade the obvious.*Everyone sees the most perfect-looking patterns, which is why they set up the most painful losses. Simply stated, if it looks too good to be true, it probably is.

10. Don't ignore the warning signs.*Big losses rarely come without warning. Don't wait for a lifeboat before you abandon a sinking ship.

11. Don't count your chickens.*That delicious profit isn't yours until you close out the trade. Trail stops, take blind exits and do everything possible to get that money into your pocket.

12. Don't forget the plan.*Remember the reasons you took a trade in the first place, and don't get blinded by greed or fear when the position finally starts to move.

13. Don't have a paycheck mentality.*You don't need to get paid every week or every month, as long as you take advantage of the opportunities as they come. Classic wisdom: traders book 80% of their profits on just 20% of the days the market is open for business.

14. Don't cut corners.*There are very smart folks out there working full time to take advantage of your mistakes. Fight back by examining your results, updating your plan and finding working themes for the next session.

15. Don't ignore your intuition.*Listen to that calm little voice that tells you what to do and what to avoid. That's the voice of the winner trying to get into your thick head.

16. Don't hate losing.*The best traders lose money on most of their positions, so get used to the pain of losing. And there's a side benefit: the losing teaches more about winning than the winning itself.

17. Don't fall into the complexity trap.*Traders who can't see the market are looking for it everywhere except in the price action. In truth, a well-trained eye will find more profits than in a stack of technical indicators.

18. Don't confuse execution with opportunity.*Expensive software won't help you trade like a hedge fund. Pretty colors and flashing lights make you a more nervous trader, not a better one.

19. Don't project your personal life onto your trading.*Trading gives you the perfect opportunity to find out just how messed up your life really is. Get your own house in order before you play the financial markets.

20. Don't think that trading is fun.*The trading game should be boring the vast majority of the time, just like the real-life job you have right now.