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Dec 30, 2018 5:26:23 PM

What is a Fibonacci Retracement in forex trading?

A Fibonacci retracement is a technical analysis tool used by traders to understand when to place and close trades or when to place stops and limits. Fibonacci retracements depend on the mathematical principles of the Golden ratio14, and they are used to find areas of resistance and support in the primary movements of assets.

To calculate Fibonacci retracement levels, traders draw six lines across the asset’s price chart: one line would be at the highest point; one would be at the lowest point, one at the midpoint and three at 61.8%, 38.2% and 23.6%. According to the golden ratio rule, these points should be the ones at which significant levels of support and resistance should be detected.

How to Use Fibonacci Retracements in Trading

Here are the steps involved in making use of Fibonacci retracements for forex and CFD trading:

1. When applying the Fibonacci tool to a downtrend, use it to the start of the move to the end (the tool is always used from the left to the right), like so:

Fibonacci tool to a downtrend

2. With an upward moving trend, the tool should be applied at the bottom and end at the top. Once again, it is applied from the left to the right, as follows:

fib2
 
3. The Fibonacci retracement levels will automatically appear once you have used the tool. They appear in the form of percentages of the total move.
 
4. You can use the prices at 50%, 61.8% or 32.8% as your potential long entry levels.
 
5. To choose the correct level to enter based on your strategy, you need to:
  • Aggressively enter as the price reaches each level and place a stop loss at the other side of the Fibonacci level;

  • Wait until the price finds support or resistance15 at these levels and then enter.

Fibonacci Mistakes that need to be avoided

Here are some common mistakes that even very technical traders make at times. You need to avoid these at all costs as they can mess your position and timing up:

  • Do not mix your Fibonacci reference points. Keep them consistent and you should not go from a candle’s wick to a candle’s body16 as this can create a misanalysis.

  • Do not ignore any long-term trends. The major mistake that new traders do is that they look at significant moves which have occurred in the short term, and this can lead to a lot of misanalyses. By looking at the long term trends, one can use the Fibonacci retracements in the right direction of momentum.

  • Do not rely on Fibonacci alone as there is harm in doing this. Make use of additional analytical tools as this will increase your chances of making a good trade. You need the confirmation to allow you to move ahead.

  • Do not make use of Fibonacci retracement levels over short intervals. Applying it over short intervals is quite ineffective, and it will make it difficult for the trader to decide what levels can be traded.

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Investment | 5 MIN READ

Dec 29, 2018 9:40:35 PM

What is Fundamental Analysis?

Fundamental analysis is another technique used to trade. Fundamental analysis is a technique that is used to determine the value of an asset by focusing on underlying factors that affect the company’s future aspects and its actual business. With this technique,
you need to analyze the economic well-being of a financial entity as opposed to its price movements alone.

Fundamental analysis is used to identify those assets which are under-valued in the market, which means that they are selling at a lower price than the asset’s intrinsic value. This analysis assumes that buyers would be attracted by the low prices, and this would make them buy the asset in a sufficient enough amount to increase its price.

The Objectives of Fundamental Analysis

The objectives of this analysis technique include the following:

  • To conduct an asset valuation and predict where its price will go;

  • To make a projection on its business performance;

  • To evaluate the management of the property and make internal financial decisions;

  • To calculate credit risk of the asset;

  • To find the intrinsic value of the property.

    The Mechanics of Fundamental Analysis

    To conduct this analysis, you need to complete an in-depth and all-around study of the asset and its underlying factors. This would help you determine future prices and market developments. A combination of data is used to establish the actual current value of assets, whether they are overvalued or undervalued and the future value of the assets.

The Role of Fundamental Analysis in Trading

The first factor that you need to take into account when making use of fundamental analysis in trading17 are the pro t sources that you are targeting as these can help you understand how to make someone else’s money on your own. There are three kinds of pro t sources that are crucial to understanding:

  • When your fellow traders (with less knowledge and experience as compared to you) become a source of pro t for you. You can bene t from their losses by using better trading skills.

  • Initial public offerings and issuing additional stocks can give you the chance to cash in on the discrepancy between the price of the stocks or assets and the prices at which they will settle.

Established companies, mutual funds and other financial organizations can act as portfolio builders for traders. The trader’s pro t will then become the compensation for the risks he or she has taken.

However, fundamental analysis is not suitable for any short-term decision-making methods. Thus, you should make use of it in a strategical manner for longer periods of times.

A fundamental analyst would believe that the real value of an asset is based on its stability, earning potential and ability to grow. By exploiting the mispricing that occurs when an asset is priced at a value under or over its real value, the principal analyst seeks to pro t by utilizing one of the two main schools of thought: growth investing and value investing.

 

The 2 Approaches

Fundamental analysts make use of two different methods:

  • The top-down approach makes the analyst start their analysis with global economics (like GDP growth rates, inflation, interest rates, productivity, etc.) and then narrow their research to regional or industry analysis (like total sales, price levels, entry or exit from the industry, etc.).

  • The bottom-up approach is when the analyst starts with a particular business and then moves on to a more macro analysis.

The Problems with Fundamental Analysis

There are some serious drawbacks to making use of fundamental analysis:

  • There are an in nite number of factors that can affect the earnings of a company, its assets and price over time and take them all into consideration when conducting this analysis can be tough.

  • The data being used to carry out the analysis may be out of date.

  • The earnings that have been reported by a company might be deceptive and dubious.

  • Giving proper weightings to the different influencing factors may be difficult.

  • The results obtained from this in-depth analysis only remain valid for a short period and forecasts may become downgraded.

  • The rules of this analysis are always changing as a way to suit the trading game.

  • The fundamental analysis assumes that the analyst is completely competent, which is not

    always the case.

  • A single fundamental analyst will understand that other analysts will form the same point of view of the asset, and this will cause the value of the asset to be restored. Again, this may not always be the case.

  • This analysis technique does not take random events into account, like oil spillages, etc.

  • It also assumes that there is no monopolistic power over the markets.

    It does not indicate anything about the timing of trade, and you might have found an asset whose value has been falling for quite some time and will continue to fall, but you would not know when to make the trade.

Criticisms of Fundamental Analysis

Followers of the efficient market theory believe that fundamental analysis is awed because
it is not possible for someone to outsmart the market and identify mispriced assets using information that is available to the public.

Another source of great criticism of fundamental analysis is the fact that many believe that it is impractical. It causes analysts to come to vague conclusions about an asset and the number of variables that should be studied.

Thus, you need to apply fundamental analysis appropriately as it does not suit all market conditions and the fact that it is quite time- consuming means that you need to make sure that fundamental analysis is the option you want to go with. You should keep all of the problems under consideration before

you decide to apply fundamental analysis and it would also be best for you to make use of another technical analysis technique as a way to ensure that the decisions you make based off of the fundamental analysis are not misguided.

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Investment | 5 MIN READ

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Dec 29, 2018 10:34:05 AM

What is Technical Analysis?

The technical analysis makes use of past data to predict future prices. It employs methods, tools and techniques (like the use of charts) to identify price patterns and market trends. Technical analysts also make use of different market indicators which help assess whether an asset is trending, the probability of its continuation and direction. Technical analysts (or technicians) are only interested in the price movements in the market. Technicians identify patterns within the market that may suggest future activity as well. This analytical technique is based on three main assumptions:
  • The market discounts everything, which means that an asset’s price reflects everything that has or could affect the company and thus there is no need to consider these factors separately;
  • Price moves in trends, which means that any future price movement is more likely to be in the same direction as the trend;
  • History has a tendency of repeating itself, which means that a consistent reaction is given to similar market stimuli over time.

10 Rules of Technical Trading

To perfect the art of trading using technical analysis, here are some crucial rules that you must keep in mind:

  1. Map the trends by studying long-term charts. Start a chart analysis with weekly and even monthly charts that span over several years as a large scale map of the market provides the trader with a greater amount of visibility and a better perspective on the long-term market. Short-term market views can be deceptive.

  2. Spot the trend and follow it. Market trends come in many sizes (short, intermediate and long-term), and you should determine which one you’re going trade and then trade in the direction of the trend. Also, make sure that the charts you use are by the trend.

  3. Find the support and resistance levels, as the best place to buy is near support levels and the best place to sell is near the resistance levels. This rule functions on the concept that the old highs become the new lows.

  1. Understand how far to backtrack. Measure the percentage retracements. A 50% retracement of a prior trend is most common, and a minimum retracement is usually one- third of the prior trend.

  2. Draw trendlines. These are the most simple, yet effective charting tools that are available as all you need is a straight line and two points on a chart. Uptrend lines are drawn along two successive lows, while downtrend lines are drawn along two successive highs. When a trendline is broken, it usually shows a change in the trend.

  3. Follow the averages. Moving averages are your source of objective buy and sell signals, and they help in confirming a trend change. The most popular way of finding trading signals is by combining charts of two moving averages.

  4. Track oscillators. They help traders identify markets that are overbought or oversold. They also help warn traders of markets that have rallied or fallen too and may turn soon. The most popular oscillators are Relative Strength Index (RSI) and Stochastics.

  5. Know the warning signs by using MACD. The Moving Average Convergence Divergence (MACD) indicator combines an average moving crossover system with the overbought
    or oversold elements of an oscillator. A buy signal may be justified when the faster line crosses over the slower, and both of the lines are below zero; while a sell signal may be warranted when the faster line crosses the slower line and both of the lines are above zero. An MACD histogram plots the difference between the two lines and provides even earlier warnings of any changes.

  6. Use ADX to determine whether it is a trend or not a trend. The Average Directional Movement Index (ADX) line helps in determining whether a market is in a trending or trading phase. It measures the degree of trend or direction within the market. By plotting the direction of the ADX line, a trader can determine which trading style and which indicators are suitable for the current market.

  7. Know the confirming signals. Volume and open interest are the most popular indicators. Volume precedes price and it is crucial to make sure that heavier volume is taking place in the direction of the prevailing trend. Rising open interest ensures that new money is supporting the current trend.

Popular Technical Analysis Tools

These indicators and tools are used to predict future movements of prices in the market, and they are the reason for technical analysis gaining increasing popularity in the trading domain:18

  • On-Balance Volume,

  • Accumulation/Distribution Line,

  • Average Directional Index,

  • Aroon Indicator,

  • MACD,

  • Relative Strength Index,

  • Stochastic Oscillator. 

Critique of Technical Analysis

Criticisms of technical analysis include:

  • It works only because it is self-fulfilling. It only works because traders believe it works and acts by this belief.

  • There is no hard proof that technical analysis works. There seems to be evidence which indicates that the kinds of technical analysis that work change over time with different markets and time periods being suited to different methods of technical analysis.

  • Price changes are random and cannot be predicted. This belief, held by the efficient market hypothesis, states that markets react immediately to information affecting an asset’s intrinsic value.

    Thus, the technical analysis also has its drawbacks, but this does not stop it from being one of the most popular trading analysis techniques and the scientific approach that is used in this analysis with the use of tools, makes it quite efficient and effective in the prediction of future price movements.19

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Investment | 5 MIN READ

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Dec 28, 2018 1:05:18 PM

What is Algorithmic Trading?

Another trading method to trade CFDs or Forex is Algorithmic trading. All trading method have its inherent risks and some platforms may not allow the use of algorithmic trading. Algorithmic trading is a method of executing a large order (too large to execute all at once) using automated pre-programmed trading instructions accounting for a variety of variables such as time, price, and volume to send smaller slices (child orders) out to the market over time. Algorithmic trading is a way to make a profit by minimizing the cost, market impact and risk in an execution of order.

The Benefits of Algorithmic Trading

Algorithmic trading potentially provides the following benefits following the rules of the trading strategy without human Psychology decision or indecision getting in the way:
  • Trades executed at the best possible prices as per the trading strategy,
  • Instant and accurate trade order placement (thereby high chances of execution at desired levels),
  • Trades timed correctly as per the defined rules and instantly, to avoid significant price changes,
  • Reduced transaction costs,
  • Simultaneous automated checks on multiple market conditions,
  • Reduced risk of manual errors in placing the trades,
  • Back test the algorithm, based on available historical and real-time data,
  • Reduced possibility of mistakes by human traders based on emotional and psychological factors.

 

Algorithmic Strategies

The following are common trading strategies used in algorithmic trading:

  • Trend Following Strategies, which is very common and follows trends in moving averages, channel breakouts, price level movements and other technical indicators. These are the easiest and simplest strategies to implement because they do not involve making any predictions or price forecasts. Trades are initiated based on the occurrence of popular trends, which are easy and straightforward to implement through algorithms without getting into the complexity of predictive analysis.
  • Arbitrage Opportunities, which involve buying a dual listed stock at a lower price in
    one market and simultaneously selling it at a higher price in another market. These opportunities offer the price differential as risk-free profit or arbitrage. The same operation can be replicated for stocks versus futures instruments, as price differentials do exist from time to time. Implementing an algorithm to identify such price differentials and placing the orders allows pro table opportunities in an efficient manner.
  • Index Fund Rebalancing, which has defined periods of rebalancing to bring their holdings on par with their respective benchmark indices. This creates pro table opportunities for algorithmic traders. Such trades are initiated via algorithmic trading systems for timely execution and best prices.
  • Mathematical Model Based Strategies, where a lot of proven mathematical models, like the delta-neutral trading strategy, allow trading on a combination of options and its underlying security. Trades are placed to offset positive and negative deltas so that the portfolio delta is maintained at zero.
  • Trading Range (Mean Reversion); this is based on the idea that the high and low prices of an asset are a temporary phenomenon which reverts to their mean value periodically. Identifying and defining a price range and implementing an algorithm based on that which allows trades to be placed automatically when the amount of an asset breaks in and out of its defined range.
  • Volume-Weighted Average Price (VWAP) strategy breaks up a large order and releases dynamically determined smaller chunks of the order to the market using stock particular historical volume profiles. The aim is to execute the order close to the Volume Weighted Average Price (VWAP), thereby bene ting on average price.
  • Time Weighted Average Price (TWAP) strategy breaks up a large order and releases dynamically determined smaller chunks of the order to the market using evenly divided time slots between a start and end time. The aim is to execute the order close to the average price between the start and end times, thereby minimising market impact.
  • Percentage of Volume (POV) requires the trade order to be fully filled. This algorithm continues sending partial orders, according to the de ned participation ratio and according to the volume traded in the markets. The related “steps strategy” sends orders at a user-defined percentage of market volumes and increases or decreases this participation rate when the stock price reaches user-de ned levels.
  • Implementation Shortfall strategy aims at minimizing the execution cost of an order
    by trading off the real-time market, thereby saving on the expense of the order and benefiting from the opportunity cost of delayed execution. The strategy will increase the targeted participation rate when the stock price moves favourably and decreases it when the stock price moves adversely.

Technical Requirements for Algorithmic Trading

Implementing the algorithm using a computer program is the last part, clubbed with back testing. The challenge is to transform the identified strategy into an integrated computerized process that has access to a trading account for placing orders. The following are needed:

  • Computer programming knowledge to program the required trading strategy, hired programmers or pre-made trading software;
  • Network connectivity and access to trading platforms for placing the orders;
  • Access to market data feeds that will be monitored by the algorithm for opportunities to place orders;
  • The ability and infrastructure to back test the system once built, before it goes live on real markets;
  • Available historical data for back testing, depending upon the complexity of rules implemented in the algorithm.

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Investment | 5 MIN READ

22

Nov 22, 2018 4:01:16 PM

Benefits of Using Managed Forex Account Services

Over the last few years, more and more people are seeking out higher returns than the standard bank interest. As a result, more and more investors are seeking a managed forex account service to help them generate additional cashflow.

In this article, we are going to looking at the benefits of using a managed forex account service and how it can potentially help you achieve your financial goals with less stress.

When it comes to trading the global Forex markets, there are two main ways to trade..

  1. Self-directed trading; and
  2. Managed forex account services.

Both come with their challenges, but first, we’ll look at self-directed trading.

When you trade your account, you must have your psychology spot on, as there are a lot of emotions involved.

Many traders tackling the Forex markets for the first time set high expectations. Instead of ‘learning the ropes’ they go in with hopes of generating unrealistically high returns.

Unfortunately, generating a high return during your first few years of trading is often more luck than skill.

Inevitably, you suffer a series of losses in a row, andyour account goes in a drawdown.

Your confidence is now at an all-time low and, as Murphy’s law would indicate, the minute you stop trading, your system’s best trades come up, without you on them.

Fear then sets in, you procrastinate, and you fail to take every trade your system generates.

Now you are in a worse position than when you started. Your account is down, your confidence is low, and you still don’t have an effective trading system.

A managed forex account service, on the other hand, simplifies everything for you.

There are many benefits associated with a managed forex account service, and we’re going to cover them here.

Why do people choose to trade their accounts?

One of the reasons people trade their accounts is they are curious to see how their trading ideas will perform.

Many traders believe they can outperform the professionals who have dedicated their life to their pursuit. Some mistakenly believe they can transfer their current work or life success across to the Forex markets without putting in the years of study and lessons learned.

The second reason people like to trade their account is they see some people turning a small amount of money, maybe $10,000 into a much larger amount of money in a very short space of time.

Now, anyone interested in making money is going to be quite captivated by the large returns some people quote.

 

The third reason people trade their account is they are motivated to generate an additional stream of income.

Trading for income makes a lot of sense as most first world countries are quite expensive to live. To try the nice things in life, additional income streams are needed.

The forex markets appeal to those who wish to generate money on the side because it can be traded 24 hours a day, five days a week. The Forex markets are very liquid, which means you can get your money in and out with ease.

What is the main goal of a trader?

The number one goal of any trader is to earn a positive return on the money invested.

While this sounds easy on paper, it is much harder in real life.

Many so-called successful traders make it sound as easy as buying a few currency pairs, hitting sell and banking all your profits.

They neglect to mention the seven or more years or blood, sweat and tears that went into carving their Forex trading career. The countless late nights, dozens of trading books and failed trading ideas.

At the end of the day, your goal should be to generate a positive return. Don’t get this confused with having to do it yourself.

Therefore, you must seriously consider a managed forex account service as part of your financial strategy.

For example, instead of having to:

  • stay up late at night;
  • analyse all the currency pairs;
  • listen to the key economic reports;
  • chat with other traders on online forums;
  • pour over dozens of charts across multiple timeframes;
  • adjust your risk management parameters daily; and
  • adjust your spreadsheets,

you can have a professional trading your account for you daily.

You still have the goal of getting a positive return in the market, except you don’t have to spend the time, money and energy associated with generating those returns.

If the main goal for you is to generate a positive return, then you need to consider a managed forex account service.

Why is it important to keep the end goal clear in mind?

It is essential to keep the end goal of what you are looking to achieve front and foremost in your mind. You must constantly be thinking about how to generate a positive return from your funds under management.

In fact, for many people heading into retirement, earning a positive cash flow is such a beneficial thing it can truly change the way you live and the lifestyle you have.

Taking the time to consider a managed forex account service may be the exact thing that you are looking for.

The reason being is you do need to generate a positive return on your money, but you don’t need to spend the time, effort and money and resources to do it yourself.

If you get a buzz out of staying up late at night watching the forex markets, then set up two accounts. The first account is your base. You set the money for the first account with your managed forex account service.

The second account is your trading account. Set your goal to see if you can outperform your Forex account, manager.

What are the top three benefits of a managed forex account?

  1. Time

The first major benefit of a forex managed account service is time.

Time is our most precious resource.

Don’t just think about the time of actively trading. Actively trading is often the fun part of executing the trade and following your stops.

What people fail to realise is it can take at least 6 to 12 months of developing a sound, low-risk trading idea. Then you must backtest your new strategy. This will then give you the confidence to trade the idea and your new setups.

If you are only thinking about the time it takes between 7pm and 10pm to execute your system; then you are mistaken.

Think about the time it takes to proactively build and manage and backtest a fully developed trading system. A professional trading system includes your entry, exit and risk management parameters.

  1. Working with a professional

The second benefit of working with a managed forex account is you get to work with a professional. Ideally, the managed forex account you select will be run by a professional who has been in the markets for years.

It’s their life.

They live and breathe the forex markets.

You get to work with a professional who has been building their trading systems, building their trading ideas and back testing their ideas in the market to make sure they’ve got a positive expectancy in their trading system.

  1. You control your funds

The third benefit of a managed forex account is you control your deposit amount and can start and stop when you like.

Not everyone understands this.

When you open a managed forex account service, you control the amount of money you put in.

Sure, they may have a minimum account opening balance, but at the end of the day, you can control your initial deposit above their set minimum.

Here are some points to consider about your account:

  • Your Forex account is 100% in your name.
  • You control your account 100% of the time.
  • The managed forex account service only has authority to place trades on behalf of your account.
  • They can never withdraw cash from your account.
  • They cannot transfer funds from your account.

Remember, you control when you start and stop trading the managed forex service. You need to keep this in mind as well.

If you want to stop your forex managed account service, you need to discuss it with your forex account manager.

However, you can ask them to close all positions on your account, and they will close them within the hour.

How do I get started with a managed forex account service?

Getting started with a managed forex account service is simple.

Your manager will have an affiliated Forex broker, and your first step is to open an account with them.

Filling out the online forms only takes a couple of minutes.

You submit your forms, and once your account is approved, you will then be able to fund your account.

The entire account opening process will not take more than 24 hours.

You then approve the firm to manage trades on your behalf. Once complete, the next trades meeting their strict criteria will be executed into your account.

As you can see, there are several benefits of a managed forex account service. It is easy to set up. It will save you time. It will remove the emotions from your trading. You get to work with a professional, and you control all deposits and withdrawals to and from your account.


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Forex | 5 MIN READ

slow-churning-markets

Nov 22, 2017 8:27:00 PM

How to Tell if Your Investment Manager is Churning Your Trading Account

Your goal as an investor is to preserve and grow your wealth. At the end of every month, you want your equity to be higher than what it was at the start of the month. In this post, we’ll be discussing how some investment manager’s and managed account services could potentially churn your account for extra income, and what you need to be aware of.

What exactly is churning an account?

Let’s consider two investors who both have $50,000 with their preferred investment manager.

The first investment manager implements a dedicated trading strategy based on a fully backtested trading system. This system has historically generated a positive return over time and in recent results, has enjoyed a 5% gross return per month for the last three months.

The second investment manager is more interested in earning commissions from the brokerage. The strategy he employs is very much influenced by strongly uptrending markets. When the markets are rising, his results are good, but when markets take a turn, his performance suffers greatly. The good news is his strategy has produced gross returns of 5% per month over the last three months. The same as the first investment manager.

Now let’s consider the trading activity levels on the account.

An example of churn on a trading account

You are no doubt aware there is a cost associated with every single trade. No matter if it is a stock, index, commodity or Forex trade, there will be a cost to transact each time. Whether it be commissions or spreads, there will be a cost.

Investment manager 1 trades ten times per month or around one trade every second day. To keep things simple, let’s say brokerage is $50 per trade.

Ten trades at $50 per month is $500 per month. $500 per month is the equivalent of 1% on a $50,000 account.

Investment manager 2 trades at 50 times per month or slightly more than twice a day. But what you might not realise is how much of that commission goes back to the investment manager.

Let’s take a closer look at the figures after three months of hypothetical trading results.

Fund 1 – 10 trades per month   Fund 1 – 50 trades per month
Starting equity 50000   Starting equity 50000
Trades 10   Trades 50
Cost per Brokerage 50   Cost per Brokerage 50
Total Monthly Brokerage 500   Total Monthly Brokerage 2500
3-month return 15%   3-month return 15%
Gross equity 57500   Gross equity 57500
Total brokerage (3 months) 1500   Total brokerage (3 months) 7500
Equity after 3 months 56000   Equity after 3 months 50000
Net profit 6000   Net profit 0

 

As you can see, both accounts achieve a 15% hypothetical return after three months. But one achieved those results with five times more trading activity.

You will notice the significant impact a high number of trades has on an account. We can refer to this as churn.

Churning is when an investment manager executes a high number of trades to generate commissions. As a practice, Churning means the investment manager is not acting in the clients’ best interest. Churning is not only unethical, but it is also an illegal practice.

Now you will understand why the term ‘churn’ has such a negative connotation to it. Unfortunately, it is negative for the person outlaying the capital but positive for the investment manager. They will be earning a substantial portion of that as their monthly commissions.

Forex turnover versus stock turnover

The example above is more indicative of a stock portfolio, given the $50 brokerage fee per trade.

When it comes to trading Forex, there are no commissions. Instead, they have what is known as the spread.

The spread is the difference between the first buyer and the first seller.

If we consider the Aussie Dollar, the current price is 0.7657. For this example, we will go to the fourth decimal place, which is known as a pip. The fifth decimal place is 1/10 of a pip. Traders always talk in terms of pips when it comes to trading forex.

 

trading forex

Source: Metastock

The first buyer will be sitting at 0.7657, and the first seller will be at 0.7658. In this example, we will assume a 1pip spread as standard on the Aussie Dollar.

When we trade one full contract (the equivalent of $100,000), we pay the spread on that value. At $100,000 position size, each trade will have a spread value of $10.

The beauty of trading Forex is the flexibility of trade size. You are not restricted to trading a position size of $100,000. You can trade mini contracts.

One mini is $10,000 in trade size. The spread on that will be one pip or $1. Each mini contract is 1/10th the effective commission.

Getting back to the example of trading stocks, you recall the significance of a high volume of trading activity of the bottom line profits.

Similarly, when it comes to Forex trading, a high volume of trading activity incurs a higher cost base.

Spread markup on every Forex trade

When it comes to reading the fine print, you will notice something call spread markup. This is one way how many managed account services earn an income from managing your accounts.

If you consider the 10+ years of focused effort, study and trial and error that has gone into building a robust trading system, you begin to appreciate that this is a fair fee for managing so much money.

What is a spread markup?

A spread markup is when an investment manager will add their spread on top of the current spread. For example, an investment manager may add a one pip spread on top of the current spread.

Unfortunately, many Forex managed account services try and hide their spread markup fee.

At Walker Capital Australia, we are a big believer in transparency. As a result, our Financial Services Guide (FSG) always has an accurate figure of exactly what our charges are for each strategy mentioned below.

You can always reach out to one of our team to discuss how the spread markup works on your account.

Should I be concerned about the spread markup?

As mentioned above, the time and devotion that goes into building a fully backtested and scalable trading strategy is not easy. There is a lot of skill and patience involved. You then need the mindset to allow you to execute the strategies without mistakes in the market.

As you can appreciate, any investment manager who is responsible for your gains needs to be fairly compensated.

The only time you should be concerned about the spread markup is when you cannot easily find it. Or perhaps when you ask the investment manager, they avoid the subject or cannot give you clear answers to the simple question.

Trading activity of various Forex strategies

Now you understand what churn is and how trading activity affects your bottom line profits. Let’s jump into the different types of trading strategies and the activity levels each has on your account.

By understanding different trading styles, you will be able to understand which ones may be setup to churn your account versus those which are there to minimise your investment costs.

Day trading

This is often a big red flag. Active day traders can do as many as 300 trades per day. That is not a typo. 100-300 trades per day is the level of activity day traders can hit. Your costs here are very high. At Walker Capital, we do not believe a day trading strategy is beneficial for long-term gains, so we do not employ such a high turnover style.

Swing trading

Swing trading looks for uptrending or downtrending markets which have recently pulled back from their recent run. At this pullback level, it is probable the market will consolidate and then move higher again.

Retracement strategy

The retracement strategy can be a little more active as it benefits from range-bound markets. Markets don’t always trend, so it is important to have a method which benefits from sideways trending markets.

Breakout strategy

Breakouts are the explosive moves which occur infrequently but allow the opportunity for big moves. Identifying trades in this area can be a little harder and so this strategy trades less frequently.

Price Action strategy

Price action trading is identifying specific patterns within the price of the underlying asset without the use of indicators. Price action traders will look at certain candlestick or bar chart patterns, support, resistance and the overall trend of a market.

At Walker Capital, we believe it is important to be as transparent as possible with every account we manage.

Which is why we explain trading styles and set expectations around each one.

To find out more about the Walker Capital investment strategies get in touch today.

Here are the steps to get started:

  1. Schedule an appointment (Conference Call) with an Investment Manager
  2. Submit a Managed Discretionary Account (MDA) application with Walker Capital Australia.
  3. Open a trading account with the Walker Capital Australia’s executing broker.
  4. Select from our range of investment strategies and choose your asset allocation between the choices of accounts.
  5. Once all accounts are opened, and funds have been chosen, our team gets to work and begins trading.

We welcome you to give our team a call to discuss your investment goals and objectives.

You can call Walker Capital Australia on +61 2 8076 2210, and we’ll see how we can help you achieve your investment goals.


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Performance Fee's | 5 MIN READ

questions

Oct 31, 2017 8:22:00 PM

8 Questions to Ask Before You Pick Your Managed Forex Account Provider

Who you trust with your investment is a critical factor if you want to have a healthy nest egg, particularly in your retirement years.

If you’re like many investors who are still busy with full-time work and don’t have the time and expertise to grow your investment, it may be wise to seek help from investment pros.

This is because when you have investment pros managing your money/capital, you can have that peace of mind and assurance that someone is looking after your investment almost 24/7.

Compared to your limited time – realistically, how many hours have you spent the past 3 months analysing your investment portfolio? Investment managers spend most of their time analysing the markets, evaluating investment opportunities and managing the overall growth and risks of the funds they’re managing.

Tap into investment pros’ market expertise

Another advantage of using investment managers is that you’re tapping into their expertise and knowledge of the markets.

Investment managers and almost everyone in the financial services industry are required to go through an ongoing education and training. This makes sense because they need to make sure they are up-to-date with market regulations, product knowledge and the overall market movements.

Given all those benefits, it may be a good idea to include the use of investment managers or managed funds (forex, shares or other assets) as part of your investment strategy. Even if you only use them for a portion of your investment capital, it may help in diversifying your portfolio or boost its return as well.

But before you ask your friends or relatives for any recommendation on who the best investment manager to use, you need to do your own homework as well.

And it doesn’t matter whether you have a short-term, medium-term or long-term horizon for your investment, the important thing is to have a strategy to grow your capital.

Whether you want to fast-track your wealth creation or boost your retirement fund to a healthy level, there are logical and strategic ways you can use to make informed decisions when investing and growing your money.

In this article, we will dig deep into the top 8 questions you need to ask before you choose your investment manager. In particular, we will be looking at Managed Forex Account managers who use the global forex market as the main investment vehicle.

Using managed forex accounts to fast-track your investment growth

Managed forex accounts are fast gaining popularity among investors including SMSFs due to the potentially high returns they offer. With the potential slow growth phase of the Australian property market and some other asset classes, investors are now looking for better alternatives. And they are more open to considering other asset classes including forex.

Whether you’re a self-directed private investor or one who is managing and growing your SMSF account, it is wise to consider a few different ways of investing. The good thing with using managed forex accounts is that you still have total control of the account while it is being traded and managed by a professional trader or the investment manager.

Here are the top 8 questions you should ask before you choose your Managed Forex Account Manager.

  1. Are you (the managed forex service provider) regulated?

Australia has one of the most stringent and robust regulatory environments in the world when it comes to financial services providers.

For investors, this can be reassuring as you would like to be dealing with people and companies that are properly regulated and have the appropriate licenses.

As part of your research and due diligence when you’re considering a managed forex account service provider, one of the most basic (and must) questions to ask is are you regulated? This is important because you want to be dealing with an appropriately licensed provider.

Nowadays, it is quite easy to check whether a company is regulated by ASIC or not. Financial services providers are required by law to prominently declare their license details on their website and all relevant information materials like this one.

  1. Who holds my money?

This is another critical question to ask because even if you choose to set up a managed forex account, you want to keep control of your money.

You have to make sure that the account is in your name (your spouse or partner) or your SMSF account.

At the same time, you want to make sure that the money is in a safe account with a trusted Australian bank or financial institution. And it goes without saying that you want full control of the trading account as it is your money, in the first place.

  1. How much funds are under management (FUM) do you have in this strategy?

The size of the fund under management can be an indication of the positive performance of the manager and their strategy. It can also be a measure of the level of trust other investors have for that particular manager.

If you look closely, here are some of the things that the FUM can tell you about a managed account service provider:

  • A big FUM can mean the managed account manager is able to grow the accounts
  • This could be a positive reflection of the trading/investment strategy being used
  • A big FUM can also mean more people trust this managed account provider with their money
  • A gradually increasing FUM can show the consistent and steady investment strategy at work 
  1. Who is the trader/manager and can I talk to him/her?

Again, this is a vital factor to consider. You want to know that your investment is being looked after by someone who has the market knowledge, expertise and experience.

Though you will most likely be dealing with a salesperson during the initial stage of your research for a managed forex account provider, it is important that you ask to meet and talk to the actual manager or trader.

And you should use this meeting with the manager/trader to ask all the questions you need to ask. It is also a good opportunity to use this meeting to validate or confirm your decisions. Whether you go for a particular managed forex account provider or not sometimes boil down to your relationship with the actual manager/trader.

The investment manager/trader is also the best person to talk to you about the strategy and the nitty-gritty of managing your investment.

Remember, it’s your money that you’re trying to grow, so it is better to spend the time doing your due diligence and meeting with the investment manager/trader directly.

Here are some of the things you want to consider when looking for a managed forex account provider:

  • Someone who has the track record
  • Someone who has the strategy/ies for different market conditions
  • Someone with solid systems and processes in place – investment criteria, risk management and money management procedures
  1. What’s the difference between net of fees and gross results

Another basic question that you need to ask your managed forex account provider is the fee. How much will they charge you? And what’s the basis for the fee? Is there a high water-mark where you only pay them a fee if they have a positive return on your investment?

It is important that you know or at least to have some estimate of how much return on your investment you will get. And if your total returns will be affected by how much fees you have to pay.

  1. Do you publish the history of the trader’s results?

It is also important to see previous (historical) as well as current performance figures from the managed forex account provider.

Though they will always say that previous performance is not a guarantee of future results, it is good to see how they have performed in different market conditions. At the same time, you would like to see their current performance so that you can compare them with what the markets are doing.

Current performance is vital because it can give you their actual performance in today’s (current) market condition.

  1. Has the trader managed funds before?  

Similar to interviewing someone for a job, you want to have a managed forex account manager/trader who has a good track record. Someone who has managed similar funds before and who have solid performance to show for it.

Again, while previous performance may not always guarantee you the same results for the future, you still want to have someone who has the knowledge of the markets and the skills to implement the trading/investment strategy.

Ideally, you want someone with several years of trading experience who has seen the ups and down cycle of the markets. This is because you want someone who can handle the pressure and can make logical and strategic decisions when market conditions are tough.

You want someone who can stick to the investment strategy and manage the risk.

  1. Transparency and how do you access your account?

While some managed investments, particularly funds, only give you annual reports, what you want is total transparency and accessibility. This means that you can see the actual performance of your forex managed account on a regular basis.

While you may not want to look at it on a daily basis, you need a level of transparency that will give you that access and ability to monitor the performance if you want to.

Transparency also means you can deposit or withdraw money from your account if you need to.

For example, if there are emerging opportunities that you want to take advantage of, you may want to add to your portfolio by depositing additional capital.

The same is true with withdrawals, if for some reason you need to take out some money from your forex managed account, you should be able to do so because you have complete access to it.

These are just 8 of the important questions you need to ask before you choose your forex managed account provider.

If you want to know more about how you can take advantage of managed forex accounts,

Here are the steps to get started:

  1. Schedule an appointment (Conference Call) with an Investment Manager
  2. Submit a Managed Discretionary Account (MDA) application with Walker Capital Australia.
  3. Open a trading account with the Walker Capital Australia’s executing broker.
  4. Select from our range of investment strategies and choose your asset allocation between the choices of accounts.
  5. Once all accounts are opened and funds have been chosen, our team gets to work and begins trading.

We welcome you to give our team a call to discuss your investment goals and objectives.

You can call Walker Capital Australia on +61 2 8076 2210 and we’ll see how we can help you achieve your investment goals.

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Audit | 5 MIN READ

forex

Oct 18, 2017 8:20:00 PM

Forex Managed Account Services and Understanding Real Versus Hypothetical Result

Steady returns, low drawdowns and full transparency are three key factors that set the best-managed forex accounts apart relative to their competitors.

Nothing is more exciting than projecting your portfolio returns based on the historical results you see published from various Forex trading systems.

But along with the higher returns of Forex managed account services, you also have some new concepts to take into account to identify how real the returns are.

Same contributions, same age, but different retirement outcomes

For example, you will often see the TV commercials promoting industry super funds. You will see two people in identical circumstances.

Same income, same contributions and the same percentage return over 25 years or so.

But the result is always different.

The difference usually comes down to the performance or management fees of the fund.

The company promoting their fund is highlighting their lower management fees and how more of the returns go back in your pocket.

In this article, we’ll be discussing the key factors you need to consider when reviewing an investment product or service, their performance and identifying the backtested versus real returns.

The goal is to show which statistics are critical for you when evaluating a Forex managed service.

Demo account results versus real live trading

If you have been around trading for any length of time, you will know how different paper trading is compared to live trading.

Paper trading, or demo trading, is where you put your trading system to the test with virtual money to see how it performs in real time.

Paper trading is highly recommended for those who are new to trading and need to get familiar with the trading platform and how to execute their trades into the market.

Being able to test your execution and strategies in a simulated environment is an ideal way to get comfortable with your system and feel confident in your ability to execute your trades in the market.

Mistakes often cost traders a lot of money and a demo environment is the perfect way to see what mistakes you may make with zero real-life financial costs.

But those who have been around trading know the biggest pitfall of trading in a demo environment.

The biggest pitfall is the fact you have zero emotions connected to your open positions.

Your system may have generated seven losses in a row, but in a demo environment, taking the next trade is always simple.

But in real life, doubts creep in. You start to question your trading system. You start to question your entries. You start to wonder if your system is going to continue the losing streak.

As a result, in real-life, it is not uncommon for a trader to stop trading their system after a series of losses.

Murphy’s law would then jump in and the best winning trade of the year will pass you by while you are sitting on the sidelines, licking your wounds.

Argh. How frustrating.

Forex managed account – Hypothetical results versus actual results

So too with reviewing a Forex managed account service.

You need to know the company has real trading results under their belt on real client accounts versus hypothetical results.

Before we get into the important figures you need to consider, let’s take a look at discretionary trading versus mechanical system trading.

Discretionary versus mechanical system trading

There are two main types of trading systems a Forex managed account service uses, which are discretionary or mechanical systems.

Discretionary trading systems are where the investment manager will base their decisions on a series of rules over time and will have them all written down.

The discretionary investment manager can show the entry, exit and position sizing rules of their system and get others to trade it for them.

However, from time to time, the discretionary investment manager will override their rules and make changes based on new information they have at the time.

For example, leading up to the US presidential election, a discretionary investment manager may say, ‘We are going to stop trading two weeks leading up to the result and then resume trading once the dust has settled.’

As you can appreciate, the investment manager is using discretion to override their system, even though their trading rules may have provided several entry signals during that time.

A trading fund using a mechanical system also has a set of rules, but their rules are very black and white. The signal either happened, or it didn’t.

Regarding a major event, something like an election or upcoming non-farm payroll data has already been taken into account. As a result, all signals have to be executed when they occur.

A mechanical system trading investment manager knows the importance of hitting every signal as they never know when the system’s best trade is going to happen.

Backtesting discretionary and mechanical trading systems

Now you have an understanding of the types of systems a Managed Forex service will use, we can start to delve into how their results are portrayed.

Firstly, what is backtesting?

Backtesting is the process of seeing how your trading systems would have performed based on historical data.

It is important to know if the managed forex service you are considering has backtested their system and proven the success of their system.

Mechanical system traders have an edge here as their results can be coded into software like Metatrader 4 or other backtesting software and tested in seconds.

The challenge is for the discretionary trading investment manager.

As mentioned above, a discretionary trading investment manager has rules but can override them based on their experience and upcoming market events.

This means their historical backtesting will have biases. For example, seven years ago, an important market event may have happened, and they may have stopped trading. But the backtesting results cannot make those discretionary calls. Instead, the computer backtesting model will execute all trades and spit out the results accordingly.

Real trades versus hypothetical backtesting

This is where the rubber hits the road. You want to be able to see two things when it comes to reviewing the competency of your forex managed account service.

The first one is that they have been able to prove their system works on historical data. This is where you would ask for their backtested results.

But more importantly, you want to confirm they have tested their systems live in the market with real money.

Ideally, you want to be able to see a 9-12-month track record of live trades using client funds.

Nothing will beat the pressure of having to perform for client’s month after month with real money.

You must make sure you are placing funds with a managed forex service who has real returns under their belt.

Walker Capital live trading results

Our team have been investing in the Forex markets for nearly ten years and have tested hundreds of individual trading systems.

As a result, we take an individual approach with our clients and walk them through both our backtested historical results and our live results.

You will notice on our website when you review the performance of our funds, we show you the:

  • Equity curve from when we started trading client funds
  • Month by month results of live client trades
  • Performance statistics of every trade the system has executed live into the market

We highly recommend you consider the live results executed into the market when reviewing a forex managed account service.

If you can only see backtested results on historical information using computer models but no live client trades, then politely tell them ‘Thanks, but no thanks.’

Gross returns versus net returns

Wouldn’t it be nice if your managed accounts charged zero fees?

In the real world, it takes years of focus and a strong mindset to get to the level of being a professional investment manager, trading other people’s money. Trading is one of the toughest endeavours in the world to master.

As a result, investment managers and Forex managed account services like Walker Capital, charge certain fees to deliver your results.

The fairest model is a performance fee. No doubt you have thought about this when your industry super fund has a losing year but still charges you thousands of dollars for the privilege of losing money.

At Walker Capital, we charge a 30 percent performance fee on the high watermark level.

We think this is the fairest for our clients. As you can appreciate, if we underperform, then you do not pay a performance fee…

We want you to succeed so you hit your financial goals sooner and we get paid for the returns we have achieved for you

In addition to the 30 percent performance fee, Walker Capital charge a 1-pip spread markup on each executed trade.

Reviewing the fund performance based on the fees charged

One of our main goals at Walker Capital is full transparency, which is why we are putting this post together.

We want to make sure you have all the information at your fingertips so you can make an informed decision.

You can be assured the equity curves and month by month statistics on the four main systems (Swing, Breakout, Retracement and Price Action) we trade at Walker Capital are based on live trades in the market.

Having said that, it is important to note our figures are raw returns and have not taken into account the performance fee or any spread markup associated with individual trading accounts.

Hopefully, this post helps you understand the importance of real performance trading results based on live client accounts and not just hypothetical returns based on backtested data.

Are you interested to find out more?

Getting started with our selection of managed Forex investment is simple.

Here are the steps to get started:

  1. Schedule an appointment (Conference Call) with an Investment Manager
  2. Submit a Managed Discretionary Account (MDA) application with Walker Capital Australia.
  3. Open a trading account with the Walker Capital Australia’s executing broker.
  4. Select from our range of investment strategies and choose your asset allocation between the choices of accounts.
  5. Once all accounts are opened and funds have been chosen, our team gets to work and begins trading.

We welcome you to give our team a call to discuss your investment goals and objectives.

You can call Walker Capital Australia on +61 2 8076 2210 and we’ll see how we can help you achieve your investment goals.

Claim the Free Guide

Read the full article and more download our FREE Insiders Guide to Forex and CFDs. That’ll Help to Improve Your Forex & CFD Trading Skills and Assist You to Make Consistent returns!

Backtesting | 5 MIN READ

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