Why you shouldn't trade Forex
Posted: Mon Nov 23, 2009 4:18 pm
I figured I would start a fire in the house of money.
Anyhow, yesterday I took my quarterly visit to my accountant. Evidently Uncle Sam doesn't think I pay him enough at the end of the year, surprising huh?
I have been trading FX on and off for several years along with many other equities. I guess I jumped on the bandwagon because of the profit potential, liquidity, and market flexibility namely the hours of operation. I had to bring in some older records from futures trading so that I could have the accountant amend some documents for the IRS and so they don't throw me in jail of course.
She made a remark that my operation expenses had gone way up in the past 2 years. Of course I asked what exactly she meant. And she says that I am up almost 5x what I currently spend in trading fees. I have been making more trades recently, but not enough to amount to that number so I had to break it down.
Now, I am not blind and I have done the simple math on these things and what I thought was good obviously isn't so good:
Commissions in FX.......I am not talking about any particular broker, fixed spread or ECN it doesn't matter. Transaction costs for forex are absurdly high and much more expensive than stocks, commodities, or futures.
Example:
I will use all MBTrading fees since that is who my forex account is with and they have good rates on other equities also.
EUR/USD: 1 full lot; spread 0.8 = $8.00, Commission $7.49 per side = $14.98
Total: $22.98 gets you control of $100000 USD
Compared to Stocks
DIA: 954 shares @ $104.72 transparent spread of $0.01 =$9.54 Commission $4.95 per side = $9.90
Total = $19.44 you control $100000 USD
Compared to Futures
YM mini Dow transparent spread 1 tick = $5 commission $2.20 per side = $9.40
Total = $4.40 you control $50000 (currently)
Ok, there's the full math and that is assuming you are getting the spread listed for forex which if you have a fixed spread broker or trade during off peak hours the cost goes WAY up, sometimes 40 or 50 dollars. I understand the leverage arguments and margin requirements are higher in stocks at 25% intraday and futures run about 2%. But that is near irrelevant when you spend quadruple transaction fees to place the same trades in other markets (we do know that the transparent spreads in stocks and futures are mostly never paid, I had to put them in to be fair).
So lend me your thoughts. I however, will be moving back to stocks and commodities exclusively until the retail brokers are able to figure this out.
Anyhow, yesterday I took my quarterly visit to my accountant. Evidently Uncle Sam doesn't think I pay him enough at the end of the year, surprising huh?
I have been trading FX on and off for several years along with many other equities. I guess I jumped on the bandwagon because of the profit potential, liquidity, and market flexibility namely the hours of operation. I had to bring in some older records from futures trading so that I could have the accountant amend some documents for the IRS and so they don't throw me in jail of course.
She made a remark that my operation expenses had gone way up in the past 2 years. Of course I asked what exactly she meant. And she says that I am up almost 5x what I currently spend in trading fees. I have been making more trades recently, but not enough to amount to that number so I had to break it down.
Now, I am not blind and I have done the simple math on these things and what I thought was good obviously isn't so good:
Commissions in FX.......I am not talking about any particular broker, fixed spread or ECN it doesn't matter. Transaction costs for forex are absurdly high and much more expensive than stocks, commodities, or futures.
Example:
I will use all MBTrading fees since that is who my forex account is with and they have good rates on other equities also.
EUR/USD: 1 full lot; spread 0.8 = $8.00, Commission $7.49 per side = $14.98
Total: $22.98 gets you control of $100000 USD
Compared to Stocks
DIA: 954 shares @ $104.72 transparent spread of $0.01 =$9.54 Commission $4.95 per side = $9.90
Total = $19.44 you control $100000 USD
Compared to Futures
YM mini Dow transparent spread 1 tick = $5 commission $2.20 per side = $9.40
Total = $4.40 you control $50000 (currently)
Ok, there's the full math and that is assuming you are getting the spread listed for forex which if you have a fixed spread broker or trade during off peak hours the cost goes WAY up, sometimes 40 or 50 dollars. I understand the leverage arguments and margin requirements are higher in stocks at 25% intraday and futures run about 2%. But that is near irrelevant when you spend quadruple transaction fees to place the same trades in other markets (we do know that the transparent spreads in stocks and futures are mostly never paid, I had to put them in to be fair).
So lend me your thoughts. I however, will be moving back to stocks and commodities exclusively until the retail brokers are able to figure this out.