Forex, the Awesome Deception of the Trading World

[Versiunea romaneasca] [MQLmagazine.com in romana] [English edition]

“If I don’t seek to understand what’s happening here then I’ve got peanuts in my head!”
Sheikh Imran N. Hosein

As many of you might guess, it is the documentaries “The Arrivals” and “Phase 3″ that inspired me to write this article. Whether or not the ideas from these documentaries are sustainable or not, there is something, a truly hard core BAD state of how things are, in what pertains markets, and especially retail trading, or what is now widely accepted nowadays as retail trading. From day one that step into retail trading, you feel there is something wrong, but you cannot really grasp it, you are flooded with a lot of information about markets and trading, dubbed by a simultaneous lack of proper tools and trade conditions. You don’t like what you trade, you don’t like how you trade, you don’t understand why what you need can’t be traded, or can’t be backtested, why the leverage may not be proper, why you get slipped, WHY CAN’T YOU DO THINGS BY THE BOOK! And more important why the hell they wrote books about things that are not available?But nobody answers : it is how things are. You shut up and enter the program. Take what is given. And try… Until you don’t put the questions anymore, and gradually you will see only one thing in trading : FOREX. And one way to do it : indicator-based trade – be it for one pair, or for many forex pairs, in a non-interacting way, similar algorithms, replicated over and over again, in different fashions, but lacking the understanding of every moment existing relations between instruments, especially between instruments that are naturally designed to relate, that are, in many cases, not even available.

Forex has a become quite a mainstream in the trading world nowadays. The most liquid , but also the most unpredictible market of them all, is for years at the fingertips of the retail trader… However, how could it happen that the most dangerous market has become the one that’s easiest to be available? Have no doubt on the dangers of forex : it comes packed with heavy leverage, and the technical analysis, the one that has so much accent on it, comes from old stock market technical analysis, where it is really effective, from the standpoint of nonleveraged trades and daily charts. For years, beginners are sucked into the forex vortex of promises like mosquitos to the light. All kinda half informations , about how to interpret charts, how to interpret news, where to set the take profit and mostly the stop loss, how much the leverage to be like, they are all leading 95% of the herd to fail…

Problem is, this makes overall forex a scam . Sure, there were enough scammers that bought themselves yachts or submarines from the scam of trading against the clients, by betting that they will lose. For some scammers, it turned bad – such as Neuimex, taken over by a trader – but most scammers were fine with their scam. But I’m not talking about this, forex is an overall scam: it is a Hollywood of trading , a “dream machine” attracting more and more traders. Even if brokers are honest, their profits are going up simply from spreads , as the herd mass is growing, especially now, in times of crysis. At least for non-american brokers, because the americans have the NFA on their head and have to face a deteriorating client portfolio because of the no-hedge madness…

Now, things are becoming more and more interesting… Forex is touching mainstream. From a simple trading activity that was advertised by brokers, it has gained social ground. An entire plethora of blogs, magazines, social sites that brand themselves “fx Facebooks” are constantly promoting Forex. You read that well . It’s Forex not trading.
Let’s rechapter forex features:

  • uncontrollable leverage – for the very poor trader, even small trades are automatically leveraged (e.g. you have $100, trade 0.01 lots=$1000 , leverage 10);
  • technical analysis applicable only on some fx pairs and some timeframes;
  • most platforms are non-automated;
  • MetaTrader4, the only free automated platform [that matters], is not a server solution ; even more, it has slippage or execution slowness as the broker pleases;
  • Lack of events on MetaTrader4 – makes arbitrage detection very slow;
  • Manufacturable quotes – aiming to prevent any form of arbitrage. Sure, they trade real, inefficient markets, as we all know that markets are. But you, the retail trader, you trade efficient markets! Cause brokers remove arbitrages. And you know how Harrison – Pliska call the traders in efficient markets? Open your finance book : it’s right there, at financial theory, it says … martingale equivalent operators… and where did you know martingalers are? That’s right, in Casinos! Let them have the safe profit, you take the fear…
  • You’re at broker’s mercy – if they don’t like something, they might charge you, cancelling profits;
  • Bad institutional view – put forex near your name and you’ll be in retail for life – the institutional career becomes a fading dream – after all, success in forex is about talent – normal people (i.e. institutional traders and quants) think in terms of strategy, arbitrage, execution speed, high frequency trading – you think about indicators…

How did it come to this? The worst market of the world for the retail trader, on all brokerage sites, on all blogs, and now, even on social sites. Emotional value added to madness. Social success dependant on forex? [Curses, the girls will see the those bad trades, but I can’t erase them…] Are you guys sane?
How, in the God’s name, could you stand up to this Vegas-view about retail trading, about your money for God sake, a continuous we want our clients to win, not to earn money : “you are not allowed to hedge forex with futures”, “you tried to take advantage of swap”, ” you took advantage of quicker information from an institutional platform” ? Isn’t the forex really a disease of trading, pitched over by marketers to make it look good ?

Is all advantage on the side of the marketers? Is really noone standing on the side of the trader ?

It seems that the birth of MetaTrader5 really disturbed the forex propaganda machine. When a platform that threatens bringing multiasset trading, event-driven trading, including futures and options, at the hand of the retail trader, the propaganda machine had an organic reaction of opposition. It lives by selling, after all, the forex dreams. It doesn’t sell anything useful. I mean, tens of thousands of traders really believe in forex. The machine tells traders lots of stories about forex… It somehow managed to tell them that indicator-based trading beats arbitrage! So, betting and staying with fear, beats profiting with safety. Why? Well, arbitrage means other markets – it means futures, it means options. Why that? Because these are different markets, having different dynamics, and the relationships between them allow a more selective exposure to what is selected as risk and what is selected as opportunityBut wait! These are not cool!. Futures , stocks … these were traded in the 70s, as about options… who trades options? Forex is cool. The hell with arbitrage! Forget arbitrage, bet on the indicator! This is what the forex deceivers tell you, hell, some of them may even believe what they say. Because they know that you are addicted to being cool. “Appearance and reality … they are always different from each other”. Your car is cool, your girlfriend likes you for being cool. So you’re not allowed , you will not even want to trade something that’s not cool. Here, in retail markets, emotion has prevailed over reason, appearance has prevailed over reality… There’s no talk, ever, about the quality of trading. Just forex commercials – like the forex itself is gonna make profits, not trading strategies. And even if the talk moves to strategies, it’s forex enclosed strategies – no other assets. Don’t you wonder why there is no talk of other markets? Like there are NO OTHER MARKETS BESIDES FOREX ? There is no advertising on hedging with futures? Or hedging with options? No talk about the real trading strategies? Used for decades in markets by the masters of the system? The ones that had automation available before you having a computer ? Of course, with the “help” of regulatory bodies. Somebody really had an interest in dumbing down the retail trader, transforming him more into a market gambler rather than a “market businessman”. Cause otherwise how could you have advanced option trading platforms that are not automated? How in the God’s name you have TradeStation, or OptionStation without option automation? (If you don’t believe me, hit www.tradestation.com and find “Automated trading, as it relates to direct-access electronic placement and execution of equity options trades, requires manual one-click verification before order is sent.” on their page). Or look at equities and options stations. Quotes are delayed, by most of them, 15 minutes. This creates a blackout window where you trade on present quotes, by seeing 15 minutes back data. What about automation? Carefully done, don’t let the trader get the data! Look at OptionsXPress XML API. All it needs for trading (in the terms of replacing the front end, but not real automation) but not for getting data. There must be something important about options… Who had the interest to create such legislative mechanisms to stop option automation from being put in practice? And after all, let’s just remind you that MetaTrader is a russian trading platform. It’s not the americans, the ones that made trading and markets popular, the ones to come with free automation in trading. It’s the russians. Isn’t that shameful for the ones that call themselves the inventors of the free market system? Because they always talk so proud about their system of interconnected markets covering equities, futures, options and other derivatives, all the wonders in financial inovation. Ain’t that strange, that the word “system” has a solidity appearance, making you imagine a market system functioning as a whole, while everything that the americans made in markets is shattered into dozens of pieces… Forex trading platforms, with visual quotes to push buttons on ; futures & equities trading platforms , that are not the same as the forex trading platforms, and finally, the last category, option trading platforms, that are mostly looking like combinations between browsers and excel sheets, that have no automation available! There must be something hidden in option trading actually, that they made the retail trader think in terms of browsing and picking, rather than defining analytics procedures and automatically trading. The segmentation makes it hard for true trading systems to be put together not only technically, but also financially, because they need cross-margining (i.e. netting). Again, the appearance of the “market system” , so solid thing, probably only for the big banks (e.g. the ones that bought the bankrupt investment banks), and so shattered in reality for the retail trader… Even small to mid-sized hedge funds encounter problems when it comes to netting. Account openings and arrangements cost money, relationships and take months, then, most are at the hand of prime brokerages that make the arrangements.

Let’s face it, markets were never designed to be retail (and think well about this, it explains why NFA rejects CFDs, so cheap and available for retail trader to take positions in equities and derivatives, why it rejects trading forex in the same account with other classes…) Look on older economics books : banks are always “sophisticated investors”, and the literature had the audacity to call retail people (investors, traders, etc.) as “naive” (implying “stupid”). I think every student or investor that find that he’s called “naive” in a finance book has a rage feeling at the sight of the word! But it’s scientifical so it has to be accepted! But that was just the appearance. The reality was that the retailers were not dumb, rather they were powerless, because the technology was on the side of the masters, as it is case today, with the high frequency trading engines. Something was lost, however, in time. Quantity took place over quality for institutionals, and their trading style shifted from arbitrage across multiple markets (the case of LTCM in the 90s, when the bond arbitrage was abandoned, starts to show the trend, the first big collapse of an alpha hungry mammoth) to a few markets , like equities and institutional forex, where they use the high frequency algos. Somehow the retailers curse touched them: the intermarket arbitrage profits are too small to justify huge trading costs: trading platform costs, exchange colocation fees, PhDs salaries. Thus, they are in a continuous , hungry hunt for alpha, because they have too much liquidity available that has to give good returns, and the only way to do it is by a huge number of small successful trades – and most of the time arbitrage opportunities in terms of liquidity will be too small! A perverse effect that will prove soon helpful for retail traders is the specialization of high frequency algos. I think there is a separate parameter set for every stock , and for every forex pair. I may be wrong, but I am certain that equities and forex are the wolf packs hunting ground. This orientation led to neglecting futures and options, thus creating latency arbitrage windows big enough for retail traders. It is time for an automated, retail, qualitative trading, spanning over multiple asset classes, and MT5 may be the first platform to achieve it for the retail level.

And now, when the propaganda machine is threatened by MT5, that will come with all the things that a normal trading platform is supposed to have, by any normal person that has read about markets the voices are louder and louder against it. I read several viewpoints on MT5. Quite everything that the platform is supposed to have in the future is nothing, has no importance , compared to the dreaded no-hedging issue. As if the ones writing these analyses really know what hedging really is! Analyses focus mostly on station looks, charting, lack of strategy tester, and mostly this hedging issue. People, get finance books and read what hedging really is, before you start attacking MetaQuotes! Trading is, simply, buy low, sell high. Money is being done with arbitrage! And where the arbitrage is not clear, it’s surely a statistical arbitrage. This is what makes money. Be it forex-futures, stock to stock, forex/forex, underlying/options, or even high frequency trading, it’s always a statistical arbitrage. Even the CDSs were theoretically an arbitrage, but with a long bias, of winning more from collected premiums than paying out on defaults – and this was a faulty expection, because was no data to sustain it. Remember – even the LTCM geniuses were thinking that they “arb”, as much as the insurers that had to collapse in 2008… Banks have touched a technological level that’s unparalelled by anything that’s in the retail world, and people attack the only free platform that will at least give good chances in trading, just because it lacks the fake hedging issue. Sure, pseudo-hedgers might say that their trading style is arbitrage-like. But how could it compare to quoting , or volatility arbitrage?

Forex is a big business. But not the forex per se, the forex itself, it’s the commercial forex. And everything that threatens this big dream machine has to be stopped, including MT5! The system is so deceptive that noone has even to push the button to launch an attack on forums and blogs. It’s simple, the lack of education will do it by itself. Deluded traders will unknowingly attack MT5 for stupid reasons, quite the same as their own limited view about trading. So important is to be long and short on the same instrument, everything else does not matter! Like a carriage horse that sees only the road ahead, our fx trader doesn’t see but indicators and contrarian trades! Welcome to Forex, this Awesome Deception of the Trading World – where people don’t trade what has to be traded for profit, but trade what is cool because it’s cool. If you ever traded because it’s cool, you fall in delusion. Sure, forex with all its reality is in the front eyes, but you don’t understand this reality. Forex with its own marketing is not an illusion, because illusion is a perceptive disturbance, rather forex, the way is marketed, is a delusion, a BELIEF DISTURBANCE that manifests thru the marketing of certain ways to trade, dubbed by limits in trading platforms, whether they are in trading capacities, backtesting capacities or both.
WAKE UP!

We at MQLmagazine.com want to be different. We are supporting a more institutional type of trading for the retail trader. This is why we will support only brokers that commit to MetaTrader5 and come with a large symbol offer, including options. We will not forget about american brokers, but since options will be never be traded in the same account as forex, we will look mostly at traditional futures & options brokers that introduce MetaTrader5 for clients looking to have a multiasset type of trading. However, if CTFC manages to get a stronger grip over forex regulation, cutting down the leverage as it intends to (and I say that they cut ridiculessly much down to 10:1) then traders should put pressures over them to lift the restrictions of trading options , equities and futures in other accounts than forex.

One Response to “ Forex, the Awesome Deception of the Trading World ”

  1. Forex Apprentice on February 27, 2010 at 4:02 pm

    Great article! I am trying to earn some extra cash with currency trading for more or less seven months but with mediocre results. Thanks to your article I appreciate now that it will not be as fast or as simple as I first believed it will be