Euro vs Dollar : Frequently Asked Questions
Finally, to complete this site on the euro vs dollar, here are answers
to some
of
the more interesting questions which I have been asked over the years in
the course of my trading.
Question :
I've read that 95% of currency traders fail in the first few months. What are the main reasons, and what advice would you give to new traders ?
Answer :
A sad but true fact unfortunately, and one that I hope some of these sites help you to avoid. The number one reason for traders losing all their money is under-funding. Because it is possible to start trading with just a few dollars using leverage, many traders start with only a few hundred dollars in their trading account. With leverages of 1:100 and more, this can be wiped out in a matter of hours. The problem is often compounded by the second most common reason which is poor money management. Trading without stops in this market is foolhardy to say the least. With pairs moving an average of 100 pips a day, it is quite possible to lose 100's of dollars a day, even trading mini lots. My advice to new traders ( and even those who have been trading some time,) is to start small ( very small ). It is possible to start with a leverage of 1.1 and work up to 1.20 or 1.50 . Personally I use a maximum of 1:100. With regard to lot sizes I always recommend starting with micro lots which equate to 10 cents per 1 pip movement in the pair. So even if you have a 100 pip loss, you would only lose 10 dollars on the trade.
Question :
Who am I trading against when I open a broker account?
Answer :
Again, another very common question. The short answer ( which often surprises people ) is the broker ! It is an irony that your broker is there to provide the opportunity for your to trade in the markets, but in addition, they will also be trading against you. This of course creates many conflicts, and the opportunities for brokers to take out your stops, widen spreads, and many other tricks. I always recommend that you open an account with an ECN broker, where trades are passed direct onto the exchange for execution. This avoids any conflict whatsoever. Please do your homework before choosing your broker. I have devoted a whole page on my currency trading site to explain the questions you must ask and what you need to look for when selecting a broker. Please have a look by following the link from this question - choosing a broker
Question :
Does the EUR/USD pair correlate with anything other than other currency pairs?
Answer :
The pair actually correlate very well against gold. This has been particularly true since 2003, which has largely been due to the shared perception of gold and the Euro as alternative investments to the weak US dollar. During this period the major currencies, including gold, have tended to react together to economic news from the USA driven by investors looking for alternative investment vehicles. Gold, which has neither an underlying economy, nor price-sensitive supply and demand issues, is the purest of the 'currencies', with the Euro and gold mirroring one another. Similarly, the Euro has been seen by many as the natural first choice alternative currency to the US dollar - a safe haven if you like. How long this correlation will continue is anyone's guess, but this seems set to continue for the foreseeable future.
Question :
Can you make money by scalping ?
You can, but like everything else it takes practice, good money and risk management and a well funded account. In addition you need to be aware that some brokers do not allow you to scalp, so check with them first before opening the account. As a full time trader I use two accounts, one for scalping, several trades a day, with tight stops, and a second account for my long term trading, where positions may be open for months or years. On the long term trades I make use of carry trade interest rates to provide two bites at the cherry!! So the answer is yes, but please start small with micro lots and plenty of trading capital. Make sure you understand you profit and loss returns on each trade, so that you know how many trades you can get wrong, and how many you need to get right in order to be ahead of the game. If you are new to trading, but would like to start with scalping, I would suggest you start in fixed odds trading, where you risk is limited before you open the trade.
As always, thank you for getting this far, and I hope you found this site useful. Remember I am always happy to answer questions via email on ask Anna, and as always, may I wish you every success in your trading and investing.