Tuesday, January 29, 2008

"Holy Grail"..... Wk 8 -Tue- Equity: $517.33

I got a nice call today from one of this blog's subscribers about the "holy grail" of trading.

-G- has been searching for the best forex system he can find that will virtually guarantee a winner after a setup is identified.  I told him that he was in multitudinous company.

Many traders or market researchers see all the swinging going on among all the different markets. They figure that with all that motion there must be someone who is getting a large chunk of the profits from all that trading motion. How about you? What do you think?

I will tell you what the "Holy Grail" is in Forex.

Be a Forex broker.

Forex has few differences from the futures industry in the profitability of brokerage, except that it is more profitable.

I've seen the results of millions of round-turns at futures brokerages over the course of many years. I also have a friend who was a clearing member of the Chicago Board of Trade for many years who shared the bottom line figures of his business.

From seeing the results of all this trading, the weight of information says one definite thing. The brokerages have the best deal in the equation. I have seen reliable figures indicating that almost 30% of ALL money placed in speculative trading accounts gets diverted to the brokerages one way or another.

They get money whenever a trade is put on, whether the order is placed by an idiot trader or a professional. Also wonderful for the brokerages- idiot traders greatly outnumber professionals. Why? Idiot traders don't know the difference between a good firm with low 2 pip spreads and a worse firm with 9 pip spreads.

Since the brokerage fee is not direction dependent or skill dependent (especially in the case of forex), all the brokers have to do to guarantee that they will gain on their capital is get customers and keep them as long as they can.

Do you think that brokerages want you to lose? They don't. It costs them so much to come up with just one customer that many Forex firms pay huge fees to webfirms to advertise so as to get a signup. I've heard that some firms will pay up to $500 to an advertiser to get a $5000 forex account, and give a percentage of the spread they charge the customer. They would love the customer gaining a lot of money from some trades so they can milk him a lot longer.

Maybe you should get into the Forex Business.

It isn't my idea of having a good time, but hey, if you want the "holy grail" there it is.

If you don't want to become a broker, the only way to win consistently over time is take trades where the risk to your plan is relatively low and time will favor a few of your trades to excess returns. And your ratio of average trade to average spread cost is large. I'll talk more about this in the future.

On to the current account status. $517.33.

My short USD/CHF got stopped out for a 60 pip loss. Still long GBP/USD, EUR/USD, and the USD/JPY.

We watch. We wait.

You see, this is what trading is all about. Waiting.

Have a good night.

Joel Rensink

PS: To receive the FREE! trading rules for the Infiniteyield Forex Challenge ($499 value) and the semi-monthly newsletter about this challenge, send an email to:
newsletter@infiniteyield.com and tell me which address you would like it sent.

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