1. This site uses cookies. By continuing to use this site, you are agreeing to our use of cookies. Learn More.

Noob Q's - Hoping for help

Discussion in 'Beginners Bootcamp' started by sillypip, Jul 28, 2009.

  1. sillypip

    sillypip Recruit

    Joined:
    Jul 28, 2009
    Messages:
    1
    Likes Received:
    0
    My situation is that I want to gradually increase exposure to a currency I believe in long term (horizon: 2-5 years), gradually because of the CDA principle (cost averaging has been good to me in the stock markets) and also because I will use the position as saving a portion of my income which presents itself to me in monthly installments.

    My concern is daily rollovers and how to take out the effects of my depositing dollars from an account which is denominated in a different currency (essentially, I guess, buyng one currency first in order to be able to establish a position in the currency I want). Can I buy against a "basket" or are only pairs traded? Does the rollover affect the rest balance of my account or is it deducted when the trade is realized/settled? How do I calculate breakeven points for how much the currency would have to appreciate vs. the daily rollover for a given period of time?

    I have no interest in leveraging, I don't know if "buy and hold" is an expression in forex, but that is what I have in mind.

    Please inform me if any of these concerns are moot and based on your understanding of what I'm trying to do here, what would the appropriate measures be? If additional information is required to give an answer, please pose questions and I will try to explain better.

    Also, given that this is my outlook, are there particular types of brokers that would make more sense than others for executing this particular strategy. I would not be able to open a 50k account or anything like that, I want to buy an initial position of 5k, and then 1k a month into the position thereafter.
     
  2. Stony

    Stony Sergeant

    Joined:
    Mar 21, 2009
    Messages:
    167
    Likes Received:
    2
    Hi sillypip,

    "buy and hold" is definitely no suitable approach to forex trading. Don´t do it! (I have lost quite a bit of money with currency certificates). Forex is only for short time trading, because

    1. there is no way to reasonably predict a currency´s development for more than a few days, maybe weeks

    2. the cost of leverage (which means loans) is too high when you keep long term positions.

    Regards, Stony
     
  3. Pharaoh

    Pharaoh Colonel

    Joined:
    Oct 3, 2007
    Messages:
    19,634
    Likes Received:
    2,189
    There are a few brave (or foolish) souls who do REALLY long term forex trading. If you are swap positive and there's a trend going the right way, carry trading can be profitable. Of course, if you enter at the wrong time, that phone call you are about to get will be from a Mr. Margin.
    ;)
     
  4. Pharaoh

    Pharaoh Colonel

    Joined:
    Oct 3, 2007
    Messages:
    19,634
    Likes Received:
    2,189
    I had a couple more ideas for you.

    It's possible to buy foreign currency denominated CDs and other investment interests. That solves any worries about swap rates or a spike against you causing a margin call.

    There's also a method of 1:1 leverage in currency trading that is totally immune to swap rates and any of the usual stupid broker tricks. Buy the currencies you are interested in, take them home, and lock them in a safe.
     
  5. Jason Rogers

    Jason Rogers FXCM Representative

    Joined:
    Jun 17, 2009
    Messages:
    509
    Likes Received:
    20
    The problem I have seen most traders encounter with long term trading is overleveraging. If you're going long term, reduce the leverage on your account even if you want to go down to 1:1.

    What I would recommend is find out which currencies you want to buy then review the rollover cost or even the rollover earned. You're not always going to be paying. Then determine how long of a time frame you think you may be holding the currency to give you an idea if it's worth it.
     

Share This Page