More on Boredom: Is It the Underlying Cause of Trader Failure? One Experienced Trader Seems to Think So.

Ran into a fellow day trader at the Farmer’s Market off Fairfax this morning and she joined me for breakfast. (Not a date or anything. She’s in her early 30s and I’m, well, old enough to be her grandfather.) Anyway, after an exchange of pleasantries and family news, we got to talking shop and the discussion turned to my blog, specifically the study I alluded to regarding trader behavior which begged the question: “Why do you suppose so many traders find themselves losing it all.”

Becky, a little wiser I think than most of her contemporaries, was quick to respond - “Impatience, impatience, impatience.” She went on to posit that if her experience was any indication most traders are drawn to the game by greed. They open a demo account. They get bored. Boredom leads to premature trading. Premature trading leads to failure.”

Wow. Couldn’t have put it better myself. Pretty much reflects my earliest trading experience.

“So what’s the solution,” I asked.

Her paraphrased answer was equally insightful. “Eliminate the boredom. Create a computer game that will enable entry level traders to play the Forex in warp mode. Upload market data, click through to a promising candlestick formation, make a call, fast forward to see if the strategy worked. Do this over and over again until you either prove or disprove a given trading strategy. Once you can find yourself routinely making good calls 70-80% of the time, you’re ready to start trading,” she said.

Sounds like a great idea, doesn’t it? Any gaming programmers out there willing to give it a shot? Any investors out there willing to put up the money to get such a game developed and marketed?

Note: If you’re ever in LA, incidentally, the Kokomo Café is an institution. The 50's open air diner located on the south side of the old market place has been around for a gazillion years and is one of the preferred hangouts for retired Hollywood producers and script writers. Great food - scrambled, thick bacon, great coffee, and cinnamon coffee cake and great service - meals are always served with a smile.

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Looking for Easy Answers? You Won't Get Them Here

Every other day or so I get an email from a trader (or prospective trader) requesting the name or names of one or more non-trading, non-dealing desk brokers. Those who have read through my entire blog know that providing that information would turn this blog into a commercial project and that’s just not something I’m going to allow to happen.

To my way of thinking there’s even a better reason not to provide the names of specific providers. Traders who are looking for a shortcut to success are more than likely to find themselves overcome by the need for immediate gratification when they start trading and that character flaw isn’t likely to serve them well. And doesn’t it stand to reason that a trader who is more concerned about getting in the game than winning the game doesn’t stand much chance of success?

So how does one determine if a broker is offering traders access to the Forex through a non-dealing desk? It’s simple. If the broker offers fixed spreads, keep looking.

Also keep in mind that there is at least one “non-dealing desk” broker purportedly offering interbank trading for mini’s. Their offering has yet to prove itself to be legitimate. Since the administrative costs associated with handling mini’s far exceeds those associated with the handling of standard lots, mini trades are more than likely being forwarded to and pooled by their clearing bank’s dealing desk and this obviously invalidates the offer of direct market access. The broker may be able to lay claim that it is operating a non-dealing desk, but the clearing house it’s forwarding the mini’s to clearly can't.

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Succcessful Forex Trading May Be As Much a Function of Self-Knowledge As It Is Technical Understanding

Visiting an Indian casino to eat dinner and play a little blackjack the other night, I got to thinking that a lack of education isn’t the only challenge facing Forex traders. Maybe, just maybe the biggest problem is human frailty - the abiding, perhaps genic disposition in some to believe there’s an easy way to riches, that the accumulation of wealth is a matter of good luck rather than hard work.

When I visit the local casino, I limit my play to a maximum of one hour and never bring more than $50 to the table leaving my ATM card in the underwear drawer. If I lose that money before the hour turns, I leave. If I find myself ahead by as little as $20, I leave. Over the years the strategy has paid off. I obviously haven’t made a lot of money at the blackjack table, but a majority of the time I have managed to pay for dinner.

The three players sitting at the table with me the other night had different approaches to the game. One kept losing and dipping into his shirt pocket to pull out yet another $20 bill. He left the table to hit the ATM twice, returning to the table each time to fulfill an apparent death wish.
One was way ahead and then piddled it away doubling up. He had a pretty blond at his side so I’m guessing he was less interested in winning than impressing his girl friend. They soon left and didn’t return. The third, I think, was just there to get drunk.

For me the corollary to Forex is all too obvious. The first gentleman not only didn’t know the odds associated with the cards he was dealt, he had a serious gambling problem. The only odds he was playing were those that would lead us to believe that sooner or later our luck has to change. Romeo was probably driven more by his ego. The third, well, I think he was playing out of shear boredom.

There are three object lessons to be learned here.

If you’ve ever been driven to lose everything you have all at a table game or slot machine, steer clear of the Forex. You don’t have enough money. What’s more, even if you did, your “winnings” would never be enough to satisfy the need you have for excitement.

If you’re ego involved, forget it. If you can’t deal with losses without taking it personally, writhing in bed at night feeling guilty about an error in judgment or a lost opportunity, you’re probably going to be governed by your emotions rather than your intellect.

Worse yet, if you are impatient or are easily bored, find something more exciting to do. There are going to be times when you find yourself staring at a computer screen through several trading sessions before a trading opportunity arises.

Recommendation

Before you starting investing, do yourself a favor. Do a little soul searching.

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The Newest Scam: Off-Shore, Forex Gambling Sites

Last week I received an email from yet another Forex provider but didn’t get around to visiting the company’s website until this morning. Believe it or not, there’s a company out there that is actually promoting Forex as a simplified gambling venue, offering “members” the ability to “bet” on currency trends. Without mentioning the company which, of course, would violate the non-commercial nature of this blog, I thought readers might be interested in a quick overview of the company’s offering.

When you arrive at the site, it’s obvious this isn’t a Forex broker, it’s a gambling site. ********** Offers Bets on the Price Changes Based on the FOREX Financial Market

The headline is then followed by the following wagering options:

Time Bets: Trader have to predict changes of market price on a fixed period. (Example: EURUSD at 18.20 will be higher or lower than at 22.30)

Barrier Bets: Traders have to predict if market will rise or fall after one day, two days etc. (Example: USDJPY after two days will be lower than current price)

Intraday Bets: Traders have to predict if market will rise or fall by the end of trading day. (Example: GBPUSD today at midnight will be higher than current price)

Leader Bets: Traders have to predict if currency pair within a currency group will be the leader of the trades within its group by midnight. (Example: USDCHF today at midnight will be the leader of the trades in USD group)

Double Bets: Traders have to predict currency pair changes at two points during current day. (Example: USDCAD at 12.00 will be higher than at 13.00 and lower than at 16.00) A bit like the exacta in horse and dog racing.

Special Offers: From time to time [we] offer bets with higher winning coefficient. Special offer bets are offered with fixed conditions and stakes, which are not changeable.

So How Legitimate Is the Offering?

Here are a few items that appear in the English version of the company's "Terms of Use" disclosure followed briefly by an English translation of the same.

Winning amount calculation is based on pre-installed in software coefficients for each type of bet. Such coefficients can change depending on day, time and situation on the selected financial market.

Translation: We reserve the right to change the rules at any time.

In case of mistakes by personnel, or software errors with accepting of bets (obvious errors in amounts, wrong quotes on different positions, etc.) and other facts, showing that bet was incorrect, site administrator has the right to declare such bet as invalid and return the stake amount to client.

Translation: We reserve the right to change the rules at any time.

********** reserves the right to refuse to accept any type of bet without providing a reason. In conflict situations, with no precedent, final decision is taken by the site administrator.

Translation: We reserve the right to change the rules at any time.

In case of wrongly calculated winnings, due to incorrect quotes or other technical issues, about which clients will be informed by site administrator, such bets must be recalculated accordingly to the proper results. If it is impossible to restore the events and recalculate the bet, amount of stake will be returned to client..

Translation: We reserve the right to change the rules at any time.

If client and site administrator will not find a mutual solution for conflict situation, all moot points and factions regarding such situation must be forwarded to the court of Republic Kalmykia, Russia. All legal expenses are paid by party in fault.

Translation: We know you won't have time or resources to pursue us in court.

Site administrator reserves the right to change these terms and conditions at any moment without prior notice. It is client's responsibility to check these terms and conditions as often as necessary to familiarize with any changes.

Translation: We reserve the right to change the rules at any time.

Closing of funded account with 0 turnover or withdrawal of all funds from account with 0 turnover is subject to a processing fee of 50 USD or 1500 RUR.

Translation: You will pay us now, or pay us later.

********** reserves the right to stop providing it's services to any client at any moment for any reason and without giving a reason.

Translation: We reserve the right to change the rules at any time.

********** established in 2001 in offshore zone is a licensed company for operating of totalizators and gambling services in Internet, offering service of financial betting via Internet on **********.com website.

Translation: My brother Ivan awarded us an off-shore gambling license, so we’re legit.

In the End

These guys make Forex dealing desk brokers, those offering "fixed spreads" on off-exchange Forex trading platforms, look like choir boys.

NOT!

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Oh Dear, Me Thinks We Exposed a Raw Nerve Here

As you may have noticed, I’ve disabled comments. The vast majority that have been posted lately have been flames which leads me to suspect there’s an organized effort on the part of dealing desk brokers to get me to feel bad about myself. If you have a comment feel free to drop me an email. It’s easier to manage an inbox delete button than editing comments from people who prefer to attack me than dealing with the facts.

If my detractors insist that there’s a case to be made for dealing desk brokers, you’d think that at least one would take the time to cite a reason traders should stick with them apart from the obvious "We haven't been indicted, yet."

In the end I guess I can understand their frustration. When I was a teenager I couldn’t come up with a good reason for my father to buy me a Corvette either.

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Mini Non-Dealing Desks: Just The Latest Shenanigan?

I’ve received a number of emails from traders wanting to know where they can go to take advantage of a non-dealing desk and realized that I have been remiss in mentioning that I have yet to confirm that any broker is offering mini traders access to the market through a non-dealing desk at least at this time. To trade through a non-dealing desk one has to trade standard lots and that currently can’t be done with a deposit of less than $2,000.

Broker Won't Confirm

I had an extended conversation a couple of weeks ago with Charles Ricci, a representative of the Commodity Futures Trading Commission, about a particular Forex brokerage firm who is advertising the fact that it’s offering mini traders (not super mini traders) access to the Forex through a non-dealing desk. Seeing this as an encouraging development, I called the firm to find out who they were clearing the mini’s through. When the broker refused to provide that information, I decided to bring my concern about the legitimacy of the offer to Ricci’s attention.

Before I go any further, it’s important to understand that no bank to my knowledge, has done more than express an interest in processing mini’s and for good reason - mini’s don’t generate a enough profit to justify the administrative expense. Knowing this, I asked Ricci if it would be possible to have someone from the Commission call the broker to confirm the existence of the firm’s clearing bank so the capability could be confirmed. I didn’t need to know who the bank was, but felt (like so many naive idealists) that it would be reasonable to expect that the company (if legit) wouldn't have any problem revealing that information to the CFTC.

Ricci informed me that my concern would be forwarded to the Enforcement Division, but an answer would not be forthcoming, at least on a personal basis. In closing he encouraged me to formalize the concern using CFTC’s online complaint form.

Trying to come up with a legitimate reason the firm didn’t want to reveal its clearing house, it occurred to me that a new game may be afoot. We may be seeing a whole new generation of flim-flam - brokers who attract traders with the promise of non-dealing desk trading only to forward those trades through a third party (their bank’s) dealing desk which, of course, would render the non-dealing desk offering meaningless. If they’re ever called on the carpet they can always declare quite honestly that their clients' trades not being processing through their dealing desk, knowing full well that the trades end up on one.

Make no mistake, non-dealing desk brokerage does exist but you can’t take advantage of it unless you’re trading in standard lots. If you are a mini trader (super mini trader) and find a broker offering access to the market through a non-dealing (non-trading) desk, ask who their trades are being cleared through. If he refuses to answer the question, raise the red flag and register your concerns with the CFTC. Legitimate or illegitimate, the firm will not be in a position to deny the CFTC access to that information.

As to providing the names of non-dealing desk brokers, I won’t be giving any. If I did, I could be justly accused of showing favoritism, worse yet, of having a hidden agenda. I don’t, so I won’t.

Short of Funds?

So what are you to do if you want to trade but don't have enough money to open an account to trade standard lots through a non-dealing desk? First, I'd recommend you consider waiting until you do have enough money to trade standard lots without putting everything you have into one or two trades. That being said, if you can't control yourself, make sure you're getting an education and not being indoctrinated. If you fail to do either of these things, you're better off not trading because you're going to make rookie mistakes and your trades are likely to be taken out.

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Still Another Insight from Our Forex Insider

According to our programming insider, about four months ago a couple of dealing desk Futures Commodity Merchants, specifically dealing desk brokers, conducted a joint, private study of Forex trader behavior. What they came up with only confirms what David Hannum, owner of the Cardiff Giant, one of PT Barnum's competitors said - "There's a sucker born every minute."

1. 98% of dealing desk traders open accounts with exactly $1,000.

2. The vast majority trade using 100:1 or greater leverage.

3. 42% of these traders return to the watering hole four times adding a additional $1,000 to their account each time.

4. Midway through their final shot at trading, they throw in the towel, closing their account only to return home with an average of $400.

Now what does this tell us about the quality of education the average trader is receiving? I may be way off base here (won’t be the first time) but I’m guessing that the vast, vast majority of those who fail make two fatal mistakes. First, they choose to trade with a dealing desk broker and, second, they rely on the very same broker to train them.

It doesn’t take a degree in mathematics or psychology to figure out what’s going on here. Dealing desk brokers are obviously not as interested in teaching traders how to stay in the game as they are in encouraging irresponsible trading and attracting new clients.

So what's the solution?

Get your education from an experienced trader who not only isn't affiliated with a dealing desk broker but is intimately familiar with the games they play.

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Do Successful Traders Share a Common Temperament?

During a conversation with a fellow trader last night, we got to talking about the emotional component of Forex trading and ended up agreeing that one’s temperament is a pretty good measure of probable success. In the course of the conversation he brought up an interesting question and it was simply this. Which of the characters in the comedy series Seinfeld would have a natural trading advantage - Kramer, George, Elaine or Seinfeld?

Kramer, of course, came off as the big loser. Space cadets chasing dreams that chance from one day to the next don’t stand a chance. George also came off on the short end of the stick because he was rendered helpless by even the smallest inconveniences. We came to the conclusion that Elaine just didn’t have the smarts. Of the four then we believed that Seinfeld showed the greatest promise and for good reason, I think. We both identified with him - not the others.

This, of course, is a pretty inane exercise but it brings up a very good point. To be successful trading the Forex one needs to have the temperament for it. When I got home I did a little research and discovered
Personalitytype.com, a handy website that enabled me to identify my personality type, something you might be well advised to do before you jump in the frey.

I discovered that I’m an ISTJ, an introverted, sensory type of guy, who thinks a lot and is highly judgmental. If you’re a successful trader, I’d love to hear what other temperaments, if any, are well suited to Forex trading.

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Spiking: Fact of Forex Life? If So, It's Hard to Prove

Anyone who has been trading the Forex for any length of time can’t help but have heard rumors about “spiking” or “stop loss phishing”, but no one in the industry that I know of has been willing to come forward to clear the air, at least until now. According to at least one source, investor stop loss orders are frequently taken out not because the market has turned but because such takeouts serve the dealing desk broker’s financial interests.

An experienced trader, a personal friend of two years, had an extended conversation with a trading platform programmer several weeks ago who confirmed what most of us have suspected for a long time - that dealing desk brokerage firms (those offering fixed spreads) routinely spike rates to cover imbalanced trades, meet liquidity requirements, and/or to maximize profits trading their internal accounts. According to this insider, the practice will undoubtedly continue because it’s difficult, if not impossible, to prove.

According to him, to catch a dealing desk broker spiking rates, governmental agencies like the Commodity Futures Trade Commission or the National Futures Association would have to monitor two platforms - one that displays the interbank trading action the broker is being fed (and that varies slightly from one dealing desk broker to the next) and the rates the dealing desk broker offers its traders, a daunting task to be sure. To date, he reported, neither agency has taken action to monitor those internal platforms.

The willingness of any governmental agency to pursue a problem is pretty much a function of demand. If there's a public outcry, something will be done about it. If not, it will be ignored like so many other problems in this world. If you’re interested in getting them to investigate the problem, you can submit your concerns to one or both. Text links to their consumer complaint forms are provided below. If you elect to submit a complaint to NFA, you’ll have to provide a broker’s NFA ID number.

Commodity Futures Trading Commission

National Futures Association

The only way I know for a trader to avoid spiking is to trade through a broker offering a non-dealing desk trading platform. Instead of creating and managing an artificial, off-exchange market where traders are offered a single quote for each currency pair, non-dealing desk brokers facilitate trading between spot traders and participating banks. Traders see and trade against multiple quotes - the same quotes dealing desk brokers use to post rates that have been adjusted to include their fixed spreads.

Trading through a non-dealing desk borker, spiking is non-existent. In the first place, the facilitating broker doesn't trade against his clients so he has no reason to spike them. In the second, participating banks do not have access to the trader's positions - specifically their stop loss orders.

Pet Peeve: Websites Selling the Dream of Easy Riches

I’d be hard pressed to imagine how any prospective trader, looking for educational materials, could avoid stumbling on to at least one website offering trading secrets and systems that will enable the small investor the means to amass an incredible fortune trading the forex in a very short period of time. The Commodity Futures Trading Commission and National Futures Association are trying to find a way to reign in the hype but are confronted by a number of legal impediments and jurisdictional issues that I personally think will make enforcement a virtual impossibility.

While they’re trying to work out the details, here are a few sure fire clues that a website promoting forex trading isn’t on the up and up.

Clue 1. The website is limited to a single page that scrolls to Antarctica.

Clue 2. Key text elements, written to evoke a positive emotional response, are often highlighted. The worst of the lot highlight text in a fluorescent yellow.

Clue 3: The site reads like a child who is giving a parent the top 100 reasons the family “needs” to visit Disneyland this weekend - “And we can ride Dumbo, and, and, and......”

Clue 4: The site reports to provide "unsolicited" testimonials from a score or more, faceless individuals like “Bob B, Kansas City”. Really now...when was the last time you read a bad testimonial? Even more to the point, when was the last time you bought anything and then took the time to write an unsolicited testimonial on the provider’s behalf? What's that you say? NEVER?

Clue 5: Exaggerates the positive potential. Here’s an example which appears on a site offering forex educational materials. “It's possible to turn $300 into $30,000 and achieve financial freedom in as little as six months!” Trust me on this. The odds of turning $300 into $30,000 even in a year are astronomical. I guarantee those who pursue that dream are among the 85% of forex traders who lose everything and most likely in a month or less.

Clue 6: The site only talks about success, not failure. Even with the best training and trading strategy (and they are out there) you’re going to suffer losses but that’s hidden in the small print or not mentioned at all.

Clue 7: You buy into the program. Follow the provider's instructions. Lose everything in a week or less.

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