Ed Mamula.com

Why Forex? I love the FX, Forex, Foreign Exchange…whatever you want to call it! Why?

24 hour market : The market is tradable 24 hours a day, 5 days a week.

Availability of leverage: Of course leverage can be quite dangerous, but it’s monstrously important if a trader hopes to develop a position sizing strategy that will allow for superior returns and proper risk controls.

Availability of free software for automated trading: Metatrader is wonderful. This tool is offered by several forex brokers. It is the key to testing and executing my strategies.

Easy Access to Paper Trading : Practically every broker will provide some sort of play money account so that a trader can paper trade without risking real capital.  I do not currently paper trade, but were it not for this feature, I may never have “dabbled” in forex to begin with.

Low start up capital requirement: My feeling is that with as little as $2,000 in starting capital, my system can run effectively. Although I’ve never traded futures, I’ve read repeatedly that it’s difficult to execute a proper bet sizing algorithm unless a trader has tens or hundreds of thousands of dollars in initial risk capital.

Depth of liquidity: Although I’ve yet to experience this firsthand, it’s often advertised that a trader can trade millions of dollars without having an impact on the market.

I trade British Pound Sterling against the US Dollar exclusively. (GBP/USD Forex spot market)  This pair is sometimes referred to as ”Cable”.

When I began dabbling in Forex trading in 2005, I badly wanted to run a system across multiple currency pairs to acheive some level of diversification. However, I found that the results I was getting from GBP/USD dwarfed the results I was acheiving in any other pair. When I think about diversification today, I don’t try to diversify within the currency market, but rather I diversify across asset classes, choosing to hold some other trading capital in stock index funds and money market accounts.

GBP/USD moves rapidly and fits my trading style. I think if I were to base my decision of which market to trade based on opinions I’ve seen while browsing the web, I’d gravitate toward EUR/USD because of the depth of liquidity and lower trading spreads. My liquidity provider almost always maintains a spread of 2 pips on EUR/USD, while the spread on GBP/USD is typically 3 to 5 pips. I’m always on the lookout for ways to reduce my trading spread, but clearly, for me, the simple fact that spreads are lower in the Euro pair do not justify the switch.

Finally, I’ve found that focusing on GBP/USD exclusively makes it much easier for me to manage the total risk in my account…if I were to trade multiple pairs, I would need a tool that would let me do portfolio level backtesting, and I’ve yet to find a satisfactory product for that purpose…then again, at this point, I’m not even looking.