Positive Odds in Forex Trading #2
Yesterday we discussed a little about the positive odds in forex trading. Let’s try and compare that to casino gambling. In a casino there is only one game where history has proven that the player can beat the casino, and that game is blackjack. Using a technique of counting cards, the payout rate goes from anywhere from a .97:1 ratioto a 1.05:1, depending of course on how much is wagered and how many highcards are left in the deck compared to low cards.
Lets take a look at forex pairs now:
Forex pairs are sold with a spread ranging from 2 pips all the way up to 7 pips on the GBPJPY but we’ll use 3 pips as the universal spread in order to make things less complicated.
Long term trading of currencies benefits greatly from the influence of nations to affect monetary policy and is mathematically the best way to beat the odds of the market. With a 3 pip spread, and investor must make 13 pips on a trade in order to lock in a 10 pip proft. That sets the commission for the trade at 23%; no amount of institutional manipulation will add 23% to the foreign exchange pool.
However looking long term, seeking 500 pips from a trade, the commission drops to just .59% of the of amount invested, a number that can easily be beaten.
Long term trading benefits most from the economic outlook over a time of 3-5 years. The input of money by government can easily top the negative payouts of the foreign exchange.
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