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Forex Trading 2018- TA/FA- Setups and discussion, page-2904

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Cooder

320 Posts.

11/05/18

13:43

Post #: 33037258
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Originally posted by sharks37 ↑

Just reflecting back on your comments about margin Cooder.

I know the example you gave was hypothetical, but regardless of that I think it is dangerous to think of trade risk in terms of the margin. The margin is only the deposit required as security on the trade, it does not represent the actual $$$'s risked on a trade. The risk on a trade can only be determined by calculating the number of pips at risk (distance between entry price and stoploss) multiplied by the $$$'s per pip. In the above example for the first trade let's say the stoploss is at 30 pips from entry then that risk is $78. On a $1000 account that's 7.8% of the account equity at risk on one trade.

By comparison I use an account with 500:1 leverage so that 0.2 lot trade requires a margin of $40. Which makes sense - higher leverage means less margin required. If I place a stoploss at 30 pips I see the $$$'s at risk is $79 (i.e. equals approx your estimate of $78). The leverage is higher but the exact same $$$'s are at risk for the same loss of pips. The difference to the above example is I use a $10,000 account in this case, so the equity at risk is only 0.79% which fits under my 1% max equity at risk per trade.

So there are actually two different issues at play here:

1. The first (and most important imo) is how many $$$'s do you have at risk on any trade or all open trades - how much will you lose if they all hit their stoploss?

2. The second issue is how much margin deposit is being used up on open trades. This impacts on how many trades you can keep open not just when you open them but when the market goes against one or more of the open positions which will reduce the available equity to below the margin call limit.

In either case, if you are trading "too heavy", i.e. equity at risk per trade or margin used is too high, you will get in trouble. If trading at almost 10% equity per trade in either case it is pretty easy (and virtually inevitable imo) to get in trouble because it only takes 5-10 trades to either get into margin call territory or account destruction territory. If trading at max 1% I think you actually have to be either a really bad trader or really unlucky (cursed maybe) or stupid or all of the above to get into margin call or account destruction territory which would take at least 50-100 x 1% losses, with few wins in between, to achieve.

As I imagine the Vulcans would say in Star Trek - bet small, live long and prosper...

Cheers, Sharks

PS: My guess is you know all this very well, I just wanted to add some extra perspective/context to the margin/risk discussion.

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Well you got one thing right Shark, I know all this. Now I'm not sure what your lecture is all
about, but if it is to impress some Newbie, it seems Fluro is one of those and by the end of the
day I'm sure there will be more.
You know very well my post was in response to Rick.

You also disappoint me Shark, if as a Trader you think 1:500 leverage is a good idea.

Your approach of higher leverage and smaller account is different to mine.
Mine is to run a larger account @ 1:100 leverage. This allows me to trade up to 1 Standard Lot
per trade. Of course the position size will depend on my risk in $ value.

I plan to increase my account size to the point where I can trade 1.5 to 2 Standard lots per trade.
Now I know you don't like this approach as you run the risk of losing $600 in interest over the
course of a year.!!
So Shark, the next time you are reflecting on something I posted, you can be assured I know
all the points put forward by you in your post.
Upvote

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