Originally Posted by ericpayet
I want to address your concerns, so first I need to make sure I understand what happened.
While I don't know what broker you were using and I won't speak for another company, it's important to consider how your demo account or back testing results could differ from real account results for legitimate reasons.
Could you tell me a bit about the trades you placed that resulted in a 50% profit on your first day of live trading? In my experience, the correlation between your demo performance and your live performance will depend on the following factors:
1. How realistic are the trade sizes you are using?
The default FXCM demo settings give you a starting virtual balance of $50,000 but what amount are you looking to invest? Keep your trade sizes realistic to the capital you have to invest. As a general rule of thumb, try not to exceed 10:1 effective leverage. That means you should consider opening no more than 1k for every $100 in your account. Jake mentioned that you can open an FXCM account with as little as $2000. With that amount you could trade up to 20k or 20 micro lots and still stay within 10:1 leverage.
2. What percentage of your equity did you risk on your demo trades?
With virtual money it's easy to stay calm when you equity drops 20%, because no real money is at risk. With a live account, such losses are hard to stomach. Try not to risk more than 2% to 5% of your equity on any trade, and by that I mean 2% to 5% of the equity you plan to invest with real money. So if you plan to invest $2000, then try not to risk more than $20 to $50 on any one trade. Note that you can still place long term trades. For example, on a 1k micro lot trade, you're risking 10 cents per pip, so with $50, you could risk up to 500 pips.
3. Does your demo trading strategy rely on perfect liquidity? (which does not exist in the real market)
defines liquidity as follows: The degree to which an asset or security can be bought or sold in the market without affecting the asset's price. Liquidity is characterized by a high level of trading activity. Assets that can be easily bought or sold are known as liquid assets.
For example, EUR/USD is the most liquid financial instrument in the world, but even for that most liquid currency pair, the liquidity will drop during news events. If your demo strategy is longer term and doesn't place trades during news events, then your results on a live account with the same trades would likely be comparable.
However, if your demo strategy relies on getting filled at the exact price you requested during news events, you may find that such a strategy will not perform as well in the real market. That's because no demo can replicate the liquidity or lack thereof during major news events. That means your real market orders could be more prone to slippage.
Slippage is when your order is filled at a different price than you requested. The good news with FXCM is that slippage can be positive as well as negative
. Positive slippage is when your order gets filled at a better price than you requested. Below are the stats from over 127 million live trades executed through FXCM between January 1, 2015 and March 31, 2016:
- 78.71% of all orders had no slippage.
- 12.77% of all orders received positive slippage.
- 8.52% of all orders received negative slippage.
- 50.2% of all limit and limit entry orders received positive slippage.
- 39.9% of all stop and stop entry orders received negative slippage.
Note that positive slippage is more likely to occur with limit (take profit) orders, while negative slippage is more likely to occur with stop orders. That's due to the momentum of price movement when those particular order types are triggered.
It's also worth noting that for market orders, Trading Station has a feature called Market Range (and a similar feature for pending orders called Range Entry) that allows you to specify how much negative slippage you're willing to accept on an order if any. For example, if you set your Market Range to 3 then you market order will only be filled if the best available price in the market is within 3 pips of the price you clicked on. Otherwise, your market order gets cancelled. Note that this feature only limits you're negative slippage. You're still able to benefit from any positive slippage even if it's greater than 3 pips. The video below has more info on how you can use the Market Range feature.
Welcome to the forum!