Profit and Losses with margin confusion

[jmca]

I understand what margin is used for, but I'm confused how margin plays in gains & losses.

For example:

100:1 leveraged account
1 standard unit = $100,000 correct?

200:1 leverage account
1 standard unit STILL = $100,000 correct?

So when booking a P/L, they are both the same. Margin plays a roll in how much of your own money you put up, not increases or decreases the $ of your P/L. What it does do is increase/decrease your Cash-on-Cash% return, giving you a larger +/- ROI%.

Am I correct in this?

[abner]

if your confused about a simple thing like this then I would just quite now and move to something a little more simple, like grade 3 math.

[jmca]

Wow, what a ****, you fat little man.

[virtecs]

Originally Posted by jmca

I understand what margin is used for, but I'm confused how margin plays in gains & losses.

For example:

100:1 leveraged account
1 standard unit = $100,000 correct?

200:1 leverage account
1 standard unit STILL = $100,000 correct?

So when booking a P/L, they are both the same. Margin plays a roll in how much of your own money you put up, not increases or decreases the $ of your P/L. What it does do is increase/decrease your Cash-on-Cash% return, giving you a larger +/- ROI%.

Am I correct in this?

Margin plays a factor in your profit/loss because as you increase the amount of lots you use, the margin increases.

leverage determines how much margin capital you need on hand to enter a trade

So, required margin is Lot size x price x leverage
so, 100,000 x 1.35 x 0.01

100k lot, price of the current currency, and 100:1 leverage.

if you move up to 2 lots, or 200k then your margin will increase, but so will the amount of money per pip.

100k = 10 bucks a pip
200k = 20 bucks a pip

So yes margin kinda plays a role in your roi, but only in that you need that much cash to enter the trade.

[VulcanClassic]

I ignore margin for the most part and focus more on the risk per trade.

Just make sure that your available equity (wiggle room after margin) is large enough to cover your stop loss, so you don't get a margin call. The higher the leverage the better, IMO, for the above reason. Less of your account is used for the margin leaving more left over for available equity.

People caution against high leverage because of the temptation to go in too heavy and blow your account. If you calculate your risk properly before a trade, margin shouldn't be an issue.

[Cdawg]

I understand what margin is used for, but I'm confused how margin plays in gains & losses.

For example:

100:1 leveraged account
1 standard unit = $100,000 correct? No, 1 standard lot is 100,000 units, price is equvalent to the currency your trading

200:1 leverage account
1 standard unit STILL = $100,000 correct? to keep it simple yes, though only 1/2 as much margin is required for the 100,000 units
So when booking a P/L, they are both the same. Margin plays a roll in how much of your own money you put up, not increases or decreases the $ of your P/L. What it does do is increase/decrease your Cash-on-Cash% return, giving you a larger +/- ROI%. I think that is upto you on how your evaluate your own ROI, if you look at it as in (100:1) i put up $1K to make $x or i put (200:1)up $500 to make the same $x then you would be correct.

Am I correct in this?

Margin plays a factor in your profit/loss because as you increase the amount of lots you use, the margin increases.

Your lot size should be determined by your calculated risk i.e. 1%, 2% or what ever you choose, therefor utilizing 100:1 or 200:1 or 50:1, your lot size should be the same and the amount of margin should be a non factor, the only real difference is that the higher the leverage, the more useable margin you will have in your account

[jmca]

Thanks for everybody's reply and taking the time to answer my question. So that makes sense. Margin are the funds I'm actually using to open a position. Almost like an instant mortgage, in that I have to put less down of my own cash.

At the moment my strategy has been:

• 200:1, now switching to 100:1
• 1% equity risk
• Lots determined by ATR, % equity risk, and a little bit extra swing leeway
• Enter on multiple time line exhaustions
• Exit on smaller time line exhaustions
• Diversified in 19 currencies
• The entering strategy is very specific so on average, 2 open positions at a time, and at most, 4 to 5 positions at one time

I've been running this a few months now, and it's been very profitable for me. I just for some reason could not grasp the whole margin thing. But it makes way more sense now. Thanks.

[abner]

you'll be broke in a year or less

[tymen1]

Originally Posted by abner

you'll be broke in a year or less

And I will see to it that you will be booted off this forum in a lot less time than that if you continue to deliberately insult everyone on this forum.

[rhodytrader]

Originally Posted by jmca

Diversified in 19 currencies

Just a quick note on the fact that you cannot possibly be diversified across "19 currencies". Firstly, I presume you mean pairs because I doubt that you've found 19 tradable individual currencies you're going to trade. Secondly, so long as you're trading positions in the same currency you're running into issues. For example, there is no diversification if you're long EUR/USD and EUR/JPY. Quite the opposite actually. You're twice as exposed to the EUR.