Hello, this looks like a great forum, full of info. I have a couple of things I am confused about. I’ve only been studying FX for about 2 weeks so bear with me if these questions seem naive or ignorant.
I’ve read how difficult FX is and how the majority of new traders fail. Now if I was to place a trade with a safer amount of margin (2-4%?) and immediately that currency went down leaving me in the hole XXX dollars, would I be able to wait the currency out until it made me money? It might take 2 days or 2 months but eventually it should come back up (barring a disaster)…
I’ve been playing around with a practice account trying to learn the theories and math involved but one thing confuses me. If I buy 10 lots of XXX and the price goes up/down 10 pips, I should have a profit/loss of $100. Yet on some trades this doesn’t add up. Ie. 10 lots of USD/CAD purchased @ 1.0621, current price @ 1.0555 and Profit/loss is at -625.30. What am I missing?
Ans 1
Technically yes you could wait until the price came back up,
but all the time the price goes down your margin will go down maybe to
a point where you will receive a margin call.
Also by staying in this trade it reduces your margin for other trades.
ie balance = $5 000
margin used = $2 500
net asset value = $2 500
margin call could be $2 000 or the next trade you do goes down as well
& this also reduces all figures.
for question 2, when you say 10 pips profit, does that include the spread? or do you mean you ahve made the spread back to break even, then made a 10pip profit?
After 24 hours, your position does a “rollover” which is a debt of about 2 pips. The 50 pips loss is also counted against you as a debt.
You are now in a loss by 52 pips.
Suppose the next day you are in profit, say 20 pips. That means your price has risen by 70 pips (50 negative + 20 positive).
You are now in profit by 18 pips. (20 positive minus 2 rollover debt).
[U]So far so good.[/U]
But if you are still in the negative of say 50 pips the [U]second[/U], rollover period, then the first rollover of 52 pips is now debited against you with a further 2 pips for the 2nd rollover.
You are now in a definite loss of 54 pips which will be subtracted from any profit you have made.
A third day in the negative of 50 pips means now 106 pip definite loss.
You will need to make a big profit to offset that loss.
[B]The lesson[/B] :
Cut your losses by using a “stop loss” to protect you.
Now, the rollovers credit extra money to your account if you [U]start [/U]your trade by being in profit territory.
But then, you have to be making a profit, and not waiting for the thing to turn around as you have asked.
In this way, forex is different from stocks.
In stocks, you can hold a negative stock for as long as you like untill it goes into profit territory. No extra fees are charged.
Cut your losses by using a “stop loss” to protect you.
Now, the rollovers credit extra money to your account if you start your trade by being in profit territory.
But then, you have to be making a profit, and not waiting for the thing to turn around as you have asked.
In this way, forex is different from stocks.
In stocks, you can hold a negative stock for as long as you like untill it goes into profit territory. No extra fees are charged.
Sorry Tymen1 I am going to question this answer.
In my platform all of the “carry” percentages are calculated on a
minute by minute basis, so if I leave a trade open overnight the
"carry" percentage is calculated on the position I hold, whether negative or positive pips, on the initial trade value.
The initial trade value does not alter, only nett worth changes, up for
+ve pips, down for -ve pips.
long position:
calculate the borrowing interest on XXX for the duration in question and convert it to USD
calculate the lending interest on YYY for the duration in question and convert it to USD
subtract (2) from (1). If negative, then this is the interest you owe — if positive, then this is what will be paid.
short position:
calculate the borrowing interest on YYY for the duration in question and convert it to USD
calculate the lending interest on XXX for the duration in question and convert it to USD
subtract (2) from (1). If negative, then this is the interest you owe — if positive, then this is what will be paid.
Yes your actual position is calculated at the end of every day,
but the point I was trying to make, badly by the look of it, was
that there should not be a great fear over “rollover” or "carry"
Do not close a position with a loss just because of this fear.
Close it because your TA was wrong & the price went down
instead of up or vice versa. There should be more fear involved
in staying in a losing trade than the “carry”
