I have consistently been using about 15-30% of my capital on each trade. I typically only have 2 trades max open at any one time. This means I can have between 80-40% of my capital unused at any one time
It has made me think that there is always a large % of my capital unused. So do people typically use larger % of the capital and effectively look to use as much capital as possible. Or is it better to keep the capital exposure much smaller while having unused funds?
In theory, we should all be deploying as much capital in trading at any time as our margin allows.
But several things argue against this.
Firstly, there is the risk of a Black Swan event. If whatever this is occurs, it might disrupt all forex pair trades and even forex trading for a considerable time.
Secondly, what if your trades are OK but you have a Black Swan event in your personal life? Maybe something radical happens and you need all the capital you can lay your hands on, immediately. This forces you to close all your positions at a time not of your choosing, so you may take a considerable loss as the price of getting out and into cash.
Most importantly, correlation. Every forex pair is highly correlated with at least one other pair. Although there are 28 leading pairs, there are only 8 major currencies and many pairs simply move the same way as others, or in the opposite way to others. So what might seemed like for example 14 very unique positions, can turn out to be simply 2 big bets, one that the EUR will rise and one that it will not.
I assume you are referring to your initial margins for your positions?
I think this is looking at the wrong end of the stick. Sure, it is important that you have a comfortable amount of equity to also cover the mark-to-market margins when your positions are in minus territory to avoid margin calls and/or automatic closure of your positions.
But I don’t think the actual percentage of your equity being used is a realistic measure of how many, or how big, positions you should have open. For example, your initial margin requirement is determined by your leverage and if you change your leverage then the percentage of your capital being utilised will also change.
The key factor to focus on is your risk exposure and overall loss potential. As @tommor says, this can sometimes be a bit surprising if you have correlated positions. Your initial margin is just a deposit against the trade and is rleased when the position is closed. But your loss potential, if realised, is an actual depletion of your capital.
How long do you let your trades run? Are you on the charts like all day when your trades are open?
Sounds high to me.
2 trades could wipe out half your account.
Last week I was wrong on how the FOREX market would react to the Consumer Price Index numbers. I was VERY LONG US Dollars. And even though I was right on how the numbers came in the response was completely opposite what I expected and I lost about half my trading account.
, like right now as I type this, I have about 2 to 3 trades open. Each one of those3 trades carrying about a $250 to $500 margin requirement. And then I have cash on hand twice that.
So If I’m playing with 3 trades each with a $500 margin, that totals $1500, double that, that’s how much cash I keep in my account.
Some trades I leave open. Like at this very moment I dont have a stop losses on Eurodollar trades. Because I’m watching them. But later I will put in some stop loss and take profit orders. But right now I’m flying naked I suppose.
Start pinning hard and fast rules on your trading and you’ve got an Intelligent Trading system going on and you wont need to be involved anymore.
Clear as mud, right? LOL
I’m short EURGBP and EURUSD and EURJPY as I type this. \
The first two I’ve had open since days before the CPI last week, which was Wednesday. The EURJPY I went short today after I posted about it for a couple days looking for a good entry to go short. I Shorted it today at 136.635 just like I said I hoped to do in my post. I’m already up $7.60 on that as I look at it.
Ohh, and I let my trades run until I have fundamental information that overrides the technical. Or until the technical override the fundamentals.
Refer to pipsology
Learn how to trade FOREX
Cool, thanks for sharing!
Is this on the daily?
You will at some point blow your account, because you will have a run of consecutive losses. That’s the reality…I stick to 5% daily maximum to preserve my capital.
Look at it this way. You start with $1,000 and your first 30% trades are losers. You now have $700. And another 30% loss reduces your capital to $490. Now you have two 30% winners, bring your capital up to $637 & then $828. Which means despite having the same win/lose rate your capital is now $172 less.
But you could get lucky and have enough consecutive wins to buy a new house, car, and whatever takes your fancy.
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