If you have a position (say it’s one micro lot .01 on a USD pair taking up $10 of margin) and you lock in your BE or a small profit by moving your SL, does that reduce the margin requirement of this lot? It’d seem to me if your profit (or BE) is guaranteed by the SL, it shouldn’t tie up any margin at all, since there’s no downside risk to your account balance?
My thought process was trying to build up lots long-term for a carry trade. If I get in on the right side of a trend upwards, I’d keep my long lots open for the carry interest. Originally I thought to myself, once I can lock in enough profit for the equity gain to offset the margin requirement, I’d move the SL and buy another lot. However on a 100:1 margin account doing micro lots, I’d need the price to move up 100 pips ($10) to offset the $10 margin requirement. That’s quite a bit of movement.
On a higher leverage account, say 400:1, only $2.50 margin is needed for a micro lot. Thus if the price moves up 25 pips I could do my SL to lock in $2.50 profit (offsetting the margin requirement), and I’m on to buy another lot. But there aren’t a lot of 400:1 brokers and the ones that exist don’t seem to meet my preferences.
So I’ve also been reading up on “pyramids” and the like, but that isn’t really my intent (to maximize the lots I buy with all available margin). Rather, it is to buy lots with conservative MM but increase lots as trend goes my way AND I am able to lock in BE or profit on prior lots (or lock in profit = margin requirement as mentioned in previous paragraph). Slow and steady.
The margin requirement is based on the size of your position, not it’s profit/loss. That said, as your profit moves in your favor your gains increase the value of your accout and thus your available margin, so functionally there’s little difference in terms of what you’re talking about wanting to do.
My thought process was trying to build up lots long-term for a carry trade. If I get in on the right side of a trend upwards, I’d keep my long lots open for the carry interest. Originally I thought to myself, once I can lock in enough profit for the equity gain to offset the margin requirement, I’d move the SL and buy another lot.
This is all very good when the market keeps moving in your direction, but realize that you would be steadily increasing your exposure, an thus the downside risk when the market inevitably turns against you.
That’s why I would only be opening more lots as I can lock in the BEs on the prior lots. I’d only have 1 lot “at risk” per se, using my normal SL and so on. Eventually any trend, even a great long one, will turn around. So my final lot at the top of the trend will lose money, but that’s offset by all of the lots I bought in cheaper that are generating carry interest. (If a trend continues for a while I could also use trailing stops at a decent distance from the current price to lock in some profits, while not exiting them too quickly.)
I realize the greater profits are in swing trading if you have a good success rate, but carry trading long term suits my personality better. Of course, figuring out how to try and enter a trend is the trick really. If the market ranges I won’t be building up any profitable lots or generating interest.
While it’s true that on a closed trade basis only the final position ends up a loser, the volatility of your account equity could be quite substantial - meaning open trade drawndown.
For example, let’s say you’re in EUR/USD with a break-even of 1.40 on your second to last lot and a 1.4100 entry for the last lot. You’re up to a total of 10 lots. A drop from that final 1.4100 entry to your 9th lot 1.40 break-even would be a 1000 pip equivalent loss to your open equity. Even though you’d end up in the money overall, this sort of give-back is something that can be really hard to take. Just something to think about.
Very true. Good advice. As I look back over, say, the AUD/USD the past few years, and imagine if I’d been trading my way slowly into the long up trend… yes, that’s nice interest over time. But looking at the peak of the market vs when my lots would be selling for some TP level, it’s many thousands (if not tens of thousands) of unrealized gains. (Not “loss” in actuality, but gain I could have cashed out on.) I don’t know if I’m emotionally equipped to handle that.
