Margin Call & Relative Drawdown

Hello everyone!

Quick question:

Is there a relation between the maximal relative drawdown and the margin used.

In other words, on a backtesting chart, is it possible to compute the margin that would have been required by using the maximal relative drawdown?

I’d like to compute the probability of a martingale system blowing the account up.

Thanks

From what I’ve read/heard…a martingale system ALWAYS blows up. It’s not a good idea to use your margin call as a stop-loss/max drawdown. That’s a recipe for disaster.

Go through the babypips school if you have and learn to trade for real. Red the trend and you’ll make money.

Hello Virtecs,

Thanks for your answer.

I agree with you, given enough time a martingale system ALWAYS blows up.

I’d like to compute the maximum margin used over a period of time out of the relative drawdown (if it’s possible).
If it’s not possible to get the information out of the relative drawdown, maybe there’s another way to get it out of the MetaTrader backtester logs.

This way, I can get the probability for the blow up for example once a week, once a month or once a year (based on historical data).

Thanks

Yes. The more leverage you employ the greater the swings in equity your account will experience.

Hi,

I have a backtest log of my martingale EA for January 2009.
I can see from the graph the I made a nice profit and did not get a margin call, which is great.

[B]How can I compute how far away I was from getting a margin call and blowing the account up?[/B]

For instance if I was only one trade away from blowing the account up I want to add more cash in order to reduce the probability of a blow up for the other months.

You need to express your results in terms of % and compare that against your margin call point. For example, if you are fully leveraged and experience a 60% drawdown you will almost certainly get margin called (actual level depending on your broker’s rules).

Thanks for your answer.

The problem is I don’t know if I was fully leveraged.

The amount of leverage is exactly what I want to find out…

Leverage used is a simple calculation: Position size divided by account balance. You are fully leveraged if your leverage used equals your maximum permissilbe leverage.

For example, if you have $10,000 in the account and trade ten full standard lots ($1,000,000) of USD/JPY then your leverage is 100:1. If you’re broker’s permissible leverage limit is 100:1, then those 10 lots would make you fully leveraged.