I’ve been trading for just over a year now. In that time I have utterly blown my account, hit quite a few margin calls and learnt my ForEx through the school of hard knocks.
I started trading again after recapitalising my account and decided to play it safe. Small positions and manage risks with sensible S/L posits etc.
Last night I was awake late thinking about the NFP report that was due to come out today and other significant financial announcements that are difficult to trade. They tend to shoot in one direction rapidly, either immediately or after a couple minutes. See todays NFP, massive down swing on EUR:
I remembered last year when I tried to trade a NFP report and got stopped out with a Margin Call, I was too cool for Stop Losses back then. After the trade was closed on me, all I had left in my account was the Margin required by the broker to open my position. Which in an odd way made me think “at least that money was safe”… Last night I though, what if I take out such a huge position that most of my funds were reserved by the margin… ‘safe’.
I made a spreadsheet based on a balance of $2000 and worked out the margin required for each Lot size and the actual amount of PIPs my balance would support before a margin call:
Let’s work with an account balance of $2000, I usually risk 3% on a trade, in this case $60. So to be $60 from a margin call I need to take a position of around 260,000 which in this case is actually $52, close enough. It will take $1,948 from my balance, that’s $1,948 held by the broker to cover the 260k lot and is ‘safe’. At this level of leverage I am only 2 pips from hitting my margin. Ok ordinarily that’s insane as price can move 2 pips in a heartbeat and your out.
This set-up is only designed for the high speed up or down swing of trading a report. Here’s how I set it up today:
The news was full of stories and rumours the NFP was good and the ADP? report was positive this week too. So I figured the USD will be bullish. Just before the NFP came out I set up this position.
Sell at market. 2 pip S/L. No T/P. 260,000 lot size. Then I waited watching the 5 minute chart with my finger over the execute button. The chart as expected/hoped, shot down. I waited. Sometimes these whiplash back, as soon as a strong down movement was in progress I executed the order. Waited a little then closed it. One observation is that during these reports trade execution is slow no doubt do to the high volume of trading. A painful anxious lag, the profit went from $620 down to $494 in the time it took to execute.
I added the 2 pip stop loss as a belt and braces approach. I didn’t want to just rely on a margin call for saftey in case the broker wasn’t able to execute it for whatever reason.
I netted 19 pips @26 per pip = $494.
In hindsight I should have had a trailing stop/loss since the actual movement was a lot further down about 147 pips. This would have been nice at 26 per pip ($3822). Not a bad gain for risking $60.
Ok I know its insane. I know it breaks the rules. It only applies to trading reports with significant fast moving up or down swings. I know I’m going to get flamed to bits for this :54:
