Margin Call Trading

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:

this looks very dangerous. And let me tell you, you were lucky to come out today unscathed.

If you follow this method, it is not a matter of IF, it’s only a matter of WHEN you blow up your account again…, because it will happen.

stop doing this NOW before you blitz another account.

I see you like to use indicators for your normal trading. Indicators are always lagging. by the time price is on the rise and the indicator has told you you have already missed a noticeable amount of profit, and likewise when price is on the fall by time the indicator has reacted to it and told you …you have lost a good amount of profit …or worst are actually in the red. not to mention all the numerous fakeouts these indicators produce. stop taking the easy way out and put in the time and effort to learn price action or something like that, this along with suitable money management. IE: Risk reward ratio and you’ll probably find you start to do alot better.

Thanks for your comments. This theory was specific on trading a breaking market report. Not exactly sure how the account could have been blown since only 3% was exposed.

Yeh nothing inherently wrong trading this way… As long as you have enough information to make an educated guess on the report direction… More often then not there will be a fakeout move in the opposite direction of the report release a minute or two before the release… You need to be absolutely spot on in your entry with a SL of 2 pips… Also many brokers widen their spreads during a big release so you will get stopped out on a short position if the ask price widens out, even if the bid price doesn’t move against you.

Ok, maybe I interpreted the original post wrong then. If only 3% is exposed then it is not such a bad risk i guess.

however, when your stop loss does get hit in these very fast whipsaws that occur during trading times …it is very likely you will get hit for more than your stop loss due to lag

Yeah it’s a risky setup, as you guys said during these reports there is a risk of fake outs and the does act like a jackhammer, driving up and down.

Going to take a lots more thinking about but I think there is a potential strategy for trading these violent turbulent price points.

Ok going to take one of my extra large ‘brave’ pills and try K2’s Margin Call method again at 12:30GMT when the US Retail Sales reports come out. Going to pick GBP/USD as I think the GBP is in a fragile state. The expectation is positive and Bullish for the USD, so I expect Cable to shoot down.

Setting up to short GBP/USD 375k lot.

Position will require a margin of 96.5% of my trading balance.
In theory I am risking 3.5% on this trade on before hitting a margin call. Which is 3 pips in the wrong direction. I’ll back this up with a Stop Loss of 3 pips too.

Intend to watch the 5m chart at 12:30GMT and wait until I am sure the down trend isn’t a fakeout, then enter once the move is established. I’ll exit when either my Stop / Margin Call is triggered or hopefully further down the price point.

Will keep you posted. :eek:

Wow, that certainly gets the adrenaline going.

It wasn’t quite as extraordinary as I imagined and only managed to catch 11 pips.

Perhaps is best to leave this approach for the really big reports like interest rates, QE and NFP’s.

Still 11 x $37.5 = $412.50.

Cold shower time.

Lol… Well that’s one way to start your day off.

Watch Aussies employment figures later today… Good opportunity for an afternoon adrenaline rush as well :wink:

Thanks for the tip. Must admit I know very little about the pair. Will have a look though. :slight_smile:

Thanks mate, well worth staying up tonight!!! Same set up as before but went long. Bagged 21 pips $787.

Time for bed.

Yep… I got 50 pips :wink: was a no brainer… I’m surprised you only got 21… It gapped about 40 pips in a second so you must have some super fast reflexes to hit the close button lol…

It was really quick though… You won’t be able to catch it if you even try unless you had it position before the news… I got in at 1.0353. I am still holding on. It might hit that 1.0400

Yeh I opened long 30 seconds before the release, my research had me fairly confident of a positive release… Had no idea it was going to be THAT positive though.

In the OPs original post he said he was opening the trades right before the release so figured he did the same as well… I guess he may not have

It was fraught. I hit close as soon as it moved up because if the lag in executing. Right now I’m shorting the breakout, hope to catch a few pips using normal trading lots :slight_smile:

Lucky!! I need to learn more how to do that…need more practice :wink:

Dude… Never trade against the direction of a news release result.

I guess I will settled for 20 pips… That’s what I get for getting in late… :p.

Night all…