Margins and Lots? Why not use them all?

Ok, so this question may have a really obvious stupid answer, but I’ve been wondering…

Since each lot you trade requires a margin or deposit, and since you will get a margin call because you ran out of usable margin, why not just trade close to every lot you can (factoring in the spread).

If you’re right about the direction of the price you just won a lot more than you would have if you traded 1 lot. Plus, you can use the margin call as an automatic stop loss if you’re wrong, and it seems as though your used margin would be protected.

It seems like you would increase the reward part of risk/reward ratio X amount of times.

Am I missing something?

I know what you talking about, sometimes the broker closes part of the trade automatically instead of liquidating the whole trade.Hey! there’s nothing wrong with that idea,forex is a piece of sh!t :slight_smile: and It shouldn’t be traded,it should be used for transfering or exchanging currencies only but we 've decided to trade it. When exactly can you tell when central banks,corporations,individuals or traders are trading/swapping funds and how large are the funds? Can anyone…?:slight_smile:

You are definitely missing something. I’ll try to make it simple using real examples.

On my platform (IBFX, MT4) I trade 0.1 lotsize on a $500 mini account. For each 0.1 lot I trade, a $5 margin is required since a mini lot = $10,000 and I am trading 1/10 of that = $1000 at a 1:200 leverage. $5 x 200 = $1000. When you talk of using a margin call as a stop loss, you obviously don’t understand the margin call. If, for example, I trade a single 0.1 lot using only $5 margin, I would have $495 useable equity left in my account. The only way I would get a margin call is if my trade went backwards that entire amount. You have to have enough usable money in your account to cover all negative trades. In other words, a margin call only occurs when your trades have gone against you an amount equal to the money left in your account. So obviously, you DO NOT want to use margin call as a stop loss.

A good example was posted awhile back using poker as an example. Say you want to play poker but don’t have the necessary $100 to sit at the table. A friend decides he will loan you that money for as long as you need it. You can play all night and pay him back the $100 out of your winnings. But, let’s say you have a good streak and build your chips to $500 and keep playing without paying your friend back yet. (He’s watching over your shoulder the whole time) Suddenly, you have a really bad streak and lose $400 of the money you’ve gained. Now, you still have $100 to bet with, except it’s not really yours and your friend, having seen your bad streak decides he want’s his money back while you still have it. That would be a margin call. I know it almost seems reversed since your initial deposit is not borrowed money, but if you realize that trading with leverage is the same as borrowing the broker’s money it makes more sense. Extend that to trading at 1:1 leverage on a standard account and you will see. One standard lot = $100,000 so for each lot you trade, you’d need $100,000 “margin.” In this case, if your account started at $100,000 you would have no usable equity left after placing 1 trade. That’s fine with the broker in this case because you are not leveraged, so you can lose up to the whole $100,000. If, instead you were at 2:1 leverage, you could place 2 trades, each requiring $50,000 margin. If both trades went backwards $50,000, they would both be closed by margin call, for a total loss of $100,000. You can change the leverage numbers however you’d like, the bottom line is, margin call on that account would be at -$100,000.

Sorry so long winded, but so many people have a hard time with what seems to me to be an easy concept. Hope this helped.

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That is not trading that is gambling and bad gambleing at that. You are essentially throwing all your money at the market and hoping it goes well.

If you trade the full amount you are capable of on one trade the trade will not have enough room to breathe. when you get a winning trade it doesn’t automatically go positive, often it will go many pips against you before it goes where you think it may.

Lets say you have a $100 dollar micro account with 400/1 leverage. Thinking it’s a good idea to trade as large as you can because you will make the most money you trade the most you can on one trade.

400/1 = 400x100 = lot size of 40000. Rounding off each pip would be worth $4.

For you to get a margin call or lose your whole account the trade would only have to go against you 25 pips. Which is nothing for breathing room. Price can spike 25 pips.

You may get lucky once or twice, but sooner or later trading this way you will get a margin call and zero out your account.

If you know how to manage your risk and only risk a small amount of your account you can compound up when you win or down when you lose and never come close to a margin call.

P.S. using a margin call as stop loss would not protect your, “unused margin,” if you trade the highest amount your account is capable of in one trade it is entirely possible, actually probable, that you will lose your whole account in just one trade.

P.P.S. The risk reward ratio is not increased by risking more? How would that work? Sorry, no, you are tottally wrong on thinking it seems this way.

The whole point of risk reward is that you have an edge and know that maybe 6 of 10 trades wins. So, you risk a small amount on each trade and give up a small amount on the losses. You are essentially staying in the market so your wins can hit. This is also the reason the winners have to be as big as the losers or better. 6 winning trades out of 10 is useless if the winners made just a few pips and all the losers lost dozens of pips.

I suggest doing some searches on this subject. I alone have already posted on this very subject a couple times this week.

I’m not sure you guys are understanding what I am saying. Or else there is some serious differences in our brokers.

When I have tested getting a margin call using a high ammount of lots, I get a margin call when and only when I have used up my usable margin. The rest is kept as a deposit and stays in my account. If there is slipage I think that would be the main problem.

Read this site: jmot�s Blog - Myths About Forex Trading

My broker seems to work as explained on that site. Noticed the part at the end where he says it leaves $1000. I have tested margin calls and it seems to work. I understand it’s a good idea to give yourself some room, however that’s why I would calculate exactly when the margin call would occur before entering a trade.

I understand what you talking about that’s why i said it’s not a bad idea.My broker is the same way. I remember i had a drawdown once and i put a large trade on but the market spiked against me immediately before i had a chance to put SL on.the broker closed the trade immediately to avoid me getting wipped out.i still had funds left for another trade.You can do anything you want as long as you have an exit plan.:wink:

Ok, don’t listen to us. Do what you want. Try it on a live account. You’ll start wishing you would have listened to us.

I guarantee you consistently profitable traders don’t trade like this. Do you think you have discovered some loophole that people who have been trading for years have somehow missed?

Woa, hold on. If you have a good, intelligent, “reason” for why it’s a bad idea than by all means explain. That’s why I asked. However, you just fed me a line of BS by what you just said.

You were wrong about what you said earlier. You do not lose your “entire” account. Or maybe there is reason why you would like: a broker allowing the trade to go past the “usable” margin, slippage, or a broker closing your account for too many margin calls.

Where a broker makes the margin calls is different from broker to broker. With some you will lose you entire account with others they call it at an earliers spot, which would leave you with less of a, “margin call/stop loss.”

Go ahead and re read my post and ignore the part about losing your whole account, maybe then it will make sense.

If you decide to trade like this you might as well just send me a check instead of trading, because either way you are going to lose your money.

P.S. Their are ways to trade with more risk and make more per trade, the way you are talking about isn’t one of them.

On my demo I had a $5000 micro account. I first traded 1000 lots and got 2 pips, then I traded 1500 lots and watched until I got a margin call. leaving me with $3700, which is plenty for a micro account. The only problem is since there i got a margin call trade is currently unavailable.

You never know 100% where a trade is going, but if you had a huge reason to believe a trade was going to immediately trend down or up for a long time it might be worth doing this to scalp, depending on when you could trade again after a margin call. From there it seems like the only thing that would cause a problem in a situation where one would decide to do this is recovering from the spread.

Exactly, you never know where a trade is going. Even if you become a technical analist wiz you will still be wrong some of the time. YOu have to learn to think and trade in probabilities.

If you want to trade like this go ahead, but it will end bad for you.

It seems you are trying to reinvent the wheel and find something someone isn’t doing. It just doesn’t exsist, it’s far easier to simply follow traders who are already successful.

There is a reason the babypips schools says the number one thing that takes traders out is over leveraging on small accounts.

It call comes down to one thing, and either what I’ve read and myself is wrong or you’rr wrong. Either you lose everything or you lose everything but your used margin that is required on each lot.

If you only lose up to your used margin than you can calculate how much you would lose. And who the hell is saying they would “trade like this” I never said anything about making this my primary system, i just asked a question.

Other brokers are similar.

I’m with cmsFX too.

Hell read this Margin Call Example | College: The Number One Cause of Death for Forex Traders | Learn Forex Trading

Notice how the account balance afterwards is $8000 not $0

Oh and Pipfanatic, right now I am trading with FXCM, but unfortunately those dirtbags don’t have a their margin calls spelled out as nicely.

[B]DOES ANYONE HAVE AN ACTUAL ANSWER TO MY QUESTION?[/B]

After calculating the potential loss, what other factors could go wrong? Would slippage cause you to lose more than your used margin?

I’ve never experienced slippage before so i don’t know what will happen to your account but i do know CMSFX will either liquidate some or all of your position if you run out of usable margin.

When I have tested getting a margin call using a high ammount of lots, I get a margin call when and only when I have used up my usable margin. The rest is kept as a deposit and stays in my account. If there is slipage I think that would be the main problem.

I think this is the key to your “idea”… basically all your account balance is tied up in required margin, therefore not able to lose on price fluctuation.

So for $1k mini acount @ 100:1 you would basically open 10 minilots (100$ a piece) in the direction of your trade, and in theory your would get a few pips or be MC before you could per say “lose” any money.

Read the fine print on your brokers MC rules, as some will let you go into your required margin to maintain a trade. This is what will unfold your idea, and break your account.

I understand what your question is (and alot of people have kind of missed it). But yes your idea should be more or less shot down :wink:

First of all, by using your remaining margin as your ‘stop loss’, it takes a great deal of thinking/calculation as to how many lots you trade each time. By the time you calculate this (account size minus lot size minus spread plus stop loss etc), you may have missed your entry.

Secondly, you’re leveraging your entire account, which is ALOT. (far cry from the ‘2% rule’)

Thirdly, and actually the answer you’re looking for, is that the markets zigzag. The currency hardly ever moves up, up, up, up. And when you place your trade the odds are that the trade moves opposite first then up (thats life :P)

Forthly, the market can suddenly get volatile, and can jump even 10 pips in the wrong direction. If it does, you lose more than your ‘used margin’ because the usable margin has been negated already.

Lastly I believe brokers place a minimum remaining margin for opening new trades :wink:

Thanks, that was more helpful