How many people here increase their trade size as their account value grows? To me, it seems like a key part in exponentially increasing the growth of your account. If you are trading $100 lots with $5,000, fine… but once you get up to a $10,000 account value and you are stil only trading the same amount, it seems like you are wasting your resources and potential gains.
How often should you increase trade size? Every single trade as your account grows? For example, say you start with $5,000 and you trade a $100 lot (2% of account value) and make $250 profit back on your trade. Should your next trade be a $105 lot?
Or do you just increase your lot size with benchmarks such as every $1,000 that your account value increases?
The standard advice coming from stocks trading
is a sound one for FX as well. Money management
of 1-2% risk of available equity is a good one
on top of making sure 90% of the margin is available.
I would opt for 1% risk with 90% margin free.
Meaning, you should have no more than 10 trades
open concurrently at 1%. And always risk 1%
per trade and have no more than 10 trades open
at any given time. Which also means 10 different
currency pairs open concurrently. Free margin is more
important than anything else which is always ignored by
newbies. They hedge left and right, open up
ton of trades left and right, have no clue what PIP
movement per 1.0 lot would trigger a margin call.
Thanks, that cleared up something else… people always say risk 1% of your account and keep 90% margin, but I never understood how that could work for both at once… because when I invest about 6% of my account I still have 800%+ margin free.
JonnyFX;
Thank you very much for clearing that up I had heard it time and time again but never completly understood its full meaning! Its small stupid things that can have a profound impact on trading and I’ld like to understand as many as possible.
Thanks to people like you I have learned a great deal on this site in far shorter time then on any other website/message board. Again thank you!
Yarcofin I’m going to have to agree with mytwopips. Not only does it compound positive investment but it will also throttle back your losses. lets say you loose $100 on the first trade, youl probibly only loose $95 on the second trade with the same pip-loss. That is of course assuming you don’t back down on your trade lots in a loosing streak.
Available equity divided by your used margin = misleading inflated margin level percentage displayed on the platform. If you are going to open up more trades and use more margin and not take into account the potential drawdown on all of the pairs that are open, you are in danger of triggering a margin call. In fact, this is how most margin calls wipe out most traders’ accounts. They only look at the inflated margin level percentage and do not take into account what amount of drawdown each open pairs can take before getting a margin call which is a disaster in trading. It simply wipes out your account because your broker closes all open trades. You are getting a margin call in the first place because majority of your trades are in the negative. Margin call is a disaster to be avoided at all times. So rather than stare at the inflated margin level percentage like all newbies do and get a false sense of security, calculate what actual PIP value it would take, taking into account all trades open, to actually trigger a margin call. Calculate it on your actual free margin available. You may be shocked to realize that in some cases less than 100 PIP movement from each trades that are open will trigger a margin call so calculate your risk. This cannot be stressed enough for newbies.
Oh, so if your margin level percentage reads 800%, it simply means that your
available equity is currently 8 times greater than your margin used. That really doesn’t tell you anything else does it? Everyone needs to actually look at the actual real dollar amount of your free margin, total lots open currently and re-calculate your actual risk. And always think in terms of 100% being the top. And always safer to calculate your risk trade percentage on available equity. If you are confident of your open trades, then calculate it on your balance. And always maintain that risk and have a trade/lot quota. If your total risk is reached, do not open up more trades. Instead look for exit opportunities not more entry points. If your set quota is 2% per trade and max of 10% total, you should have no more than 5 trades going on at the same time. Then by doing a calculation of max of 10%, see what actual drawdown per trade/total lots open you can actually take before getting a margin call.