Newbie:Wanting to learn

[Mac]

Hi, I just would like to ask a few questions I would like to ask. I have been playing on a demo account for a while and have been busying trying to learn what I can from everybody I have met, but there is a few things i don't understand.

1) What is the proper margin to open a postion with is it 100:1 or maybe higher or lower which would one reccommend and why?

2) When do you know when to close your position at what level will you about decide you have made enough profit/loss in that position

If someone could answer my questions I would realy appreciate it.

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	Margin The deposit required to open or maintain a position. Margin can be either "free" or "used". Used margin is that amount which is being used to maintain an open position, whereas free margin is the amount available to open new positions. With a $1,000 margin balance in your account and a 1% margin requirement to open a position, you can buy or sell a position worth up to a notional $100,000. This allows a trader to leverage his account by up to 100 times or a leverage ratio of 100:1. If a trader's account falls below the minimum amount required to maintain an open position, he will receive a "margin call" requiring him to either add more money into his or her account or to close the open position. Most brokers will automatically close a trade when the margin balance falls below the amount required to keep it open. The amount required to maintain an open position is dependent on the broker and could be 50% of the original margin required to open the trade.

[DrForex]

Originally Posted by Mac

I have been playing on a demo account for a while and have been busying trying to learn what I can from everybody I have met, but there is a few things i don't understand.

Mac, the above surely sounds like the right recipe to get nowhere with your trading.

Originally Posted by Mac

1) What is the proper margin to open a postion with is it 100:1 or maybe higher or lower which would one reccommend and why?

The margin required is largely irrelevant unless you take the kind of risks that will just see you lose your money. FX brokers offer razor thin margins - anything from 0.25% to 2% in most instances on typical retail accounts.

To understand why I say that it is basically irrelevant (if you trade properly) you have to consider that some brokers offer different margin requirement options to the client. In other words if your broker gives you an option to have margin of "100:1" (more correct to say 1%) or 200:1 (more correct to say 0.5%) it will not impact your transaction at all as long as the position size is not the maximum you can take. To take the maximum position size based on such small margin, thus lever your money 100 or 200 times, is insane.

Here is an example of what I say:

You have $5,000 and you trade a mini account, thus 10K lots.

If your margin required = 100:1 / 1% it means you can open 1 lot of 10K USDJPY for $100 margin. The value of the transaction is 10K (USD) and the value of one pip is about $0.9. So on a 100 pip move in your favour you will gain about $90.00

If your margin required = 200:1 / 0.5% it means you can open 1 lot of 10K USDJPY for $50 margin. The value of the transaction is 10K (USD) and the value of one pip is still about $0.9.

In other words the margin required does not affect the risk you take at all.

What does affect it is the size of the position you take.

If you decide in above example to take a position of 50K (i.e. leverage = 10:1) (leverage is calculated by dividing your capital into the position size) the value of each pip would be 5 X0.9 = say $4.5. A 100 pip move in your favour would render $450 or 9% return on your account.

This might sound fantastic, considering that 100 pips can be made in a very short time, but there is a significant downside, namely it can just as easily move against you and then you have lost 9%. Some will say, just place a stop loss with a 3:1 risk / reward at 30 pips ad everything will work out nice.

Oh really? A lot of people found out that isn't so simple.

Originally Posted by Mac

2) When do you know when to close your position at what level will you about decide you have made enough profit/loss in that position

This depends on your whole trading style. If you have a mechanical risk/reward ratio approach you will typically want to close a trade if you have made say 3 times the amount that "risked" in terms of the distance in pips between your entry price and your stop-loss level.

Explanation:

Say you have a 3:1 risk reward ratio, it means if you place a stop 50 pips from your entry you should take profit at 150 pips gain.

This is but one approach and I am not too keen on it. I have a much simpler approach and it works great. Take a nice profit when you see it before it runs away. "A profit a day keeps the bailliff away".

The currency market is very volatile intra day, making any intra day entry price rather a 50 / 50 odds about if the next intra day move will be up or down. This characteristic of currency price behaviour in the very short term is the reason why the saying "take your losses and run your profits" that comes from the INVESTMENT world needs serious adaptation in a short term leveraged FX trading environment.

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	Leverage Leverage is the ability to gear your account into a position greater than your total account margin. For instance, if a trader has $1,000 of margin in his account and he opens a $100,000 position, he leverages his account by 100 times, or 100:1. If he opens a $200,000 position with $1,000 of margin in his account, his leverage is 200 times, or 200:1. Increasing your leverage magnifies both gains and losses.<p>To calculate the leverage used, divide the total value of your open positions by the total margin balance in your account. For example, if you have $10,000 of margin in your account and you open one standard lot of USD/JPY (100,000 units of the base currency) for $100,000, your leverage ratio is 10:1 ($100,000 / $10,000). If you open one standard lot of EUR/USD for $150,000 (100,000 x EURUSD 1.5000) your leverage ratio is 15:1 ($150,000 / $10,000). For more on leverage, visit the following links: http://www.goforex.net/forex-leverage.htm http://www.goforex.net/forex-leverage-2.htm

	Margin The deposit required to open or maintain a position. Margin can be either "free" or "used". Used margin is that amount which is being used to maintain an open position, whereas free margin is the amount available to open new positions. With a $1,000 margin balance in your account and a 1% margin requirement to open a position, you can buy or sell a position worth up to a notional $100,000. This allows a trader to leverage his account by up to 100 times or a leverage ratio of 100:1. If a trader's account falls below the minimum amount required to maintain an open position, he will receive a "margin call" requiring him to either add more money into his or her account or to close the open position. Most brokers will automatically close a trade when the margin balance falls below the amount required to keep it open. The amount required to maintain an open position is dependent on the broker and could be 50% of the original margin required to open the trade.

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[n_aftab]

Hi,

I agree with Dr Forex, but also want to say that I believe you should advertise your book a little more to new people who would really benefit from it.

It goes through just about everything you need to know as a beginner to forex and more, Dr Forex goes into great detail about his own trading plan with step by step break down.

I have read a fair few books on forex and one thing this book does not do it throw a whole load of technical indicators at you, his methods are simpler and the main reason behind it is the way he is trying to get you to change your thinking and your approach to your trading.

i.e. low leverage.

Thoroughly recommended book

I’m not advertising the book on behalf of Dr Forex but it seems to have had very little mention which is a shame, I believe it does deserve mentioning for being a dam good read.

Heres a link to it
http://www.goforex.net/forex-ebooks.htm

Bird watching in lion country.

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	Leverage Leverage is the ability to gear your account into a position greater than your total account margin. For instance, if a trader has $1,000 of margin in his account and he opens a $100,000 position, he leverages his account by 100 times, or 100:1. If he opens a $200,000 position with $1,000 of margin in his account, his leverage is 200 times, or 200:1. Increasing your leverage magnifies both gains and losses.<p>To calculate the leverage used, divide the total value of your open positions by the total margin balance in your account. For example, if you have $10,000 of margin in your account and you open one standard lot of USD/JPY (100,000 units of the base currency) for $100,000, your leverage ratio is 10:1 ($100,000 / $10,000). If you open one standard lot of EUR/USD for $150,000 (100,000 x EURUSD 1.5000) your leverage ratio is 15:1 ($150,000 / $10,000). For more on leverage, visit the following links: http://www.goforex.net/forex-leverage.htm http://www.goforex.net/forex-leverage-2.htm

On a site it is written that probability to earn on forex 50/50. It is the truth?.

[n_aftab]

As above take a look at Dr Forex`s book, the truth is there are various things you can do to tip the odds in your favour.

I’ll give you a few examples.

Learn the currency you are trading, what makes it move, be aware of indicators news that the market moves with very quickly.

If you go into it with your head in the clouds expecting to make a quick fortune with high gearing and not really knowing what your doing then yeah expect to take a nasty fall and make the broker rich.

I do really suggest the book it will give you a solid understanding and foundation to build upon.

Best Regards

Naeem

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[DrForex]

Originally Posted by jack_creator

On a site it is written that probability to earn on forex 50/50. It is the truth?.

The whole investment and trading world is basically a 50 /50 game broadly speaking because a financial instrument can go up or down (more or less valuable) in any period of time.

The purpose of analysis is to gain some edge to improve the odds that it will either go up or down after you have made an investment or trade on that specific instrument.

Many "money management" systems and strategies, like for instance "cut your losses and run your profits" are based on this 50/50 assumption and try to skew the odds in your favour.

A significant problem in most trading approaches is that they try to turn the odds in their favour on a "per trade" basis. This is doomed to fail. Your trading approach as such, your whole strategy must put you in a position where you have a little better than 50 / 50 chance to make money.

I suspect this is what Naheem and many others find so valuable in Bird Watching in Lion Country. I show you how you can do this and how much of what is being touted as successful trading approaches are really just a repition of the basic 50 / 50 scheme with, in fact, negative edges, like too high risk taking, cherry-picking and emotional drainage to the point of "trading suicide".

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