A Forex Trader’s Biggest Enemy
The biggest enemy to most forex traders is not the promote or their trading routine but the use of weight. When with too greatly of it, most of time it will take your account genuine down, even with one record trade.
Last week, a new forex trader showed us his account receipt and asked what he was liability harm.
After pleasing a look into his account receipt, we did perceive the next:
found stability: $25000
End stability: $2300
figures of trades: 7
How did he control his account down so sharp?
Abenefit, weight! First link of existence, this trader could control his account up to 27K with 1 measure lot.
After that, gear went harm. What has happened, too greatly confidence? perhaps, yes.
This trader went trading at a genuine weight pleasing 15 measure masses at the time. Wow, but very harm! Why?
First do the sums.
15 measure masses for the EUR/USD brace equals $150/pip you win or drop.
His first trade went completely harm and was cdropd for a 130 pip passing which equals -$19500. In detail this trader was receiving a margin call from the agent to avert him from foster passinges. A margin call will happen in this lawsuit when trader’s stability is declining below $7500 in justice.
As a outcome of this trade, only $7500 was left in his account.
Next link of trades where traded also on max. weight which could be worn, only to win link of pips and behind a lot of pips.
The outcome was an account stability merit $2.3K after 2 weeks trading FX.
Conclusion :
When trading at big weight, only link of pips (endearing or behind) can distress your account dramatically. about our trader, only 10 endearing or behind pips traded at 15 measure masses equals $1500 which is 6% of his edge stability.
Trading at high weights, a trader will cdrop the trade if he win link of pips because of the big activist %benefit on his account stability.
departure into the refusal, trader will clasp on the trade and eager it will come back, most of time, this will outcome in a very big passing.
How to escape this:
As a universal pronounce, only take 1 minuscule lot for every $1000 in account. For a measure account, only take 1 measure lot for every $10K in account.
choose tone: Most stock controlrs are not even tolerable to trade at these weights, for example, some of them only take 1 measure lot for every 50K in account.
Toby Smitz - Daily Operations Forex property.
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Posted on March 16th, 2008 by admin
Filed under: Hedge Fund
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