Margin.

[schoe]

I've just finished reading an ebook called Bird Watching in Lion Country in the book the author states that the reason most traders fail is that they overleverage themselves and stop out too easily.

He recommends trading with no more than 3/1 margin at the most and entering positions by cost averaging down to a support level in the direction of the major trend.

If I wanted to trade for example EUR/USD via spreadbetting does this mean that for every £1 per point I would require about £12400 in capital or are my sums wrong?

Any comments or clarity would be appreciated.

Thanks Schoe.

 

[Spreadbetteur]

It depends on your trading strategy / risk:

Lets say you are willing to risk 10 pips per trade at 1 pound a pip. Thats 10 pounds per trade.

If you are going to risk 2% of your capital per trade you would need 500 Pounds.

If you are going to risk 1% of your capital per trade you would need 1000 pounds.

Most gurus suggest no more than 2% risk of capital per trade.

With Capital Spreads you need 60 pounds per point in your account to trade.

With CMC you need 150 pounds per point in your account to trade.

Have sent you a private message.

 

[schoe]

Thanks for the reply Sb. I probably failed to get my point across correctly, I fully understand the margin requirements of the SB companies.

What I am asking is if I want to trade without margin ie on a ratio of 1/ 1

how much capital do I need to risk say £1 per point via sb am I correct in saying its £12400

roughly the number of points in EUR/USD. ie £1 per number of points in the index.

If I increased to a margin of 2/1 then I would need £24800 and so on.

 

[JonnyT]

Yep I think your sums are right.

JonnyT

 

[charliechan]

my advise would be to do what feels right for you and your tolerance to risk, rather than blindly following what some stranger says in a book who knows nothing about you, your trading style, your time frame, your asset class, or anything else that is truly important.

from what the author says then, nobody should trade futures, as they typically offer at lest 10 to 1 leverage! duuuh!!

as for averaging down...... fine if you have very very deep pockets/credit line and a long time horizon, otherwise, well im not saying anymore.

to be quite frank, i dont think you should be trading real money if you are asking these questions. sorry.

 

[schoe]

my advise would be to do what feels right for you and your tolerance to risk, rather than blindly following what some stranger says in a book who knows nothing about you, your trading style, your time frame, your asset class, or anything else that is truly important.

from what the author says then, nobody should trade futures, as they typically offer at lest 10 to 1 leverage! duuuh!!

as for averaging down...... fine if you have very very deep pockets/credit line and a long time horizon, otherwise, well im not saying anymore.

to be quite frank, i dont think you should be trading real money if you are asking these questions. sorry.

Mr Chan, I am more than capable of making my own decisions on whether I am able to trade futures/forex etc or not it appears that you have missed the point completely.

Point number one. Have you read the book........... I would guess the answer is no.

Point number two. This has nothing to do with my trading at the present time I am simply pointing out that the authors opinion is that the reason 90% of people lose money in trading is that they trade on too much margin with too narrow stops losses.

Your point on nobody should be trading futures( doh) is laughable I know what the typical margin is 10/1 20/1 etc. that is the reason the author suggest most people are losing. His point being you don't need to use the margin available and it is much safer to stick to 1/1 2/1 etc

I understand this is not possible with most traders due to account size but it is how most of the professionals trade do you think that the large Banks use margin they don't need to and can ride out bigger drawdowns its margin that stops a lot of traders out with the volatility of futures and forex etc.

 

[JumpOff]

Mr Chan, I am more than capable of making my own decisions on whether I am able to trade futures/forex etc or not it appears that you have missed the point completely.

Point number one. Have you read the book........... I would guess the answer is no.

Point number two. This has nothing to do with my trading at the present time I am simply pointing out that the authors opinion is that the reason 90% of people lose money in trading is that they trade on too much margin with too narrow stops losses.

Your point on nobody should be trading futures( doh) is laughable I know what the typical margin is 10/1 20/1 etc. that is the reason the author suggest most people are losing. His point being you don't need to use the margin available and it is much safer to stick to 1/1 2/1 etc

I understand this is not possible with most traders due to account size but it is how most of the professionals trade do you think that the large Banks use margin they don't need to and can ride out bigger drawdowns its margin that stops a lot of traders out with the volatility of futures and forex etc.

I haven't read the book either.

Trading without margin is one of the reasons that professional fund managers have such crappy returns on average. I mean 4-15% growth anually is good for mutual fund investors, but I can't see those kinds of returns motivating a full time trader who is looking to make an hourly wage similar to that of mid-upper level manager.

IMHO, most of the traders who fail do so not because of their use of margin, but because they don't have tested plan of action,and they panic when they realize they've lost the equivalent of a mortgage payment in 10 seconds - when they only intended to risk enough for dinner for two.... Margin is a two edged sword. If you have an edge, you have a management plan to limit drawdowns and you know how to execute, margin makes your account go up really fast. If you are guessing, then it gets you to "blown out" faster too.
JO

 

[charliechan]

sorry if you took offence at that. i never meant t to come across that way. it was sincerely meant as advice.

point 1 - i have no need to read these types of books, so no i havent. i have read a few before and know they are all pretty much a waste of space. you will never find the answers to trading the markets for £25.95

point 2 -
I am simply pointing out that the authors opinion is that the reason 90% of people lose money in trading is that they trade on too much margin with too narrow stops losses.

well i am simply stating that 90% of traders fail because they believe all the crap written about trading by people who know very little about trading! if they did, they wouldnt write such dross would they?

so most people are losing because they are trading a highly leveraged instrument are they? no. they are losing because they are risking too much in the first place. this has little to do with leverage, everything to do with risk exposure. i can risk $10000 with 1/1 leverage, or 100/1. it doesnt matter. at the end of the day im risking $10000. so the author is talking bull sh!t again.

so, i guess you are about to tell me that the increased leverage will then imply a tighter stop will have to be used as it reduces the amount of volatility that the trader can tolerate. this is a totally different argument isnt it. if you cant afford to trade where you are at ease with your decisions (that are based on market dynamics, not some abstract figure that happens to be x% of your account), then that trade shouldnt be taken should it? what does that have to do with leverage? nothing. it has everything to do with greed and over trading.

but im still unclear on the futures point. is the author really saying that everyone should stay away from futures and options due to the leverage? a simple yes or no will suffice.

as for how 'large banks' trade is....

1/ totally irrelevant - because they have a very different set of issues to deal with than average joe such as liquidity
2/ totally irrelevant - because id say 70-80% of speculators in banks are still net losers. most ot their money is made from brokerage fees and the spread in market making.

hope that helps.

 

[charliechan]

I haven't read the book either.

Trading without margin is one of the reasons that professional fund managers have such crappy returns on average. I mean 4-15% growth anually is good for mutual fund investors, but I can't see those kinds of returns motivating a full time trader who is looking to make an hourly wage similar to that of mid-upper level manager.

....

JO

who said they dont have access to margin??

the reason they have smaller returns is because they are forced to diversify by the regulators. in other words, this means being forced to take positions that are not their favourite asset/stock etc - having to take a position that they are not so sure about.

also, going in and then out of the market with a $60 million position cant be done with the same ease as a $2000 stock position. it takes time and if not done correctly will move the market significantly against you very quickly as others guess whats going on.

 

[bulldozer]

Charlie,
I'm wiv you on this mate.
Can i just add, most options players that trade American style options get their positions liquidated cause of following:

1, They have overtraded and are too greedy. [get rich quick mentality]
2. Cannot meet the margin requirements cause they havent got it available.
3. They dont understand how the margin is calculated.
4. When their positions go on Margin-call , most US brokers WILL liquidate! :!: IB is one broker that will [liquidate] No grace period given to come up wiv the marg payments.

Bull

 

[bulldozer]

People who dont understand how margin works and calculated and also the brokers RULES on it , should NOT strart trading Options or futures! The great majority get their account BLOWN-UP cause of their lack of knowledge on margin.

 

[joeMcnicholl]

Good evening

Trading in a margin account is like the proverbial two-edged sword – it can cut both ways.You must choose your futures broker wisely; take your time and do your research before settling for just anyone. After all, it is your money you are playing with and you want to get the best person possible for the job!.For my personal trading account.I use a broker based in London.

joe