Need Some Help Thinking Through FX Margin...

ivot

Member
61 5
So over the last several months I've been practicing in real time, a trading approach that has been working quite well for me. Where I need some help now is making sure I'm understanding correctly the FX margin requirements and how they pertain to my trading approach.

When I began practicing this approach in real time several months ago I used a $50,000 practice account from FXCM to make all of the trades. I didn't bother scaling the trade size to the account size because I simply wanted to test the approach and figured I would worry about position sizing to account sizing later on if I felt the trading results were viable. As a result, I didn't really pay attention to margin requirements as I was putting trades on.

After doing this for a number of months now I'm quite pleased with the results and how things are progressing. What I want to do now is to now start being more precise in regards to matching position size to account size. Since FX scales wonderfully, I'm trying to figure out what percentage of the account (regardless of the dollar size of the account) I could risk per trade while not falling into margin problems.

I've attached an excel spreadsheet that lists all of the information I've tracked around my trades. In that spread sheet I've calculated the margin requirements + amount of the account I'm risking per trade to figure the total amount needed to 'fund' each trading opportunity. What's tricky is that my approach is a swing trading approach not a day trading approach and as a result it's very normal for me to hold positions for several days at time which ties up trading capital within the account.

What might raise some eyebrows is that I illustrated in the spreadsheet a 7% account risk per trade. I don't want to necessarily focus in on the 7% number from the standpoint of whether or not it's an 'appropriate' amount to risk per trade (I'm not a newbie when it comes to trading and I certainly understand the risk associated with potentially risking that much per trade). Rather, what I want to understand is if I'm missing something in regards to the margin amounts + the per trade risk. Based on my analysis in the spreadsheet it looks like I need 3-5x in margin OVER what my risk is on most of the trades. Where that becomes an issue is when I have 4 or 5 different trades running at once and the margin + amount risked per trade looks like it is greater then the total account size.

If you look at my results in the spread sheet, it looks like this would come up quite a bit because the margin requirements + the amount set aside for the risk on the trade would eat up all of my capital in the account. Thus I would need to drop my % risk per trade from say 7% down to a lower number (perhaps 4% or 5%).

I would certainly like the option to be more aggressive earlier on with a smaller account in regards to the amount I'm risking per trade since I could start scaling back % risked per trade over time as the account grows. It appears though that I might need to accept the fact that I'd have to lower my % risked per trade in order to stay out of margin problems. Can anyone give me some feedback on this or tell me if I'm missing something?
 

Attachments

  • FX Margin.xlsx
    20 KB · Views: 203

Traderallen

Active member
248 41
I'm not sure I can answer your question to your satisfaction I would say starting out on a live account don't risk more than 1% trade risk in any one position and have no more than 5% market risk at any given time. You can get a copy of Timothy LuCarelli book on Amazon Forex Secrets - Successful Scalping Strategies from the Dark Side. He does a good job explaining trade risk, account risk, and market risk. Keep in mind once you go live you will not get the same performance that you got in your demo account. Trades are not filled the same way. One last thing, the first thing I noticed when I look at your spreadsheet is over and over your trading against yourself. In my opinion this is never a good idea. If you don't know what I mean looking at trades and noticed how many times your long the dollar in short the dollar at the same time. If your trading multiple days you want buy a strong currency or short a weak currency. Not be on both sides.
 

ivot

Member
61 5
Thanks for your feedback Traderallen. I'm curious as to why you think the fills on the demo account would be different then fills on a live account.
 

Traderallen

Active member
248 41
There's no doubt about it demo trading and live trading give you totally different fills. The reason for this is simple on a demo trading account when you fire off in order you get filled at exactly the price your looking for regardless of whether your using a market or limit order for a robot. When you place an order live your orders only filled if someone there to take the other side. Also demo trading leisure emotions out of the trade, which is another reason why the orders get filled differently. I recommend opening a trading account with a broker that allows you to trade in micros'. Andy are test again trading one micro at a time. This will give you better test results without risking hardly anything. And since you will have some money on the line it will start bringing your emotions into play. We are not robots, therefore our emotions will always be in the trade, anyone says different there either not a trader or fooling themselves.
 

Giovan

Active member
163 7
Margin requirement per microlot for different pairs.
Add this to your max risk per trade figure and add about 0.5% to account for slippage.
 

Attachments

  • margin requirements.JPG
    margin requirements.JPG
    61.5 KB · Views: 159
Last edited:

ivot

Member
61 5
Thanks for your thoughts traderallen. Giovan, I have been adding the margin requirements to my max risk per trade but it sounds like perhaps I need to build in a bit more cushion for slippage.
 
 
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