VingTsunKuen
Active member
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Hello!
I have posted this on babypips forum and the reactions were 0
I would be fine if someone has told me "you are so full of ****!" or " it looks like you are not right" or anything similar.
What i am trying to figure out/explain is that i think that total amount of position one is holding and the total amount which one is holding on account can be one of the major factors of being positive or negative in the long run.Also it looks like there are some difference in calculating position size when USD is base currency and when USD is quote currency.I will try to work this out through examples.
So here we go....
Example 1:
We have opened an $ mini account with 10 000 deposit.
As we are followers of strict money/risk management rules,for now,we do not want to have position in total bigger than 30 000$ at any given time.(As time is passing and our account hopefully grows we will adjust this amount according to True Leverage rule)
Other words our true leverage should not be bigger than 3:1(True Leverage rule).Our true leverage is calculated by divideing total position size with account size.
Now we can not wait to trade any more so we wanna open USD/JPY position where exchange rate is lets say 109.00.We are going short one mini lot.
Which means that we are selling base currency(USD) and buying quote currency(JPY)
-10 000$ +1 090 000 JPY
So basically we have bought 1 090 000 JPY but still our position is worth 10 000$ which means that our true leverage is 1:1(acc.size10 000/10 000pos.size=1)
That is so when $ is base currency.One mini lot will always be worth 10 000$ in $ or in currency for which we have exchanged $.
But what will happen if USD is quote currency?:idea:
The story gets pretty much different:!::?:
Example 2:
We have opened an $ mini account with 10 000 deposit.
As we are followers of strict money/risk management rules,for now,we do not want to have position in total bigger than 30 000$ at any given time.(As time is passing and our account hopefully grows we will adjust this amount according to True Leverage rule)
Other words our true leverage should not be bigger than 3:1(True Leverage rule).
Again we can not wait any more,we wanna some action!
We wanna trade EUR/USD,one mini lot @ lets say 1.4700 and we are going short.So we are
-10 000 Euro +14 700 Dollar
Wait!WTF is going on now??
As USD moved to be the quote currency,size of our position got bigger!:-0
Although we have shorted 1 mini lot(same as in USD/JPY example) our position size got bigger which means that our true leverage got bigger too and now amounts 1.47:1(14 700:10 000)
This is still ok according to our "3:1" rule.
Buying 3 lots of EUR/USD in above example would mean that i would violate mine "3:1" rule because mine total position size would be 44 100$(14 700x3)
and mine true leverage would be 4.41:1(44 100/10 000)which is 1.41 lots more than allowed.
Till now i did not understand this so i have thought that what i need to do is just not to trade more than 3 lots at any given time on all pairs.This is partially correct,only for pairs where USD is base currency.
The point is that when USD is base currency 1 lot will always be equal to 10 000$(if we trade mini lots) ,BUT,
when USD is quote currency you always must calculate your position size according to current exchange rate!
I think that i got it 100% right.
But in the case that i have stated something wrong please feel free to correct me!
Also i hope that this will help other members as i think that good risk/money management is second most important thing to be successful in the long run when it comes to trading.
Regards!
VingTsunKuen
I have posted this on babypips forum and the reactions were 0
I would be fine if someone has told me "you are so full of ****!" or " it looks like you are not right" or anything similar.
What i am trying to figure out/explain is that i think that total amount of position one is holding and the total amount which one is holding on account can be one of the major factors of being positive or negative in the long run.Also it looks like there are some difference in calculating position size when USD is base currency and when USD is quote currency.I will try to work this out through examples.
So here we go....
Example 1:
We have opened an $ mini account with 10 000 deposit.
As we are followers of strict money/risk management rules,for now,we do not want to have position in total bigger than 30 000$ at any given time.(As time is passing and our account hopefully grows we will adjust this amount according to True Leverage rule)
Other words our true leverage should not be bigger than 3:1(True Leverage rule).Our true leverage is calculated by divideing total position size with account size.
Now we can not wait to trade any more so we wanna open USD/JPY position where exchange rate is lets say 109.00.We are going short one mini lot.
Which means that we are selling base currency(USD) and buying quote currency(JPY)
-10 000$ +1 090 000 JPY
So basically we have bought 1 090 000 JPY but still our position is worth 10 000$ which means that our true leverage is 1:1(acc.size10 000/10 000pos.size=1)
That is so when $ is base currency.One mini lot will always be worth 10 000$ in $ or in currency for which we have exchanged $.
But what will happen if USD is quote currency?:idea:
The story gets pretty much different:!::?:
Example 2:
We have opened an $ mini account with 10 000 deposit.
As we are followers of strict money/risk management rules,for now,we do not want to have position in total bigger than 30 000$ at any given time.(As time is passing and our account hopefully grows we will adjust this amount according to True Leverage rule)
Other words our true leverage should not be bigger than 3:1(True Leverage rule).
Again we can not wait any more,we wanna some action!
We wanna trade EUR/USD,one mini lot @ lets say 1.4700 and we are going short.So we are
-10 000 Euro +14 700 Dollar
Wait!WTF is going on now??
As USD moved to be the quote currency,size of our position got bigger!:-0
Although we have shorted 1 mini lot(same as in USD/JPY example) our position size got bigger which means that our true leverage got bigger too and now amounts 1.47:1(14 700:10 000)
This is still ok according to our "3:1" rule.
Buying 3 lots of EUR/USD in above example would mean that i would violate mine "3:1" rule because mine total position size would be 44 100$(14 700x3)
and mine true leverage would be 4.41:1(44 100/10 000)which is 1.41 lots more than allowed.
Till now i did not understand this so i have thought that what i need to do is just not to trade more than 3 lots at any given time on all pairs.This is partially correct,only for pairs where USD is base currency.
The point is that when USD is base currency 1 lot will always be equal to 10 000$(if we trade mini lots) ,BUT,
when USD is quote currency you always must calculate your position size according to current exchange rate!
I think that i got it 100% right.
But in the case that i have stated something wrong please feel free to correct me!
Also i hope that this will help other members as i think that good risk/money management is second most important thing to be successful in the long run when it comes to trading.
Regards!
VingTsunKuen
