A high percentage of the deposit is involved, or when is a margin call coming? Part 2
Let's try to determine the size of the threat to the deposit, i.e. let's consider the situation when our expectations are not met, and the harmful bad rate goes in the opposite direction from the forecast. How many points of such a "slack" can the deposit survive? After all any trading system should contain the standard value of the maximal slack, while in long-term periods this slack can equal or exceed one hundred, two hundred points or more.
The point value in trading with standard lot of 100 000 units of the currency is 100 000*0.0001=10 dollars, and 75% of a deposit of 1500 dollars is 1500*0.75=1125 dollars. By simple calculation we determine that this amount is enough for 1125/10=112 points of "sag". After that, the losing trade will be closed.
What is 112 points? A little more than one "figure" (the term "figure" means 100 points in trader's slang). Each currency pair has a different daily "move", while EUR/USD can easily go this way for a couple of hours or even less, as its average "move" is one hundred and fifty pips or more during the day.
Thus, it appears that if the forecast has not come true and the position is not covered with a stop order in order to minimize losses, the trader will irrevocably lose 75% of assets in the deposit within an hour. Now this is indeed a "rosy" prospect!
So what to do? The answer is very simple - you need to use a smaller percentage of the deposit for trading, thereby reducing the likelihood of the above sad events.
The optimal percentage for trading is recommended to be between 10 and maximum 15 per cent of the deposit, i.e. in our case it would be 1500*0,10 = 150 dollars, which, given the leverage of 1:100, would open a position, for instance, on the EUR/USD pair, using 150*100=15 000 units of the currency. If the minimum lot size is limited to 10,000 units, then 10,000 units, or one mini lot. Some brokerage firms do not impose restrictions on lot sizes, and you may open a position even using non-circular amounts, such as 25126 units. This gives you a very handy way of controlling the percentage of your deposited funds by opening additional positions. Also, it is not necessary to exceed the maximum percentage value of the deposit, which is impossible when trading whole, not fractional, lots.
So, how much is the maximum possible "slack" in our case? Let's calculate:
The price of a pip at a lot of 10,000 units - 10,000*0.0001=$1.
Remember that 75% of our 1500 deposits, it is - 1125 dollars, respectively - this trading account can withstand 1125 points of "slack".
This is already a very good safety margin that will be your "safety cushion", will provide you a healthy sleeping and help keep your nerves stronger.
But, of course, you should by no means increase "slack" up to such level, because it might result in stagnation of funds on the deposit and stop-out situation. For this reason it is better to constantly monitor the current percentage of the deposit and avoid dangerous overshooting, closing unprofitable positions in time.
It is undoubtedly unprofitable for the dealing centres to draw attention in their advertisements to such a negative aspect of trading, as high risk, because there is no way to lure the client to it. At best, you will read about it in the trading regulations when you sign the contract, but at the time you decide to trade without realizing what you are signing up for.
However, having high risk does not mean you should not trade on the currency market at all. Remember, it's you, not your broker, who is taking the risk, so, as they say, forewarned is forearmed. Your knowledge of the basic rules of capital management and risk minimization will be your weapon and protection.
You should also take into account the logic of the statement that it is better to LOSE less, but to profit with a small lot, than to LOSE more with a big lot.
Greed is not the best advisor in the practice of Forex trading. Losses will happen anyway, they are inevitable, even with the best forex strategy, but the amount of available funds on the deposit should be enough to withstand slack, so as to be able to wait and close position with profit. Or, you can use your free funds, and open in the opposite direction from the direction of the open position, thus equalizing the losses and profits. In this case you will get a clear advantage in the form of saved deposit.