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Noob question about Money Management

  • #1
  • First Post: Edited 5:21pm Oct 7, 2006 5:10pm | Edited 5:21pm
Hi all,

I have a newbie question about MM.

I want to open a live account in near future. I am planning to invest no more than $500 - $1000 for now.

Now the question, as I understand according to MM I should not risk more than 2% of my core equity, and have no more than 10% open trades.
As I understand, I need a micro account and once I manage to increase it to $2500 (since 2% of $2500 is $50) I can upgrade it to a mini account.
However, I read a post by dialist where he suggests to open mini account only when one has accumulated $30,000 in the account. However, 2% would be $600 which is 12 mini lots in one trade. Isn't that better suited for standard lots?

Also, as a side note, anyone knows a good micro broker, that allows easy applications for international traders. I am currently demoing with InterbankFX, but unfortunately they don't seem to offer micro accounts (they say they do on the website but MT4 doesn't seem to have that option) and require jumping thru hoops (i.e tons of documents ) in order to open an account,

Thanks for your help!
  • #2
  • Oct 7, 2006 7:19pm Oct 7, 2006 7:19pm
FXSolutions offers a micro account.


Quoting thepunisher
Hi all,

I have a newbie question about MM.

I want to open a live account in near future. I am planning to invest no more than $500 - $1000 for now.

Now the question, as I understand according to MM I should not risk more than 2% of my core equity, and have no more than 10% open trades.
As I understand, I need a micro account and once I manage to increase it to $2500 (since 2% of $2500 is $50) I can upgrade it to a mini account.
However, I read a post by dialist where he suggests to open mini account only when one has accumulated $30,000 in the account. However, 2% would be $600 which is 12 mini lots in one trade. Isn't that better suited for standard lots?

Also, as a side note, anyone knows a good micro broker, that allows easy applications for international traders. I am currently demoing with InterbankFX, but unfortunately they don't seem to offer micro accounts (they say they do on the website but MT4 doesn't seem to have that option) and require jumping thru hoops (i.e tons of documents ) in order to open an account,

Thanks for your help!
  • #3
  • Edited 11:27pm Oct 7, 2006 7:40pm | Edited 11:27pm
I'm not sure about the sign up process with InterBanks (I'm still just demoing) but I believe you only need two pieces of I.D.

As for Micro accounts, go to their site and open a demo account. You'll be Emailed a link for download MetaTrader after filling out the form.

Now, I know you'll say "I've already downloaded it from MetaQuotes"; but the one you download from InterBank has the Option to make a standard account, or Mini account.

With either account, you can trade Micro lots, as explained on their forum.
  • #4
  • Oct 8, 2006 8:43am Oct 8, 2006 8:43am
Quoting thepunisher
Hi all,

I have a newbie question about MM.

I want to open a live account in near future. I am planning to invest no more than $500 - $1000 for now.

Now the question, as I understand according to MM ....

Thanks for your help!
MM is not an exact mathematical science. There just arent fixed rules out there about MM.

MM is a mix of both numerical and psychological factors. 2% of a $1,000 is much different than 2% of $100,000. This is why depositing as low as $500 doesnt help at all. If you lose it all, you won't care. You are going to be very aggressive and take on big risks. And you might learn bad habits. And when it's time to deposit the big money, you carry on those bad habits with you trading style and the damage will be even bigger.

My recommendation is to not open an account with less than $10,000. But this is just my thoughts of course.
  • #5
  • Oct 8, 2006 10:08am Oct 8, 2006 10:08am
MM is exactly mathematical. There are fixed rules out there. 2% is 2%. If you deposite $500 and are very aggressive, taking on big risks, you aren't using your math. Your MM. But I have my own MM question:

When you have an open trade, and you are determining your risk capital for a second trade, by taking 2% of your equity, do you use your current equity, or should one calculate what that equity would be if the currently open trade loses? It's not rocket science, but I'm sure it makes a difference.

Quoting ItalianSharp
MM is not an exact mathematical science. There just arent fixed rules out there about MM.

MM is a mix of both numerical and psychological factors. 2% of a $1,000 is much different than 2% of $100,000. This is why depositing as low as $500 doesnt help at all. If you lose it all, you won't care. You are going to be very aggressive and take on big risks. And you might learn bad habits. And when it's time to deposit the big money, you carry on those bad habits with you trading style and the damage will be even bigger.

My recommendation is to not open an account with less than $10,000. But this is just my thoughts of course.
  • #6
  • Oct 8, 2006 10:53am Oct 8, 2006 10:53am
Quoting 4X=0
MM is exactly mathematical. There are fixed rules out there. 2% is 2%. If you deposite $500 and are very aggressive, taking on big risks, you aren't using your math. Your MM. But I have my own MM question:
While money management is mathematical, it is not the same for everyone. If you think everyone is best off trading 2% per trade, you're wrong. There are systems out there that risk much more than 2% per trade, and believe it or not, they are successful.
  • #7
  • Oct 8, 2006 11:03am Oct 8, 2006 11:03am
Yes but you must agree, 2% is in fact, 2%.

Quoting twinchell
While money management is mathematical, it is not the same for everyone. If you think everyone is best off trading 2% per trade, you're wrong. There are systems out there that risk much more than 2% per trade, and believe it or not, they are successful.
  • #8
  • Oct 8, 2006 11:19am Oct 8, 2006 11:19am
Quoting twinchell
While money management is mathematical, it is not the same for everyone. If you think everyone is best off trading 2% per trade, you're wrong. There are systems out there that risk much more than 2% per trade, and believe it or not, they are successful.
The most risky I saw has VAR = 10-14% in every trade and ... is successful...
Quidquid latine dictum sit altum viditur
  • #9
  • Oct 8, 2006 11:23am Oct 8, 2006 11:23am
Quoting dottore
The most risky I saw has VAR = 10-14% in every trade and ... is successful...
That individual is very fortunate to have a system that supports so much risk. Fortunate = hard working.

However, when calculating that 10%, do you think s/he uses the current standing equity ammount, or uses the current equity minus the total potential loss of all open trades. Does this make sense?
  • #10
  • Oct 8, 2006 11:35am Oct 8, 2006 11:35am
Quoting 4X=0
That individual is very fortunate to have a system that supports so much risk. Fortunate = hard working.

However, when calculating that 10%, do you think s/he uses the current standing equity ammount, or uses the current equity minus the total potential loss of all open trades. Does this make sense?
As far as I know he opens up to two trades simultaneously with the same amount. Thanks for your question...
Quidquid latine dictum sit altum viditur
  • #11
  • Oct 8, 2006 12:40pm Oct 8, 2006 12:40pm
Quoting dottore
As far as I know he opens up to two trades simultaneously with the same amount. Thanks for your question...
You're welcome. But assume that there was one order already open. Then assume you spy a great trade and start to calculate your risk. 2%, 10%, whatever%.

Would you:

A) Take a percentage of current -at that moment- equity.

or

B) Take a percentage of your would-be equity, if the one open trade lost.

For example:

Balance: $1000
You are in a trade that is up $200 - with a stoploss that would potentially lose you $300 if it turned the other way. The trade is in-progress.

So current equity: $1200.
Would you calculate Risk capital like this:

1200 * .02 = $24

or

700 * .02 = $14

  • #12
  • Oct 8, 2006 12:51pm Oct 8, 2006 12:51pm
i always take off that 2% for every position open, and work with that subtracted equity. But if you have multiple trades that are ready to open, I would rate them (1-5 for example) based on your system and which ones is the most promising to have the first 2%, and the least fitting to have the last 2%..
i hope i make sense
  • #13
  • Oct 8, 2006 1:02pm Oct 8, 2006 1:02pm
Quoting hilmy83
i always take off that 2% for every position open, and work with that subtracted equity. But if you have multiple trades that are ready to open, I would rate them (1-5 for example) based on your system and which ones is the most promising to have the first 2%, and the least fitting to have the last 2%..
i hope i make sense
Yes and yes. This is what I was looking for, a subtracted ending equity. My beloved broker displays a floating equity.

Yah with the (1-5) example, I see how this would makes sense if you were to place 5 trades at once. Thanks for the help.

That question was easy right.
  • #14
  • Oct 8, 2006 1:08pm Oct 8, 2006 1:08pm
Ok, so for a beginner trader what should be the threshold then you stop trading micro and go for mini? $2500 or something else? Or maybe N amount of months of consistent profits?
  • #15
  • Oct 8, 2006 4:31pm Oct 8, 2006 4:31pm
Quoting 4X=0
You're welcome. But assume that there was one order already open. Then assume you spy a great trade and start to calculate your risk. 2%, 10%, whatever%.

Would you:

A) Take a percentage of current -at that moment- equity.

or

B) Take a percentage of your would-be equity, if the one open trade lost.

For example:

Balance: $1000
You are in a trade that is up $200 - with a stoploss that would potentially lose you $300 if it turned the other way. The trade is in-progress.

So current equity: $1200.
Would you calculate Risk capital like this:

1200 * .02 = $24

or

700 * .02 = $14

OK, I understand the math.

As a newbie treder i would risk 2% of smaller capital (lessen by the amount in a current trade) -$14, as a seasoned - probably 2 % of overall. There is a third way - 1000 or whatever 700 plus SL moved to a new point.

It depends on estimation if the second trade is in fact soooo great. Newbie cannot asses (do I use the right word? ) properly the potential I think.

But the proper answer is - do you feel comfortable with the first or the second amount? If

I believe that non-emotional dealing and saying sometimes "no" to riskier opportunities is a long term key - to success. FX to me is like a climbing to a top of a skyscraper - if you try to run on a staircase failure and wound is a matter of time.

If you climb safely step by step - finally you reach the top. The second solution is far surer and safer.

Hope this helps...
Quidquid latine dictum sit altum viditur
  • #16
  • Oct 8, 2006 5:01pm Oct 8, 2006 5:01pm
Quoting thepunisher
Ok, so for a beginner trader what should be the threshold then you stop trading micro and go for mini? $2500 or something else? Or maybe N amount of months of consistent profits?
I honestly don't see any reason to move from a Micro to a Mini account.
  • #17
  • Edited 4:09am Oct 9, 2006 4:08am | Edited 4:09am
Quoting dottore
As far as I know he opens up to two trades simultaneously with the same amount. Thanks for your question...
I asked this friend how much he risks in every trade and I am SHOCKED.

He answered - 33% of account.

Yeah...
Quidquid latine dictum sit altum viditur
  • #18
  • Oct 9, 2006 8:50am Oct 9, 2006 8:50am
you might look at this thread


http://www.forexfactory.com/forexfor...985#post109985

the amount you risk really depends on the performance of your system. if you systems expectancy is below 0.00 you shouldnt risk any at all
  • #19
  • Oct 9, 2006 9:01am Oct 9, 2006 9:01am
Quoting thepunisher
Hi all,

I have a newbie question about MM.

I want to open a live account in near future. I am planning to invest no more than $500 - $1000 for now.

Now the question, as I understand according to MM I should not risk more than 2% of my core equity, and have no more than 10% open trades.
As I understand, I need a micro account and once I manage to increase it to $2500 (since 2% of $2500 is $50) I can upgrade it to a mini account.
However, I read a post by dialist where he suggests to open mini account only when one has accumulated $30,000 in the account. However, 2% would be $600 which is 12 mini lots in one trade. Isn't that better suited for standard lots?

Also, as a side note, anyone knows a good micro broker, that allows easy applications for international traders. I am currently demoing with InterbankFX, but unfortunately they don't seem to offer micro accounts (they say they do on the website but MT4 doesn't seem to have that option) and require jumping thru hoops (i.e tons of documents ) in order to open an account,

Thanks for your help!
There is a very very popular broker, perhaps the most popular broker who offers accounts of any size and allows you to trade positions of any size, right down to $1 total position size. You can open an account in one day. PM me if you don't know who I'm talking about
  • #20
  • Oct 9, 2006 9:06am Oct 9, 2006 9:06am
Quoting thepunisher
Ok, so for a beginner trader what should be the threshold then you stop trading micro and go for mini? $2500 or something else? Or maybe N amount of months of consistent profits?
If you want to test a system live with real money just for the emotional aspect of it.. use Oanda. They allow you to trade pennies/pip. If you do not have a solid and well tested system you should not use real money. At least with Oanda, you could lose a total of $5 or something on a very valuable lesson, instead of $50 or even more.
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