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US citizens won't be able to have forex accounts overseas

  • #361
  • Aug 29, 2010 8:50pm Aug 29, 2010 8:50pm
Just ask the boswell sisters and everything will become clear

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Annoying Precision
  • #362
  • Aug 29, 2010 8:57pm Aug 29, 2010 8:57pm
Quoting ecTrade
Oh, there's also no hedging allowed in the U.S. either, including all this FIFO nonsense which was added, and that sucks too.
FYI, there are strategies where hedging and FIFO are not needed/useless. Some of them are far more profitable and stress-free. Don't stop searching and learning.
  • #363
  • Aug 29, 2010 9:07pm Aug 29, 2010 9:07pm
Quoting Slack
FYI, there are strategies where hedging and FIFO are not needed/useless. Some of them are far more profitable and stress-free. Don't stop searching and learning.
There could be ... I was just working with the tools that were made available, and now they want to take them away.

Oh, I just configured and backetested my EA last night and yielded about 4,000 percent in three months (i.e., $4,000 on initial deposit of $100). The only problem I'm really having is when major upswings and downswings in the market occur, such as it's been over the last year or two. This is where the hedging strategy comes in, and my main reason for finding an account overseas.
  • #364
  • Aug 29, 2010 11:58pm Aug 29, 2010 11:58pm
Quoting The Fool
Not really. I trade on margin. Margin is set at 50:1. I don't need multiple ways to talk about the same thing - I don't need a definition for "true leverage" if it is not useful to me. Its not worth my time. All I need to know is how my margin affects my risk and to trade within risk parameters that I control.

The Eskimos might have 65 different words for "snow" - I've just got "snow" and that's all I need.
See, this is what luckylady was trying to illustrate to pipmutt earlier. It is what's "available margin" that matters to small-capital investors. Without the high leverage rate that is the "margin-based leverage" that the brokerage offers, like you said, you wouldn't even be able to place the trade in the first place so this "true leverage rate" based on risk % and stop-loss pips is meaningless and irrelevant because it won't exist.

OK you asked: but what really does risk % and stop-loss pips have to do with marging-based leverage?

I will answer you: According to pipmutt and Billflet, they determine how fast your account balance goes down when you make a loss PROVIDED that you take MAXIMUM margin given by your broker. And this is they feel what contributes to the high failure rate in the high-leverate trading in Forex.

HOWEVER, in reality, it's ABSOLUTELY NOT RELATED. I will illustrate below:


Here is the Calculation:


Take The Fool's example:


The Fool's risk level is 1% of account size with 5-pip stop-loss


So let's look at a loss scenario (I hope it doesn't happen irl for you, The Fool ) at different leverage rate:

1st leverage rate we will look at: 1:1 (The Fool is so loaded, he doesn't even need to borrow to invest) Since The Fool trades 2 standard lot size, the Fool incurred a loss of exactly 1% of 200,000 (account size) = $2,000

With a $2,000 loss, the account loss rate will be:

2,000 (loss) / 200,000 (account size) = 1% and the account balance after loss is:

200,000 - 2,000 = $198,000 (pocket change, The Fool won't even bother to look at the Account Statement )

And The Fool still has $198,000 / $200,000 = 99% of his account balance left

Now the second leverage rate we will look at: 50:1 leverage offered by the broker. So now at 50:1 leverage, the account size becomes $4,000 (200,000 / 50) with The Fool still trading 2 standard lots. The same 1% risk of account size becomes $40: Calculation: 1% * $4000 = $40

The account loss rate is still $40 / $4000 = 1% which is still the same

And the account balance after the loss = $4,000 = $40 = $3960

But the remaining balance ratio: $3960 / $4000 = 99%

But look, this is magic, even The Fool has leveraged 50% of the trade size, after the loss, he still has the same % of funds left over!!

Now let's assume that The Fool has gone all out and has taken a margin rate of 100:1 with a broker, the current evil high leverage rate that is supposedly killing all of the small traders. So for 200,000 trade size, The Fool is only putting up $200,000/100 = $2,000 of his own money.

Then with that 1% risk rate of $2,000 (account size), The Fool this time is only willing to risk $20 at a loss.

So at a loss of $20, the account balance after the loss becomes:

$2,000 -$20 = $1980.

And the the remaining balance % is? Still 99% = $1980/$2,000 !!!
Make your losses in demo. Earn your profits live.
  • #365
  • Aug 30, 2010 12:17am Aug 30, 2010 12:17am
......
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  • #366
  • Aug 30, 2010 12:21am Aug 30, 2010 12:21am
Quoting Forexia
Yes, Slack. I really need to learn.
No worries... I'm just having some fun. And, I just realized English might be your native language?
  • #367
  • Edited 11:45am Aug 30, 2010 12:21am | Edited 11:45am
And this also proves WHY small investors are making money in Retil Forex PROVIDED:

1) They use this "fixed rate loss" system with a REASONABLE fixed rate AND

2) IF they are disciplined enough to ALWAYS cap the loss at the fixed % of their account balance.

And I am not sure if you have noticed, this fixed risk % system even self-adjusts when the investor has had several multiple losses in a row, the amount risked would be reduced lower automatically so the investor is always able to preserve his/her capital.

And since the profit % is not capped, so that would actually get magnified by the margin-rate leverage rate. The higher the leverage rate, the faster the profit would be able to compound as illustrated by Sonicpunk32's post earlier. So the ONLY end results of having the leverage rate capped are two:

1) Really limiting a trader's potential profit.

2) Stop the small investors from participating in the Retail Forex trading market

And that's why the government would REALLY want to cap the leverage rate, that is REALLY to achieve these 2 above purposes. It has absolutely nothing to do with protecting the small investors, helping the brokers, nothing. They just want to see Retail Forex industry dead so it wouldn't be a competition to the "Big Boys" on Wall Street. Those Bastards!!

I was right before and now I am even more convinced. Thanks The Fool, for making me go through this exercise! And Good trading to you!!
Make your losses in demo. Earn your profits live.
  • #368
  • Aug 30, 2010 12:23am Aug 30, 2010 12:23am
Quoting Slack
No worries... I'm just having some fun. And, I just realized English might be your native language?
Well no actually but I came to North America when I was in my early teens so I am used to it.

I hope I haven't bored you guys with my blah blah'ing.

I learned a lot from you, thanks.
Make your losses in demo. Earn your profits live.
  • #369
  • Aug 30, 2010 12:28am Aug 30, 2010 12:28am
Sorry to bring this up. Did you consider that in your first example where the fool's account is $200,000 and he risks 1% or $2000 dollars trading two standard lots, using no leverage the market would have to move 100 pips against him to stop him out?

In the example of risking 1% of his $4000 account ($40 dollar risk), leveraged at 50:1 using the same 2 standard lots the market would only have to move 2 pips to stop him out, and that's ignoring the spread.

In both cases he risked and lost the same percentage of account. But 1 case took 100 pips to take 1% while the other took 2 pips to take 1%.

Or is that the variable that we pretend doesn't exist?

When you increase the leverage and maintain the same percentage of account risk, market movement will take you out quicker and in direct proportion to the amount of leverage used. No magic, just the way it is.

BTW, I'm still not faulting Fool's own MM example a bit. It's logical for scalping.
  • #370
  • Aug 30, 2010 12:29am Aug 30, 2010 12:29am
Quoting Forexia
Well no actually but I came to North America when I was in my early teens so I am used to it.

I hope I haven't bored you guys with my blah blah'ing.

I learned a lot from you, thanks.

There is one good, really good, FX quality you possess: Persistence.
  • #371
  • Aug 30, 2010 3:36am Aug 30, 2010 3:36am
Quoting ecTrade

I just can't expect to see the high returns I was looking forward to ...
I think that's what most people are miffed about, they'll have to settle for realistic returns.

Leverage though, as everyone keeps telling us, is a double edged sword, you haven't got to look back very far to see the carnage it can cause.
  • #372
  • Aug 30, 2010 3:42am Aug 30, 2010 3:42am
Quoting Forexia

According to pipmutt and Billflet, they determine how fast your account balance goes down when you make a loss PROVIDED that you take MAXIMUM margin given by your broker. And this is they feel what contributes to the high failure rate in the high-leverate trading in Forex.
lol, I'll have a pint of whatever you're drinking! And where did anyone mention "how fast your account balance goes down when you make a loss"?

Quoting Forexia

So now at 50:1 leverage, the account size becomes $4,000 (200,000 / 50) with The Fool still trading 2 standard lots.

margin rate of 100:1....So for 200,000 trade size, The Fool is only putting up $200,000/100 = $2,000 of his own money.
Ummm, ever heard of a little thing called a margin call? Minor detail, right? Yeah, we don't need to bother about little things like that......

And what's a "margin rate of 100:1", do you mean 1% margin requirement?


Just when I thought it couldn't get any funnier.......it does!
  • #373
  • Aug 30, 2010 4:02am Aug 30, 2010 4:02am
Quoting ecTrade
There could be ... I was just working with the tools that were made available, and now they want to take them away.

Oh, I just configured and backetested my EA last night and yielded about 4,000 percent in three months (i.e., $4,000 on initial deposit of $100). The only problem I'm really having is when major upswings and downswings in the market occur, such as it's been over the last year or two. This is where the hedging strategy comes in, and my main reason for finding an account overseas.
Nice returns if they're sustainable! Optimized backtests tend not to be all that reliable when forward tested though, that's the only problem, there's nothing more effective than hindsight.

Anyway can't you have two accounts, use one for those major swings?
  • #374
  • Edited 6:16am Aug 30, 2010 5:55am | Edited 6:16am
Quoting pipmutt
Anyway can't you have two accounts, use one for those major swings?
How so? By hedging against the other account when it looks like it's beginning to swing? Yeah, that might work. The only problem with that is I have to maintain enough money in both accounts because technically it's not considered a hedge, at least not as if it were the same account, and won't protect me from any margin calls as if it were. An alternative might be to transfer the funds from one account to the other if the funds in one account were getting too low ... which, of course is contingent upon your broker and their willingness to do so in a timely manner.

This may in fact be the way I have to go though, if they won't allow me to trade overseas.
  • #375
  • Aug 30, 2010 6:14am Aug 30, 2010 6:14am
Quoting ecTrade
How so? By hedging against the other account when it looks like it's beginning to happen? Yeah, that might work. The only problem with that is I have to maintain enough money in both accounts because technically it's not considered a hedge, at least not as if it were in same account, and won't protect me from any margin calls as if it were. An alternative might be to transfer the funds from one account to the other if the funds in one account were getting too low ... which, of course is contingent upon your broker and their willingness to do so...
When the whole FIFO thing came up I'm sure I read some brokers were offering second (linked?) accounts and reduced margin requirements to try and offset the effects for some people. Oanda I know has linked sub accounts, transfers between them are pretty much instant but I don't think there are any margin concessions.

I don't know your strategy so this might not work but how about trading inversely correlated pairs ie EUR/USD and USD/CHF?

Or slack mentioned 'there are strategies where hedging and FIFO are not needed/useless. Some of them are far more profitable and stress-free'

Just throwing suggestions out there really, it's Bank Holiday in UK, it's raining, and I'm bored, lol!
  • #376
  • Aug 30, 2010 6:50am Aug 30, 2010 6:50am
Quoting pipmutt
I don't know your strategy so this might not work but how about trading inversely correlated pairs ie EUR/USD and USD/CHF?
Well, that would help to offset any margin calls depending on how closely they are correlated. It would sure beat the heck out of trying to run the whole affair on two separate accounts anyway. Thanks, will look into that.

Oh, I currently have an account with IBFX already (actually two), and they have it set up so this FIFO business is transparent. So you can open and close your trades in whatever order you chose. It doesn't even affect your EA's, and that's kind of cool.
  • #377
  • Aug 30, 2010 9:55am Aug 30, 2010 9:55am
Quoting Forexia

I will answer you: According to pipmutt and Billflet, they determine how fast your account balance goes down when you make a loss PROVIDED that you take MAXIMUM margin given by your broker.
Did I say that? Where? Doesn't matter. Your example proves it.

I'm just presenting a few facts that have been overlooked. Your own example that "proves me wrong" ignores the fact that if you traded 2 standard lots with a $4000 account, and used a 1% risk based stop, and 50:1 leverage, the market would only need to move 2 pips against you before stopping you out. And that's without considering the spread.

Meanwhile your first scenario of 200,000, unleveraged, risking one percent of account balance would allow 100 pips of movement before getting stopped out.

If you use equal stops (measured in pips) and equal risk (1% account balance) the position size in the first example becomes larger. Try it! It's fun!
  • #378
  • Edited 4:07pm Aug 30, 2010 12:15pm | Edited 4:07pm
Quoting billflet
Sorry to bring this up. Did you consider that in your first example where the fool's account is $200,000 and he risks 1% or $2000 dollars trading two standard lots, using no leverage the market would have to move 100 pips against him to stop him out?

In the example of risking 1% of his $4000 account ($40 dollar risk), leveraged at 50:1 using the same 2 standard lots the market would only have to move 2 pips to stop him out, and that's ignoring the spread.

In both cases he risked and lost the same percentage of account. But 1 case took 100...
Before you go any further, I will say this. I do agree I did overlook the practicality of it and I am glad you brought this point up. I didn't have a chance to respond until now.

Yes on theory, this trader is controlling the risk effectively but in practice, he is also in effect stopping himself short. And I am glad now this can be illustrated, along with the mathmatics, that:

Quoting billflet
When you increase the leverage and maintain the same percentage of account risk, market movement will take you out quicker and in direct proportion to the amount of leverage used.
Yes this example does prove, although not completely undoable, it is very very difficult for a small investors who have limited funds and is relying on high leverage to participate in any market to succeed because his funds is so limited, he either cannot afford to weather the market movements (noise) before making a profit like in this case, or if he widens the % risk or account size, his loss will be larger and he will lose his account balance quicker.
Make your losses in demo. Earn your profits live.
  • #379
  • Aug 30, 2010 1:21pm Aug 30, 2010 1:21pm
Quoting ecTrade

Oh, I currently have an account with IBFX already (actually two), and they have it set up so this FIFO business is transparent. So you can open and close your trades in whatever order you chose. It doesn't even affect your EA's, and that's kind of cool.
Oanda has the same thing, FIFO doesn't seem to have changed a thing! I'm not exactly sure how they've managed to do that and stay within the rules!

Mind you I seem to remember something about end of day but to be honest I don't really understand that aspect of trading very well!
  • #380
  • Aug 30, 2010 1:51pm Aug 30, 2010 1:51pm
Quoting Forexia
Before you go any further, I will say this. I do agree I did overlook the practicality of it and I am glad you brought this point up. I didn't have a chance to respond until now.

Yes on theory, this trader is controlling the risk effectively but in practice, he is also in effect stopping himself short. And I am glad now this can be illustrated, along with the mathmatics, that:



Yes this example does prove, although not completely undoable, it is very very difficult for a small investors who have limited funds and is relying on high...
With all due respect, you have not argued your corner effectively, having overlooked or not understood the most basic maths that surrounds the application of leverage and risk management. Thankfully, Pipmutt and Billflet were present to put you right and educate you on some finer points. I hope you take more care with your own trading endeavours.

Overall, though, this has been an entertaining discussion from all sides.

Good luck.
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