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What Is "Proper" Risk/Money/Trade Management?

  • #41
  • Jun 2, 2012 8:15pm Jun 2, 2012 8:15pm
Quoting FX4Newbies
Are you saying here that 1 mini-lot would generate 10 cents per pip? Do you have in mind accounts that allow you to trade any number of units like Oanda?

FX4
Hello... I'll say one thing, you seem to be very patient. That's a big plus.

Simply, what I was trying to say is that you don't seem to know the difference between a "mini" and a "micro" account.

A mini account allows you to trade $10,000 currency lots and UP.
A micro account allows you to trade $1,000 currency and UP.

It's really not complicated. Study faithfully those two lines in bold.
That's all I was trying to say.

You didn't know the difference so now you're educated.

All the best.

I have to go along my merry little way and enjoy a minute.
When the Joker is in the deck.. fear not and play it well
  • #42
  • Jun 2, 2012 8:21pm Jun 2, 2012 8:21pm
Quoting Slim Buffett
Hello... I'll say one thing, you seem to be very patient. That's a big plus.

Simply, what I was trying to say is that you don't seem to know the difference between a "mini" and a "micro" account.

A mini account allows you to trade $10,000 currency lots and UP.
A micro account allows you to trade $1,000 currency and UP.

It's really not complicated. Study faithfully those two lines in bold.
That's all I was trying to say.

You didn't know the difference so now you're educated.

All the best.

I have to go along my merry little way...
A mini account allows you to trade $10,000 currency lots and UP.
A micro account allows you to trade $1,000 currency and UP.

I'm sure you meant "units" not "lots". Of course I understand that. LOL. Anyone who trades can see that on the platform.

Study faithfully those two lines in bold.
That's all I was trying to say.

Yes, but it did not follow my train of thought and the point I was making when you brought it up.


You didn't know the difference so now you're educated.
 . Some Saturday night humour. Thanks.

All the best to you too...I guess we're both patient .

FX4
Trade what you see, not what you think or feel. Let the market come to you.
  • #43
  • Jun 2, 2012 8:36pm Jun 2, 2012 8:36pm
Quoting FX4Newbies

I'm sure you meant "units" not "lots". Of course I understand that. LOL. Anyone who trades can see that on the platform.

Study faithfully those two lines in bold.
That's all I was trying to say.

Yes, but it did not follow my train of thought and the point I was making when you brought it up.
Oh... I seem to be getting on your nerves. Excellent.
Your train of thought was on the wrong track. So now you're going to try and silence me through mockery?
Won't work .



Quoting FX4Newbies
. Some Saturday night humour. Thanks.
See what I mean ?
When the Joker is in the deck.. fear not and play it well
  • #44
  • Jun 2, 2012 8:38pm Jun 2, 2012 8:38pm
Quoting Slim Buffett
Oh... I seem to be getting on your nerves. Excellent.
Your train of thought was on the wrong track. So now you're going to try and silence me through mockery?
Won't work .





See what I mean ?
Nobody is trying to mock you. I think it is time to move on from this discussion tonight. I just found it funny that something as basic as that, that one could see on any platform you thought I would not know.

FX4
Trade what you see, not what you think or feel. Let the market come to you.
  • #45
  • Jun 2, 2012 8:48pm Jun 2, 2012 8:48pm
Quoting FX4Newbies
Nobody I just found it funny that something as basic as that, that one could see on any platform you thought I would not know.

FX4
To move on or not is up to you. I found it funny that you didn't know.

If you did know you did a damn good job of concealing your knowledge. As I said, now you're more educated.

The rest is up to you.
When the Joker is in the deck.. fear not and play it well
  • #46
  • Jun 2, 2012 9:06pm Jun 2, 2012 9:06pm
Hi again Forex5050,

Hope this post and some of the other discussions and calculator tool suggested would help you with the question you asked.

Take care,

FX4
Trade what you see, not what you think or feel. Let the market come to you.
  • #47
  • Jun 3, 2012 2:34am Jun 3, 2012 2:34am
Quoting FX4Newbies

I just found it funny that something as basic as that, that one could see on any platform you thought I would not know.
The point is you didn't appear to know something as basic as that, which obviously brings into question the validity of any advice you may offer as it could be based on a lack of some very basic knowledge and understanding. Your inclusion of leverage and margin requirements in the discussion is a good example.....


Quoting FX4Newbies

I think if a trader takes the time to follow my train of thought, it should work out just fine.......all the time working toward the goal of clarity in understanding
So far, not so good unfortunately....
  • #48
  • Jun 3, 2012 2:59am Jun 3, 2012 2:59am
for me the proper money management is the one that allows me to experience no more than 25% drawdowns...that is my breaking point where I lose all confidence with my system and myself.as for drawdowns that are caused by price shocks I am not worried too much coz it does not mean that my system has stopped working ...long losing streaks are the biggest danger.
wo-yoy! wo-yoy! wo-yoy! wo-yoi! wo-yoy-yoy-yoy!
  • #49
  • Jun 3, 2012 4:05am Jun 3, 2012 4:05am
I really don't understand your post at all, sorry.

How can leverage impact on pip value? As far as I know the pip cost for 1 micro lot is always 0.10 USD. I have not a technical limit of 10:1 leverage, but it is a limit in my mind so that I don't trade too big position sizes.

I calculated it this way:

30 pips risk = 1 micro lot = 3 USD
Maximum risk = 20 USD = 6.7 micro lots maximum position size

Also, I don't understand your statement that I'm not risking the 30 pips but my whole capital is at risk? Please clarify.
  • #50
  • Edited 5:45am Jun 3, 2012 4:11am | Edited 5:45am
Quoting pipmutt
The point is you didn't appear to know something as basic as that, which obviously brings into question the validity of any advice you may offer as it could be based on a lack of some very basic knowledge and understanding. Your inclusion of leverage and margin requirements in the discussion is a good example.....




So far, not so good unfortunately....
I see you are making the same mistake of not reading carefully what was said in the initial posts leading up to this discussion. Please PM me with any further discussions or comments. Thanks.

FX4
Trade what you see, not what you think or feel. Let the market come to you.
  • #51
  • Edited 6:22am Jun 3, 2012 5:11am | Edited 6:22am
Quoting Forex5050
I really don't understand your post at all, sorry.

How can leverage impact on pip value? As far as I know the pip cost for 1 micro lot is always 0.10 USD. I have not a technical limit of 10:1 leverage, but it is a limit in my mind so that I don't trade too big position sizes.

I calculated it this way:

30 pips risk = 1 micro lot = 3 USD
Maximum risk = 20 USD = 6.7 micro lots maximum position size

Also, I don't understand your statement that I'm not risking the 30 pips but my whole capital is at risk? Please clarify.
Hello again Forex5050,


How can leverage impact on pip value?

Leverage does not impact pip value, but it does affect the margin requirement which in turn will affect the position size one can trade depending on the size of the account. Please show me where I said that or implied it...can't find such a comment.


As far as I know the pip cost for 1 micro lot is always 0.10 USD.

The term "pip cost" is misleading. Please explain what you mean by that term. I think you are referring to pip value. Pips don't cost as we don't buy pips. We pay the margin "cost" to trade an instrument (e.g. Eur-Usd). We enter the trade with a certain position size and at a certain price, which moves a certain number of pips. Just trying to get terms clear here .

the pip cost for 1 micro lot is always 0.10 USD.

The pip value for the USDs right? Yes.


I have not a technical limit of 10:1 leverage, but it is a limit in my mind so that I don't trade too big position sizes.

Okay, I understand the idea of your "mental leverage limit". Not a bad strategy to control your position size.


I calculated it this way:

30 pips risk = 1 micro lot = 3 USD
Maximum risk = 20 USD = 6.7 micro lots maximum position size

Great! With 1 micro lot for USDs, the pip value would be 0.10 cents per pip. So, 10 pips would be $1.00 when trading a micro-lot which would be $3.00 for your 30 pip risk allowance. $20.00 (which would represent 2% of your $1,000.00 account equity) will allow for 20.00/3.00 = 6.7 micro-lots (rounded up) as your maximum position size. All clear to me . Decided to spell it out for newer traders. A question, as the balance in your account changes, do you still go with 30 pips risk and 2% of the account balance at that time.


Also, I don't understand your statement that I'm not risking the 30 pips but my whole capital is at risk? Please clarify.

You are risking the 30 pips. I went back and read the post and I see the confusion now LOL.

[Let's assume an account balance of 1000,00 USD and let's assume a maximum risk of 2 %= 20,00 USD. To make things easier, the trader sets a maximum effective leverage of 10:1, so he will never open a position greater than 10,000 or 1 mini lot even if it less than 20 USD in risk. Then, in the next paragraph...The trader usually risks between 20 - 50 pips.

I'm comparing the use of the word risk in those instances. Maybe this is something traders don't think about, but you are really not "risking" your margin. The trading capital left in your account after you place the trade is at risk. If a trader puts on a trade in retail FX, and they lose all of their capital, when the broker closes the trade, their margin (or most of it depending on when the trade was actually closed) goes back to the account.]


Somehow, I got the idea of margin in there...Since I was thinking that way, I just wanted to make the point that margin is not at risk as it is returned to the account even if the trader blows it up. My bad . Also, which I am sure you know, if a stop is not in place, then the rest of the trading capital is at risk, unless of course, the trader is present to intervene.

Thanks for the reply. Seems like you've got your numbers down .

FX4
Trade what you see, not what you think or feel. Let the market come to you.
  • #52
  • Edited 7:02am Jun 3, 2012 5:33am | Edited 7:02am
Quoting pemully
for me the proper money management is the one that allows me to experience no more than 25% drawdowns...that is my breaking point where I lose all confidence with my system and myself.as for drawdowns that are caused by price shocks I am not worried too much coz it does not mean that my system has stopped working ...long losing streaks are the biggest danger.
Hi Permully,

Aha...the term drawdown. Now this is something that would concern fund managers etc. bigtime as their clients would be watching the DD on their account like hawks. Both Actual DDs and Floating DDs are important. I knew of a trader who made money, but would allow floating DDs of hundreds of pips...literally. To them it was perfectly fine. Is that "proper" risk/money/trade management. Made perfect sense to them. They made money personally, but was not allowed to manage accounts.


for me the proper money management is the one that allows me to experience no more than 25% drawdowns...that is my breaking point where I lose all confidence with my system and myself...

Glad you mentioned both: system and self, because both need to be examined. Glad you also know not to throw your system out if anything unusual had been happening in the market.


that is my breaking point where I lose all confidence

Also good that you have identified a psychological level for yourself. For some it may be 15%. Money managers have to consider their clients risk tolerance levels (breaking points), which may be one reason they have very conservative returns for the size of the accounts they trade. I have heard in some circles, some High Net Worth Individuals (HNWI) just want to see 1% per month...that's 12% per year. Very conservative I'd say.

Do you then have a % DD for the Day? For each trade? How do you "apportion" that 25% DD if I may ask? Do you use an equity curve or something visual so you can see where you are in reference to your 25% DD limit?

Just another approach to quantifying risk...another road to the same destination of risk/money management.

FX4
Trade what you see, not what you think or feel. Let the market come to you.
  • #53
  • Edited 7:18am Jun 3, 2012 7:04am | Edited 7:18am
Quoting Forex5050

Let's assume an account balance of 1000,00 USD and let's assume a maximum risk of 2 % = 20,00 USD. To make things easier, the trader sets a maximum effective leverage of 10:1, so he will never open a position greater than 10,000 or 1 mini lot even if it less than 20 USD in risk.

The trader usually risks between 20 - 50 pips. Assuming he risks 30 pips on one trade, he could trade up to 6 micro lots.

Quoting FX4Newbies

If the trader sets the leverage at 1:10, the a micro-lot would cost roughly $100.00. So, if the account balance is $1,000.00, then trading 1 micro-lot he would be using 10% of his capital. Not sure how you got it so that he can trade up to 6 micro lots.

Quoting Forex5050

I calculated it this way:

30 pips risk = 1 micro lot = 3 USD
Maximum risk = 20 USD = 6.7 micro lots maximum position size

Quoting FX4Newbies

Great! With 1 micro lot for USDs, the pip value would be 0.10 cents per pip. So, 10 pips would be $1.00 when trading a micro-lot which would be $3.00 for your 30 pip risk allowance. $20.00 (which would represent 2% of your $1,000.00 account equity) will allow for 20.00/3.00 = 6.7 micro-lots (rounded up) as your maximum position size. All clear to me . Decided to spell it out for newer traders.

Excellent, the 'teacher' becomes the student! Seems like you're learning something from this thread FX4Newbies, like you say it's what discussions are all about!

Take care,

  • #54
  • Jun 3, 2012 7:42am Jun 3, 2012 7:42am
Quoting FX4Newbies
Hi Permully,

Aha...the term drawdown. Now this is something that would concern fund managers etc. bigtime as their clients would be watching the DD on their account like hawks. Both Actual DDs and Floating DDs are important. I knew of a trader who made money, but would allow floating DDs of hundreds of pips...literally. To them it was perfectly fine. Is that "proper" risk/money/trade management. Made perfect sense to them. They made money personally, but was not allowed to manage accounts.


[color=Navy]for me the proper money management...
the maximum loss I can take is 4% in a day....10% in a week
wo-yoy! wo-yoy! wo-yoy! wo-yoi! wo-yoy-yoy-yoy!
  • #55
  • Edited 8:30am Jun 3, 2012 7:54am | Edited 8:30am
Quoting FX4Newbies
Hi Forex5050,


Now to the other part of your question:

The trader usually risks between 20 - 50 pips. Assuming he risks 30 pips on one trade, he could trade up to 6 micro lots. But like you said, why should the trader always risk the maximum amount of his limit? It's sound like he WANTS to lose the 20 bucks.

So how to determine the position size?

2 micros? 3 micros? 4 or 5?

If the trader sets the leverage at 1:10, then a micro-lot would cost...
Okay Forex5050,

I went back and figured out where I think I shifted into the wrong gears...

If the trader sets the leverage at 1:10, then a micro-lot would cost roughly $100.00. So, if the account balance is $1,000.00, then trading 1 micro-lot he would be using 10% of his capital. Not sure how you got it so that he can trade up to 6 micro lots.

At this point I was only considering how many micro-lots would be possible to trade given the leverage you mentioned and the account balance.


Risking 30 pips would be about 3% of his $1,000.00 capital.

Think this is where I shifted gears...LOL.


Given your scenario at 1:10 leverage, 2 micros would utilize 20% of the capital in the account. What should be the position size? 1 micro is conservative. Brokers like Oanda would allow even smaller sizes. If the trader decides to go up to 3 micros, that would cost 30% of his capital. On those 3 micros, the trade would have to be down a total of 300 pips (or 100 raw pips) to be down $30.00:

Still in the wrong gear there LOL.

Now your confusion makes more sense to me...Thanks for mentioning it.

FX4
Trade what you see, not what you think or feel. Let the market come to you.
  • #56
  • Edited 8:18am Jun 3, 2012 8:04am | Edited 8:18am
Quoting pemully
the maximum loss I can take is 4% in a day....10% in a week
Okay. So you have clear cut percentages. That's good. So do you use a sliding scale as well? For example, if you lose 4% the first day, are you willing to lose a smaller percentage of your starting balance for that week or do you use the same 4% the second day? If you happen to have consecutive daily losses, do you scale that 4% down to get to 10% for the week? Do you include your daily starting balance in your % calculations in any way?

Just asking these questions as I'm sure other traders are either also curious or have variations to the same approach.

FX4
Trade what you see, not what you think or feel. Let the market come to you.
  • #57
  • Edited 9:38am Jun 3, 2012 8:15am | Edited 9:38am
Thanks to the patience of Forex5050, here's the deal:

A trader has $1,000.00 in an account and is using 1:10 leverage. They are willing to let the market go 30 pips against them, but want to risk/lose no more than $20.00. So, what should be their maximum position size?

30 pips risk = 1 micro lot = 3 USD
Maximum risk = 20 USD = 6.7 micro lots maximum position size

1. With 1 micro lot for USDs, the pip value would be 0.10 cents per pip.

2. So, a 10-pip move would be $1.00 when trading 1 micro-lot which would be $3.00 for your 30 pip risk allowance: 1 micro-lot X 0.10 (pip value) X 30 pips = $3.00.

3. $20.00 (which would represent a risk of 2% of the $1,000.00 account equity) will allow for $20.00/$3.00 = 6.7 micro-lots (rounded up) as your maximum position size given those parameters.

Whew!!! Now I feel like I'm on track again.

Thanks,

FX4
Trade what you see, not what you think or feel. Let the market come to you.
  • #58
  • Jun 3, 2012 8:39am Jun 3, 2012 8:39am
Quoting FX4Newbies

Whew!!! Now I feel like I'm on track again.
You are! But just forget about the leverage and margin requirement part, they're not important. As long as you keep risk at/below a reasonable level then it's impossible to overleverage.

$1,000 x 2% = $20
$20 divided by 30 pips stop = $0.67c per pip
Trade size 6,700 units (give or take, depending on pair)

1000x2%/30=0.66666666
  • #59
  • Jun 3, 2012 8:44am Jun 3, 2012 8:44am
Quoting pipmutt
You are! But just forget about the leverage and margin requirement part, they're not important. As long as you keep risk at/below a reasonable level then it's impossible to overleverage.

$1,000 x 2% = $20
$20 divided by 30 pips stop = $0.67c per pip
Trade size 6,700 units (give or take, depending on pair)
I know they are not needed for these calculations, but I like being aware of what the margin requirements are and the leverage. Maybe it's just habit.

FX4
Trade what you see, not what you think or feel. Let the market come to you.
  • #60
  • Jun 3, 2012 9:14am Jun 3, 2012 9:14am
So, thus far, a very straightforward, effective and simple way to calculate position sizes given the desired risk percentage and trading account size has been given. A variation of the same is given here.

Next we'll be delving into another approach.

FX4
Trade what you see, not what you think or feel. Let the market come to you.
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