About Leverage and Margin

Here is some information on leverage and margin that may be helpful to you.

200:1 leverage will allow you to use less of your capital by allowing you to put less down on margin to open a position than if you used 100:1.

As taken from a chat I had with FinFx ECN is that they will will provide you with 100:1 leverage upon opening an ECN account. If you want 200:1, you have to request it in writing and state: 1) what is your general strategy 2) pairs traded 3) size of lots used and 4) if positions are held over the weekend or not.

My guess is that they may grant you 200:1 if you: 1) scalp or have trades that last only a few hours 2) trade a highly liquid pair like EURUSD 3) use proper lot sizes in relation to your balance or available equity 4) do not hold positions over the weekend and 5) have a substantial balance or deposit to withstand drawdown.

With respect to your questions about having higher leverage. Higher leverage allows you to use less of your capital when 1) opening a position thus providing you with more available equity to either open more positions and/or 2) allow more breathing room for any open positions you may have.

However having more leverage does not mean you should go overboard and open positions too large because then you run into the possibility of margining out your account due to over leveraging your account. That is why is very important for you to be very highly aware of the lot sizes you are using.

Also you always need to remember that if you use too large of a lot size for the balance that you have in your account, that you may be violating strict money management rules such as risking more than 1% per trade for the balance you have.

For example, let say you open a Megadroid trade at 1 mini lot with FinFx ECN and a balance of $3,000.

Let's calculate what your risk per trade is according your balance of $3,000 and see if that falls within the 1% risk per trade rule.

If the stop loss is 100 pips and we use 1 mini lot, we then stand to lose $100 if we get stopped out.

What is the risk to our account with that one losing trade?

$100/$3,000 = .03 or 3%

In my opinion, I would say that risking 3% would be the absolute maximum for this robot.

With respect to the topic of margin requirement for a 1 mini lot trade in an account that carries 100:1 leverage would be calculated as follows:

For EURUSD 1/100 = .01 x 10,000 units x 1.3000 = $130

Remember if the price of EURUSD goes up to 1.5000 in the future, the margin requirement or amount used as collateral to place a 1 mini lot trade of EURUSD will be $150. If you
place a 2 mini lot trade, the margin requirement or amount that your broker sets aside from your balance will be $300.

I am sure that you are slowly absorbing this information through repetition. And I can't stress enough how important it is know and employ the proper use of leverage and lot sizes. In fact, I would have to say that 95% of the traders out there lose money due to these two reasons alone.

In fact, I would go so far as to say that many traders who have winning strategies margin out and/or blow out their accounts due to violating strict money management rules or principles.

Hope all this information helps you to stay out of trouble. :)

I enjoy sharing this information with you because it continues to remind me of how important this part of trading really is.

Contact me if you have any questions or comments.

Crescendo v1.2 Analysis

Here is a live account from the creator of the Forex Crescendo Robot.

http://www.myfxbook.com/my/members/crescendo/crescendo/49434

Crescendo is an EA that is a basket closing type EA trading the GBPJPY and GBPUSD.
The trading logic of the EA is that it checks the trend every 12 hours and is supposed to opens orders in the direction of the trend and continues to do so until the total of the basket reaches your predetermined basket take profit of let's between $4.00 and $40 depending on the size of the lots you are trading and balance you have in your account. Once the basket reaches that set amount, the EA closes all the positions with the total of the orders in profit.

The EA has been working great until now with the exception of the GBPJPY and we all know the reason for this.

You will see the screen shot below that he has a current DD of -4,017 pips.

And the reason for this is that he has a bunch of Sell orders in his basket and the challenge he has is that the GBPJPY appears to be in a major uptrend because of all the unfortunate events that happened in Japan.

I did some calculations on his open orders to find out the distance between each position.

125.65 and 126.75 = 110 pips
126.75 and 127.75 = 100 pips
127.75 and 131.25 = 350 pips
131.25 and 132.03 = 78 pips
132.03 and 132.63 = 60 pips
132.63 and 133.48 = 85 pips
133.48 and 134.21 = 73 pips

If you notice he has some large distances. In theory this should be good because then any retracement would immediately reduce the negative amount of the open positions working backwards and then eventually close the basket in profit.

The thing I am noticing is that having a wider spacing is a double edge sword because as the price keeps moving opposite the trades, the larger the amount
of pips that the price is going to have to reverse to close the basket especially the JPY pair.

Do you agree as well?

I thought of using micro lots in order to perhaps use this EA however we may still have a challenge and that is the DD and the amount of equity that is using
and reducing the amount available to open more positions of the GBPJPY or the other pair that it trades GBPUSD.

If we use the creator's demo as an example and insert micro lots instead of the mini lots he is using we get the following calculations we get only -401.70 pips DD
or -$477.90 DD.

It doesn't seem too bad however with a balance of $3,000 we will have a DD of -16% and with the potential of it continuing to take away available equity and thus available margin to continue to trade the GBPJPY or the GBPUSD for that matter.

In one of my demos, the DD is currently at -$1,922.with 5 open positions. Look at how much the price will have to retrace in order to close the basket in take profit.

Also I have the Max DD set to 50% which is -$3,329.21. In order words, if the DD for that pair reaches -$3,329.21 the EA closes all the positions for a loss. This is what is called a Black Swan feature. That if there is some really major event going on, it activates to keep your account from incurring any more losses or at least preserving the other 50% of the account. You can set this amount to whatever amount you want.

http://www.mt4i.com/users/fxo7crescendo1/stats

However in this demo, you will see that the open DD is only -$417.32. Also notice the distance of -96 pips between the first and second position. In other words,
this account is not incurring so much DD as the other account.

http://www.mt4i.com/users/fxpro1crescendo/stats

The only reason I can think of why this is happening is either I started the account a couple of days after the other one or it has to do with the timing of the market check.

If you look at the screen shot below in the lower left hand corner of the chart you will notice the amount of time of 1 minute to the next market or trend check. And the demo above is set to check the market or trend in 1 hour and 1 minute.

The reason I bring this up is because one demo has -$1,922 DD and the other has only -$417.32 DD.

What are your thoughts on this EA and do you see any possible solutions to this dilemma of DD?

And do you see any good ideas from this EA that you can incorporate into your EA or EA's?


Please email me if you have any questions or comments to

For more information on this EA, please visit: http://ForexCrescendoRobot.com

Thanks and I look forward to collaborating with you.

Regards,

Mike Torres
(305) 389-0170 cell
http://WealthSecrets.com

Quote of the Day: "The breaking of wave does not explain the whole sea."