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oldtime
Registered: Jun 2011
Posts: 7318 |
09-30-12 10:03 PM
Quote from Rocko Bonaparte:
I had hoped using 100:1 would make the numbers a little bit rounder.
yeah, it's now illegal in usa, you can still get it with a non usa broker
try 50 to one, it's not really that much less round
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Rocko Bonaparte
Registered: Jan 2009
Posts: 101 |
10-01-12 06:42 AM
Guys I'm just trying to figure out how the math here works. What leverage I use to fill in the blanks is not the issue.
Fine, make it 50:1
The formula for calculating a profit, without considering commissions, the spread, or what not, appears to be:
contacts * (entrance price - exit price) * 100 in a lot * margin depositor
So before with 100:1 margin with 99 EURUSD contracts, entering at 1.21800 and exiting 1.21801, I was using this formula:
99 * (1.21801 - 1.21800) * 100 * 1000
So I assume with 50:1 margin it becomes:
99 * (1.21801 - 1.21800) * 100 * 500
I'm trying to understand why 50:1 means a margin deposit of 500, instead of just 50. Is something wrong there?
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KingJedi
Registered: Sep 2004
Posts: 51 |
10-01-12 12:31 PM
Margin only effects leverage
Profit for one lot over 1 pip is $100,000 x 0.0001 = $10
Now to use part of oldtime's example.. if you have $10k in your account you end up using 10:1 leverage to start out with.. this will either shrink or grow depending if you make or lose money on your position
It also gets a little more complex when your account currency is not the same that you are trading in
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Rocko Bonaparte
Registered: Jan 2009
Posts: 101 |
10-05-12 06:25 AM
I'm adding in the math for margin calls and such so I'm starting to understand the parlance here. Like, what it means when people talk about margin required versus flat out talking about the leverage. And I can appreciate why 100:1, er 1% required is so crazy. I guess you can get a margin call just minutes afterwards, even if the trade was going to be perfectly fine over the planned position duration. It still makes for cleaner calculations when verifying formulas and code.
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Rocko Bonaparte
Registered: Jan 2009
Posts: 101 |
10-08-12 07:21 AM
funnyguy, I see you did a lot there. I got the email notice and just kind of assumed somebody just did a one-liner in the thread and that would be it for the night. You kind of caught me by surprise! It's pretty late here so I can't verify everything this evening but I'll be working on it here and there over the next few days. Assuming I pick it all up, then I'll have to incorporate into my backtester code.
Edit: And just to keep things on track, I'm asking a lot of this without factoring in a margin call whipping my ass in the middle of holding everything. Ummm that's next on my list to get right. ;)
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Rocko Bonaparte
Registered: Jan 2009
Posts: 101 |
10-08-12 08:17 PM
funnyguy_2nd, I assume one of the major things I have wrong is assuming the base currency is USD, not EUR. That should explain why I am fixated on 99 lots instead of 82 lots. I wanted to understand this first.
When I was casually browsing around with how currencies generally work, the first term in the pair is considered the base currency. So for EURUSD the base currency would be the euro. So when buying one lot I would be thinking in terms of 100 euros instead of 100 dollars. But then I read that for some of the pairs, this is different, and one of those pairs was EURUSD. So for EURUSD the dollar is the base currency. Is that totally wrong?
So my 99 comes from the idea figuring out how many $100 units I could get, assuming at a minimum one penny's worth of commission or more without going into those exact details. It would be 100 lots if there weren't any, so I went with 99. I was assuming that if USD was the base currency, my contracts would be based on how many $100 blocks I could get. But it looks like instead it's based on how many blocks of euros I can get. I can see that as (100/1.2181).
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