Newbie cash management questions

Discussion in 'Forex Trading' started by tinusp, Nov 13, 2006.

  1. tinusp


    I opened my Oanda Fxgame account and have now done a few trades just to get the hang of it.

    I read in the forum that one should not commit more than 2-3% of your cash to one one trade. On a $10k account at 20:1 i'v been using $250 margin per trade.

    1. The profit/loss per trade seems very small, am I misinterpreting the 2-3%? If not surely the 2-3% must be very conservative? And doesn't my stoploss cover my risk here?

    2. I've also read that one should stay away from gearing higher than 20:1. I don't understand too well, doesn't higher gearing just mean that one should commit a smaller percentage of cash to a single trade.

    Thanks for answering my stupid questions.

  2. cb76


    Well, 2-3% would mean that if your stop was hit that you would lose 200-300 on your 10k acct. That may seem small, but it's about right for those that trade somewhat safe (some trade considerably more conservative on the order of 0.5-1% for example). You need to figure out what your risk tolerance is and go from there. Is this going to model your entire risk portfolio? Then 1% is good, is this just a small segment of your portfolio that you want to be risky with... maybe 5% is more to your liking...

    On a percentage basis yes, however when people say what you're talking about they're talking total leverage. Also dont mix up your leverage "setting" and the actual leverage you're *using*. In oanda, you should feel free to set your leverage to 50:1 ... with the caveat that it should never fully be used. What do I mean by that? Well, if you were *using* 5x leverage then your total position would be 10,000x5 or 50k worth of currency. 50x would be 10,000x50 or .5M in currency in total open trades.

    In addition to the 1/2/3/etc% risk per trade, it would be worth knowing what your total open risk is, ie. how many concurrent trades do you have open at any one time and setting a cap on that, so that when the worst-case scenario happens and you lose all your trades for the day you'll know that you'll never have more than a X% DD for any one day...

    Hope that helps and doesn't make you more confused :) heh