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How to reduce risks of margin call with small balance?

xgavinc
Dec 08 2016 at 10:00
235 posts
I understand what you are saying, but I'm inclined to agree with @JacoAF
Specifically his points on over trading.

And you just confirmed what I'm trying to say, 'My point is that leverage does limit risk but it limit profit as well.' - On the account type and capitalization, I lean more (in his case) to limiting risk over increased profits (adversely, increased losses) - the double edged sword.

Long term on a commodity (oil - historically all commodity prices increase), with a bearish outlook (to prevent negative swap) in my view means you have to limit your risk over increased profit.

This kind of reminds me of the cringe worthy adverts, 'open your standard account today with up to 1:3000 leverage with only $5!!!' - and then new traders wonder why they battle so much.

I prefer having a creeping margin call that will last long enough to fund my account, close trades I (not the broker) want to close and examine what went wrong while preserving as much of my equity as possible, than one moment all seems fine and the next moment all my trades are closed out and my balance is zero... just because I decided to take a quick shower / make coffee.

Maybe we disagree because I'm looking at the case of @andromeda1 and you are looking at it in general?

For every loss there should be at least an equal and opposite profit.
vontogr (togr)
Dec 08 2016 at 10:52
4862 posts
xgavinc posted:
I understand what you are saying, but I'm inclined to agree with @JacoAF
Specifically his points on over trading.

And you just confirmed what I'm trying to say, 'My point is that leverage does limit risk but it limit profit as well.' - On the account type and capitalization, I lean more (in his case) to limiting risk over increased profits (adversely, increased losses) - the double edged sword.

Long term on a commodity (oil - historically all commodity prices increase), with a bearish outlook (to prevent negative swap) in my view means you have to limit your risk over increased profit.

This kind of reminds me of the cringe worthy adverts, 'open your standard account today with up to 1:3000 leverage with only $5!!!' - and then new traders wonder why they battle so much.

I prefer having a creeping margin call that will last long enough to fund my account, close trades I (not the broker) want to close and examine what went wrong while preserving as much of my equity as possible, than one moment all seems fine and the next moment all my trades are closed out and my balance is zero... just because I decided to take a quick shower / make coffee.

Maybe we disagree because I'm looking at the case of @andromeda1 and you are looking at it in general?


Well with $100 you cant trade with low leverage.
You can either trade with high leverage or go to cent acc.

vontogr (togr)
Dec 08 2016 at 10:53
4862 posts
xgavinc posted:
I understand what you are saying, but I'm inclined to agree with @JacoAF
Specifically his points on over trading.

And you just confirmed what I'm trying to say, 'My point is that leverage does limit risk but it limit profit as well.' - On the account type and capitalization, I lean more (in his case) to limiting risk over increased profits (adversely, increased losses) - the double edged sword.

Long term on a commodity (oil - historically all commodity prices increase), with a bearish outlook (to prevent negative swap) in my view means you have to limit your risk over increased profit.

This kind of reminds me of the cringe worthy adverts, 'open your standard account today with up to 1:3000 leverage with only $5!!!' - and then new traders wonder why they battle so much.

I prefer having a creeping margin call that will last long enough to fund my account, close trades I (not the broker) want to close and examine what went wrong while preserving as much of my equity as possible, than one moment all seems fine and the next moment all my trades are closed out and my balance is zero... just because I decided to take a quick shower / make coffee.

Maybe we disagree because I'm looking at the case of @andromeda1 and you are looking at it in general?


Let me point it from another angle. What is advantage of low leverage from your point of view?

vontogr (togr)
Dec 08 2016 at 10:56
4862 posts
xgavinc posted:
I understand what you are saying, but I'm inclined to agree with @JacoAF
Specifically his points on over trading.

And you just confirmed what I'm trying to say, 'My point is that leverage does limit risk but it limit profit as well.' - On the account type and capitalization, I lean more (in his case) to limiting risk over increased profits (adversely, increased losses) - the double edged sword.

Long term on a commodity (oil - historically all commodity prices increase), with a bearish outlook (to prevent negative swap) in my view means you have to limit your risk over increased profit.

This kind of reminds me of the cringe worthy adverts, 'open your standard account today with up to 1:3000 leverage with only $5!!!' - and then new traders wonder why they battle so much.

I prefer having a creeping margin call that will last long enough to fund my account, close trades I (not the broker) want to close and examine what went wrong while preserving as much of my equity as possible, than one moment all seems fine and the next moment all my trades are closed out and my balance is zero... just because I decided to take a quick shower / make coffee.

Maybe we disagree because I'm looking at the case of @andromeda1 and you are looking at it in general?


At the end low leverage does not serve you
Check this out
1:50 leverage https://www.myfxbook.com/members/bjgoetze86/A/1241858 - account wiped
1:888 leverage https://www.myfxbook.com/members/3Daimond/cashflow-maker-002/1796864 - account wiped

xgavinc
Dec 08 2016 at 13:18
235 posts
In a low leverage situation closing one order can save the whole account, in high leverage more orders need to close to make up the margin. In the example accounts you give, the 1:888 may have been hit by a margin call and within seconds all orders were closed out automatically, in the 1:50 it would close one order, if market continues to go against account it closes another over minutes. My assumption on the 1:50 is that either a crash happened and the margin level was extremely low to begin with, or the account holder didn't bother refunding the account. The 1:888 might not have even passed the login screen in time to fund the account.

Its the same concept as driving 50mph and 888mph, chance of survival are increased on the lesser of the two.

'You can either trade with high leverage or go to cent acc. ' - I recommended cent account over leverage.

For every loss there should be at least an equal and opposite profit.
xgavinc
Dec 08 2016 at 13:34
235 posts
The 1:888 had a maximum of $1742.73... wiped - Look at the trades! 5 lots, 2 lots, 3 lots... no rocket science on what happened there.

The 1:50 is not sharing, but I picture the same scenario, under capitalized, over traded.

For every loss there should be at least an equal and opposite profit.
Richard Bills (RichardBills)
Dec 08 2016 at 13:57
74 posts
I think we should ask ourselves the initial question - why is leverage used at all? To give us chance to trade more significant volumes with small initial investment that remains blocked as margin. It is common sense that with large volumes at stake comes larger risk of losing but also chance of winning more money.
However, I have the impression from the title of the discussion that margin call is presented as something bad. Sorry if I misunderstood it. Indeed, the margin call is a good thing - it alerts you when you reach a certain level of loss. The lower is your margin requirement, the more money you can lose until you get the margin call and eventually a stop out. So there are 2 setups - riskier (higher leverage, low margin, high loss/profit impact) and less risky (low leverage, high margin, low loss/profit impact). For sure you can wipe your account on both setups but if the leverage is higher, you can achieve a profit/loss faster. I think this is important aspect to consider.
To wrap it up, I think margin call is not the main thing to focus but how to have a stable profit according to your risk tolerance. 😄 If on loosing streak, sometimes it's better to be kicked out of the market sooner but with more money left 😉

xgavinc
Dec 08 2016 at 14:50
235 posts
I think this is a very good article, covers both our views on leverage, arguing over different aspects of the same thing, as explained in the article.

https://www.cfdspy.com/guide/disadvantages-of-leverage.php

For every loss there should be at least an equal and opposite profit.
ElliotCooke
Sep 23 2020 at 19:35
341 posts
Loss is a common issue in forex trading. Many trader4s lose their money everyday. If you want to deal with your losses you have to mawek a good and strong strategy.

ProfitsOnly
forex_trader_[1786937]
Sep 24 2020 at 03:18
142 posts
Use 1:50 if you know you are not discipline to avoid margin calls.

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