The correct management of trading account on the currency market



The correct management of trading account on the currency market:


The correct management of trading account is one of the cornerstones of successful activities in the Forex Market. And in order to manage the account, it is necessary to make certain calculations that are not so comfortable for many people, especially beginner traders.
Unfortunately, most of the start-up traders who come to the forex market do not approach this work as in their core business. They consider it as a hobby to relieve from some of their core activities. Therefore, soon they develop an appropriate attitude to trade on the exchange as a kind of entertainment and a time took consuming activity. As a result, most of the traders who have come to the market about 90% completely lose their trading capital, 5% maintain a level of stability (neither winning nor bearable) and only 5% of the people who have a professional and responsible approach in these activities are consistently successful. Such category of people understands that the forex market is a serious business.
Proper management of the trading account includes risk management, discipline, appropriate trading plan and a strict observance on trade statistics, and analysis of transactions. All this is a trader's daily routine.

In today's article, I will focus on what kinds of calculations are done by a trader in forex trading.
Pips ( or pips ) value



Forex price movements on currency pairs are measured in pips. Depending on which currency pair you are selling, the value of the pips will be different. It is important to remember that the cost of a single standard lot is equal to 100 000 base currency units, while one mini lot is equal to 10 000 units and the micro lot is equal to 1000 units.

To calculate the value of pips, we can use the following formula:

Pips value = 1 pips / exchange rate * volume of transaction

For example, in the case of EUR / USD:
1 pips = 0.0001
Base Currency: EUR
Exchange rate: 1.2500
Transaction volume: 100,000 (1 Lot)
If we use these formulas, the formula will get the following:
pips value = 0.0001 / 1.2500 x 100000 = 8 EUR
Margin and credit support (leverage)


Many beginner traders, who started trading in the forex market are stripped of these two terms.
What is leverage? Leverage allows us to open a position on a higher lot and use it as part of our trading capital, and the rest of the money from the broker.
What is the margin? The margin is the amount as a provision of security requires by the broker to open a position.
Leverage is calculated by the following mathematical formula:

Leverage = volume / volume of trading capital


For example, if a trader decides to make a deal on forex 1 lot - $ 100 000. But his trading capital is only $ 2000. Therefore, based on the amount of credit that the trader will use is 50: 1.
The higher the leverage, the less the margin (margin amount) will be required to make the Forex transaction. But we must remember that leverage should be used with caution because on one hand, it helps to increase revenue as well as to get large losses including full or partial loss of trading capital. Correct management is the most important parts of the trading account.
Position size

The open position is the indicator to recalculate all traders to trade and regardless of the ownership of the trading capital.
The simplest and most effective method is to calculate the size of the opening position. So-called fixed capital share model (fixed fractional model). According to this model, the trader deals on every transaction at risk of X% of his trading capital. In most cases, it is 1% - 2%.
As soon as you determine an optimal risk margin on a particular transaction, you have to decide where to place or ask a stop-loss order. Once you set your stop order in place, you should calculate the approximate distance from the opening position to place stop-loss orders to the pips.
After that, you have to determine the cost of 1 pip on a particular trading instrument. To calculate the simplicity of calculating, let's assume that in our case this figure is equal to $ 10. The formula for calculating position size is:
Position size = trading capital at risk transaction * / at the position of the opening and stop-loss order is the value of pips *

Consider a specific example:
Trading volume of capital: $ 10 000
% risk of the transaction: 2%
The distance to the opening position of the stop-loss to order: 80 pips
pips price: $ 10
Position size = $ 10000 x 0.02 / 80 x $ 10 = 0,25 Lot
Calculation of position size is on the basis of the correct management of the trading account.
Expectations Indicator

Trade expectancy is of great importance, although not many traders are aware of the existence of this indicator.
The expectation indicator is the average rate of profit or loss, which has the expectation of obtaining a trader from the statistical indicators of his trading system. The expectation indicator is calculated according to the following formula.
 (A winning percentage of transactions * lucrative trade deal on average equity additive) - (* Percentage of unprofitable transactions unprofitable transaction average loss)

Consider a specific example based on the Trends Trading System. Traditionally, the trading system is characterized by a low percentage of profitable transactions, but it is characterized by a relatively high average supplement for profitable transactions.
Consider a specific example:
Trading System: a trend follower
Percentage of profitable transactions: 35%
Average gain from the profitable transaction: $ 1200
The average loss is a loss from the transaction: $ 350
Expectations index = (0.35 x $ 1200) - (0.65 x $ 350) = $ 192.5
Thus the indicator of the trading system is $ 192.5, which represents the expected average profit margin from each transaction.








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