Stop Loss to Prevent Margin Call

[parliament718 10]

Hi, I opened my first account recently, its really small, just 200 bucks trading microlots with ibfx.

 

When I put positions before I go to sleep I always use a stoploss. My stop losses are usually tight so I dont worry about margining out. However, tonight my position is slightly larger and slightly wider stop than usual because expecting some whipsawing but Im confident in the forecast.

 

Can somebody please tell me how to calculate the maximum number of pips I can have my SL to prevent margining out. In other words what is the widest stoploss I can have to ensure I dont get margin-call FIRST (+-slippage)

 

Because as I understand, being stopped out 5 pips (or more for slippage) before margin call is much preferable to margin call because you dont lose your whole account that way only the unrealized loss you had running whereas margining out blows the entire account (right?)

 

 

 

Thanks a lot

Edited March 9, 2012 by parliament718

[Mysticforex 13]

First decide what you want to risk... 1%, 2%, 10%?

 

For the sake of argument let's say you will risk 2%. You mentioned your acct was $200.

So, 2% of $200 is $4 Now you say you are trading "Micro" lots which I am assuming is

10 cents a pip. to risk 2%, or $4 Dollars, your stop should be 40 pips.

 

I would be remiss if I did not say don't just assume a 2% risk on every trade. As in let's say, "I don't want to lose more than $4 so I will place my stop 40 pips below. Your stop must be dictated by the chart, a level on the chart where if price goes beyond, you know the trade is not working out the way you had hoped.

 

IMHO I would switch to a broker like Oanda. You can scale your position size to match your risk tolerance, ie: 1 cent a pip, 8 cents a pip $3000 a pip.

Since you are just getting your feet wet you would not have to pass on a trade because it exceeds your risk level, just scale your position size to accommodate your risk

 

Hope that made sense.

 

And don't be afraid to ask questions.

[parliament718 10]

First decide what you want to risk... 1%, 2%, 10%?

 

For the sake of argument let's say you will risk 2%. You mentioned your acct was $200.

So, 2% of $200 is $4 Now you say you are trading "Micro" lots which I am assuming is

10 cents a pip. to risk 2%, or $4 Dollars, your stop should be 40 pips.

 

I would be remiss if I did not say don't just assume a 2% risk on every trade. As in let's say, "I don't want to lose more than $4 so I will place my stop 40 pips below. Your stop must be dictated by the chart, a level on the chart where if price goes beyond, you know the trade is not working out the way you had hoped.

 

IMHO I would switch to a broker like Oanda. You can scale your position size to match your risk tolerance, ie: 1 cent a pip, 8 cents a pip $3000 a pip.

Since you are just getting your feet wet you would not have to pass on a trade because it exceeds your risk level, just scale your position size to accommodate your risk

 

Hope that made sense.

 

And don't be afraid to ask questions.

 

That was very helpful and I was actually about to switch to oanda soon when I saw their EU spreads were better than ibfx. Thanks for your help!

[Obsidian 10]

...IMHO I would switch to a broker like Oanda. You can scale your position size to match your risk tolerance, ie: 1 cent a pip, 8 cents a pip $3000 a pip....

 

being able to trade in units instead of lots has other advantages.

fifo rules apply to same size positions so you can buy 1000 and 1001 units. on mt4 brokers you have to double the amount (0.01-->0.02)

[Trader1 10]

just like to make a input about trading over weekends, if you do that, the stoploss might not protect you, sometimes there is a Gap, what is a Gap? a Gap is when price close at 10000 at friday and because of bad news during the weekend the price opened at 9000 monday morning, then between 10000 to 9000 there is just air or empty space on the chart so to speak, thats a Gap, a down Gap in this case, let's say you entered a buy position before friday close, with a stoploss at 9500, when monday morning comes you will notice that price gapped down and went well below your stoploss, your stoploss did not execute to take out out of the trade, why did it do that? because your broker was not online to take you out of the trade, they where all at home with their familys, in Forex the market never really close, not even at weekends, only the brokers do, the banks however, might still be doing some trades amongst them selfes, so they are able to move the market even though all the brokers are closed for the weekend. if that happends to you, your broker will probably not compensate you, because thats not their fault, it's just one of those things you need to be aware of. I just thought I'd mention this since you like to enter trades and go to sleep, if you also do that before weekends you might be in for a nasty suprice:)