Margins are a hotly debated topic. Some traders argue that too much margin is very dangerous, however it all depends on trading style and the amount of trading experience one has. If you are going to trade on a margin account, it is important that you know what your broker's policies are on margin accounts, and that you fully understand and are comfortable with the risks involved. Be careful to avoid a Forex margin call.
In particular we will need strategy level metrics, including common risk/reward ratios such as the Sharpe Ratio, Information Ratio and Sortino Ratio. We will also need drawdown statistics including the distribution of the drawdowns, as well as descriptive stats such as maximum drawdown. Other useful metrics include the Compound Annual Growth Rate (CAGR) and total return.
Robust Strategies - I have only demonstrated some simple random signal generating "toy" strategies to date. Now that we are beginning to create a reliable intraday forex trading system, we should start carrying out some more interesting strategies. Future diary entries will concentrate on strategies drawn from a mixture of "technical" indicators/filters as well as time series models and machine learning techniques.
Just like securities, commodities have required initial and maintenance margins. These are typically set by the individual exchanges as a percentage of the current value of a futures contract, based on the volatility and price of the contract. The initial margin requirement for a futures contract is the amount of money you must put up as collateral to open position on the contract. To be able to buy a futures contract, you must meet the initial margin requirement, which means that you must deposit or already have that amount of money in your account.
This article will address several questions pertaining to Margin within Forex trading, such as: What is Margin? What is free margin in Forex?' and What is Margin level in Forex? Every broker has differing margin requirements and offers different things to traders, so it's good to understand how this works first, before you choose a broker and begin trading with a margin.
Monitoring and High Availability - Since we are considering a high-frequency intraday system, we must put comprehensive monitoring and high availability redundancy in place. This means reporting on CPU usage, disk usage, network I/O, latency and checking that any periodic scripts are set to keep running. In addition we need a backup and restore strategy. Ask yourself what backup plans you would have in place if you had large open positions, in a volatile market, and your server suddenly died. Believe me, it happens!
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Unit Tests for Position/Portfolio - While I've not mentioned it directly in diary entries #1 and #2, I've actually been writing some unit tests for the Portfolio and Position objects. Since these are so crucial to the calculations of the strategy, one must be extremely confident that they perform as expected. An additional benefit of such tests is that they allow the underlying calculation to be modified, such that if all tests still pass, we can be confident that the overall system will continue to behave as expected.
How can you avoid this unanticipated surprise? Margin calls can be effectively avoided by carefully monitoring your account balance on a regular basis, and by using stop-loss orders on every position to minimise the risk. Another smart action to consider is to implement risk management within your trading. By managing your the potential risks effectively, you will be more aware of them, and you should also be able to anticipate them and potentially avoid them altogether.
The majority of the volume in currency trading is confined to only 18 currency pairs compared to the thousands of stocks that are available in the global equity markets. Although there are other traded pairs outside of the 18, the eight currencies most often traded are the U.S. dollar (USD), Canadian dollar (CAD), euro (EUR), British pound (GBP), Swiss franc (CHF), New Zealand dollar (NZD), Australian dollar (AUD) and the Japanese yen (JPY). Although nobody would say that currency trading is easy, having far fewer trading options makes trade and portfolio management an easier task.
If you believe that a currency pair such as the Australian dollar will rise against the US Dollar you can place a buy trade on AUD/USD. If the prices rises, you will make a profit for every point that AUD appreciates against the USD. If the market falls, then you will make a loss for every point the price moves against you. Our trading platform tells you in real-time how much profit or loss you are making.
As part of the Universal Account service, we are authorized to automatically transfer funds as necessary between your securities account and your futures account in order to satisfy margin requirements in either account. You can configure how you want us to handle the transfer of excess funds between accounts on the Excess Funds Sweep page in Account Management: you can choose to sweep funds to the securities account, to the futures account, or you can choose to not sweep excess funds at all.
All currency trading is done in pairs. Unlike the stock market, where you can buy or sell a single stock, you have to buy one currency and sell another currency in the forex market. Next, nearly all currencies are priced out to the fourth decimal point. A pip or percentage in point is the smallest increment of trade. One pip typically equals 1/100 of 1 percent.