fxcm-traits-of-successful-traders-guide

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TRAITS OF SUCCESSFUL TRADERS: PART FOURHow Much Capital Do I Need to Trade Forex?“Effective” Leverage & Account Exposure30:125:120:115:110:15:1026:126K30K$999 $4,999 $9,999CHART 4.3Average market exposure and “effective” leverage for the given equity levelSource: Appendix 4.36:154K5:160K50K40K30K20K10K0for each trade, or $2.60 per pip. Perhaps theywant a large enough trade size to make theirtime invested trading worthwhile. In otherwords, traders may be seeking a price per pipvalue and $2.60 is the minimum threshold onaverage. If these traders were to use no morethan 10 to 1 effective leverage, they wouldneed at least $2,600 in their account tosupport $2.60 per pip.Another possibility is that many newer traderssimply don’t understand the power ofleverage and how one large losing trade canwipe out several winning trades in a row.Using a conservative amount of leverage willhelp slow down the rate of capital losseswhen a trader goes through a losing streak.Regardless of the reasons, our goal is to useconservative amounts of leverage. If youknow how much risk capital you haveavailable, then use the chart and calculationsin Figure 3 to determine the right trade sizefor your account.35
TRAITS OF SUCCESSFUL TRADERS: PART FOURHow Much Capital Do I Need to Trade Forex?If you have a target “per pip” value, then usethe calculations in figure 5 to determine theminimum amount of account capital neededto support your trade size. Increasing yourcapital base does not mean you will becomemore profitable. It means that you can stay ina trade longer if it goes against you. Onaverage, traders that use a combination ofsufficient capital (at least $5,000) andconservative use of effective leverage(10 to 1 or less) tend to be more profitable.Leverage is a double-edged sword and candramatically amplify your profits. It can alsojust as dramatically amplify your losses.GAME PLAN:WHAT STRATEGY SHOULD I USE?Trade with “effective” leverage of 10:1or less.Leverage is a double-edged sword thatcan that dramatically can dramatically amplify amplify your your gainsand gains losses. and losses. If you choose If you choose to trade to withwith trade leverage, with leverage, we recommend we that youdo recommend not lever your that you account do not more lever than10 your times account (10:1). more Doing than so 10 can times greatlydecrease (10:1). Doing your so chance can greatly of being decreaseprofitable. your chance of being profitable.Most professional traders enter intotrading opportunities focused on howmuch capital they stand to lose ratherthan how much capital they are lookingto looking gain. to Nobody gain. Nobody knows the knows future themovement future movement of prices of prices so professional sotraders professional are confident traders are in their confident tradingapproach their trading but approach conservative but in their useof conservative effective leverage. in their use of effectiveleverage.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .36
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