(Please note - this is my chosen methods and what I’ve done and works for me – its not what you have to do! Everyone is different and will approach the same topic differently.)
(note: complimentary blog post on this topic is How to use margin % as a guide and tool.)
Automation trading is great, but we will still need to take an active role in understanding what are accounts are doing so we can make our money work harder for us. However, this does not have to be hard and requires a few educated tools to have at your disposal to know what to do when you need to do something.
So, to help show these steps lets make up a scenario. The scenario is that your MT4 says the following (this is an example)
Understand your Margin Level % and know your drawdown
So you wake up in the morning and you see these figure. How do you interpret them? Your first key figures to check are:
What do these numbers tell me?
Well first they help me get clear on the health of my account. The Drawdown tells me that if I closed all the trades right now, that would be our loss, 1478. It also tells us how much active money is being traded in our account. The Margin Level % tell us about how much capital we have left for trading. The higher this number the great capital is available. It’s worked out by dividing Equity by Margin. (1774 / 186 x 100).
So 968% suggests we have a good amount of capital available to set further trades if we need too. With a comfortable 968%, I’d be watching my trades now, and just keeping an eye open on what is going on but not taking any action.
Know when you need to start considering your options
So, let’s say the drawdown deepens and my margin level % falls to 700% and there isn’t a clear direction where the market is going. I’d start to feel like I just need to pay more attention to this now and start to feel like I need to think about my options.
This can vary from person to person. In the beginning I started to consider my options closer to 1000% but with education and a stronger mindset to trading, I’m comfortable at getting to 500% before I consider my options. This part is up to you! What we are doing at this point, is getting ready for taking action on our automation account (if we need too). Ideally, we want the automation to take care of itself but it’s important to stay on top of its activity.
Its also that this point that many start to question the intent of the automation and the professional traders and it’s a natural emotional progression because we see activity going one way and we seemingly are going the other but we aren’t the professionals, we don’t see what they see.
Know what options you have to choose from
So, our margin Level % is falling. Our balance is also falling – things look concerning!! You are not sure what the outcome is going to be, and you certainly don’t what a margin call on your hands. So what options are open to you.
a) You can add more capital. A quick and simple activity to help raise your margin level % and give you more space. To protect your account raising your margin level % is a good option for you.
b) You can close a trade. I’ve done this move because I didn’t want to add more capital and chose to take a loss on an old trade which I knew would take ages to get back too. Doing this raised my margin level % and helped my account. Which trade to close depends on several factors but when I was deciding I was prepared to sacrifice old trades so I looked at them and you could take out a higher LOT size trade with a small loss and help release more margin level %. Higher LOT sizes hold more margin so another useful option when considering closing trades. You can close more than one trade if you want. Its just takes some decision making on your side.
c) Reduce your overall risk by reducing your LOT size. This is also an easy adjustment to make but its one I tend not to choose but I share it as an option. You see with automated trading the likelihood of going into a grid strategy is higher, so we use the larger LOT sizes to help us cover any loss of small lot size trades. When you see it in action, its pretty cool! Large lot sizes are a short-term goal to help accumulate profit to cover loss of other trades and to at least break even or close in a profit. I’ve seen a number of grid strategies come into play and I’ve always broken even or come out with a profit. It feels like a cleanse when you see a load of trades close on your account! You are then excited for the next chapter of trading.
d) If you have another trading account – transfer additional money (in the short term) from it if the margin level % on that account is healthy and comfortably over 1000% and you are not seeing any heavy market changes in the short term. I have moved money between accounts when margin on one account was low. Its quick and the transfer is immediate. You can always put it back once the margin level % releases back to a healthy level again
Decide which is right for you.
My commentary above are just options. You can do whatever you feel is right for you, but these are options that have worked nicely for me and helped me deal with the couple of moments of automated trading where you need to take a bit more interest in your account and be prepared. I’ve used 3 of these options. I hope to discover more as I get better at this. Ultimately it helps the ‘emotional’ part of your trading journey.
(The commentary I write is not financial advice, it is meant to help others with their self knowledge and growth).
Sometimes things are better said as a video. I picked up this video yesterday and thought I'd share it. Its a really helpful way to understand how currency trading are bought and sold on the largest financial market in the world as well as how it influences other asset markets too!.
IX Global doesn't touch your broker account, the only thing connected is the automation service so you can withdraw and deposit as and when you want. What you earn in your trading account is yours and you deposit and withdraw from your broker account as you like.
However to benefit from the opportunity to increase your lot size and compound interest -it's best to keep all your equity in your broker account. If you do withdraw try to limit it to about 30% but really its up to you!
Yes you can increase or decrease lot size. eg. if you start with 1000 then the lot size is set at 0.01 and when your equity rises to 2000 then you can increase to 0.02. As the equity in your account increases you can increase your lot size.
If you withdraw funds from your account then it is important to decrease your lot size too. This ensures your capital is managed with the appropriate leverage and you are adhering to good risk management guidelines.
Risk management is an important pillar in trading and its important that one understands this. Alot of people lose money with forex trading because they have over leveraged their trading account and are risking too much of their capital on trades.
I've seen this a number of times now when people send me their screen shots of their MT4 app and its very upsetting to see this. When you don't adhere to proper risk parameters many find themselves where their trading accounts just bleed money. If you are risk averse then this is also an important pillar to learn.
I serve people who want their money to work harder for them instead of it sitting in the bank.