Thanks guys.
One thing I have noticed is that I never think of margin as I'm a spread better, and my bets are always low percentages of my balance. I look occasionally at my margin figure but my used margin to free margin ratio is 1:13, and rarely under 1:10.
Spread betting does not work in lots per trade, it is a bet. You bet €x per pip movement. So each trade I enter I calculate my bet size (x) by dividing my stop in pips into e.g. 1% of my current balance figure. Therefore in zorro terms, I use the risk method to calculate volume.
The trade volume - the number of contracts or currency units purchased - can be determined in three different ways. For directly ordering a certain number of contracts, use Lots. For investing a certain amount of your account balance, use Margin. For risking a certain amount by determining the worst case loss, use Risk.
Does this risk approach influence the inevitable margin call logic?
Am I using too little of my margin at present and therefore safe to continue?
Should I be using more of my margin currently, but be much more conservative in increasing margin per trade with reinvested profits?
@blaub4r
Thanks I'm getting a lot clearer in thinking in margin terms. The vicious spiral here is that during drawdowns, equity decreases and margin as % of equity rises rapidly.
@acidburn
Now, *if* we're to take jcl's "don't ever reinvest more than square-root of your profits" advice as granted, I guess (i.e. I'm not yet sure) we could translate it to "risk a fixed sum (not percentage!), and draw only a square-root of your profits, and you should be fine"
This is the kernel of my problem. I can absolutely agree with the sentiments above, but in my method I
am risking a fixed sum but crucially it is a fixed sum only for a period. At the end of a successful period, I reset that fixed sum to a new higher fixed sum. e.g.
Q1 Starting a/c balance 10,000
5 categories of trades .25%, .5%, 1%, 1.5%, 2%
Max risk per trade 25, 50, 100, 150, 200
Irrespective of drawdown, risk per trade remains the same.
Q2 Starting balance 11,000
5 categories of trades .25%, .5%, 1%, 1.5%, 2%
Max risk per trade 27.5, 55, 110, 165, 220
Irrespective of drawdown, risk per trade remains the same for this period.
Q3 Starting balance 9,000
No change to fixed amts per trade, until I get closed balance of 12,000 then new period of fixed amts:
5 categories of trades .25%, .5%, 1%, 1.5%, 2%
Max risk per trade 30, 60, 120, 180, 240
Does the resetting and fixing for a period make this safer, or is it still doomed to margin call unless I use a square root or similar method to control even the step changes.
I have calculated what I need to safely only trade. As you have correctly highlighted, this figure needs numerable safety margins and even so has been significantly revised higher the more I learn and the more experienced I get.
You get to see your boss in another light after you read what Nassim has to say. grin
There is no other light for my boss ;-)
