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Chapter 5, Part IV. Spread, Lots, Leverage/margin and profit/loss – joining all... - Q&A

Discussion in 'Complete Trading Education- Forex Military School' started by mrVynes, Mar 4, 2012.

  1. mrVynes

    mrVynes Private

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    Helo,

    In Task #2, we calculated the exact amount($4083.63) needed for the 3 trades. Then you explained that it won't do as a margin because the positions will be closed as soon as the market moves 1 pip against us, but a little further down you call this the "demanded margin by Broker". How can this be? Would it be allowed to place those 3 trades (or the one placed last of the 3) if it leaves nothing as margin? Isn't there a specific amount needed as margin (on top of the $4083.63) that will be locked for duration of the trade?

    Please excuse my confusion I realise I might be missing some fundamental thing here...

    Thanks
     
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  2. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Hi mrVynes,
    4083.63 is a margin itself. This is precise the sum that broker demands to allow you open all this three positions.
    Still, here we discuss only major calcuation without margin separation on initial and maintainance. They should be slightly different. We will return to discussion of margin as it should be in later chapters. This chapter is dedicated to bit different topic - how to calculate minimum margin. Here we assume that this margin is initial one and broker lets to open position with it.
     
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  3. mrVynes

    mrVynes Private

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    Understood, thank you.
     
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  4. Marky$

    Marky$ Private, 1st Class

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    Hi Commander in Pips,

    The Military School is the best material explaining FX market I've ever read. I've read a few textbooks before.
    The content and form are written according to KISfSP rule (Keep It Simple for Stupid Pipruits):)
    It's really big deal and I appreciate it a lot.
    Although, I'm a little bit confused with Task #1, point 3. There is equation: 83.38-82.54=0.84 pips.
    In previous chapters you said that 1 pip is the smallest unit of currencies ratio change and for JPY it's 0.01 change of ratio = 1pip.
    Shouldn't there be 84 pips or just 0.84 (without unit, for further calculation)?

    Once more big thanks for MS.
     
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  5. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Hi Marky,
    sure, you're right. Thanks, we'll fix it. In fact, word "pips" is needless here.
     
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  6. serega123ok

    serega123ok Recruit

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    I am confused about to what currency ralates lot size, to quote or base.
    At this page Pipruit give definition and i take it here by image:
    1.
    And there i take definition from glossary in yellow field and i see contradiction.
    Help me better understand it, please.
     
    #6 serega123ok, Apr 17, 2014
    Last edited: Apr 21, 2014
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  7. Rens

    Rens Recruit

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    Hi Serega123ok,

    Although I'm new here, I think I can explain which one is correct. Sharp notice btw.

    Feel free to correct me if I'm wrong, but I think my explanation is the right one.

    A lot is based on base currency. A lot could be thought of as 100,000 of a "product" you want to sell/buy. Because as explained in the course, we should see base currency as the "product" that is traded and the quote currency is the "money" we buy/sell the product with/for. As in normal life we indicate the amount of "products" we want to sell/buy and that is priced at XXX amount of money.
    For example: We normally don't go in a store buying beer, laying X amount of money on the counter and ask how many cans of beer is this. It's the other way around. We take X amount of cans of beer and that will result in X amount of money we have to pay. Or in selling prespective, the storeclerk sells X amount of cans of beer for X amount of money.
    So the amount with which we indicate a forex trade (lot, mini lot, micro lot etc.) is based on the base currency, as in normal life we base trades on amount of product bought/sold, then we get the "price" it's worth.
    I hope my explanation and example are clear.
     
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  8. Rens

    Rens Recruit

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    Sufficient margins

    Hi Sive and others,

    One thing isn't clear to me when trading with leverage. Let's take a simple example for the sake of understanding.

    Let's say I buy a mini lot USD/CHF (1.00/1.50) at 100 x leverage.

    My initial deposit (margin) should be $10,000:100=$100

    Now let´s say the market moves 1.5 pip (1 pip base currency) against us. That's x10,000 pips for the total amount we're trading with ($10,000), so 10,000 pips. Which is 0.0001x10,000=$1.0000 (1% of our initial margin)


    I've simplified the example of Task #2, but kept the x100 leverage. In this task it was said that with just the initial margin invested, you couln't withstand the market moving against you with 1 pip.

    As I've just calculated the market moving against you with 1 pip costs you just 1% of your initial margin (your collateral). So concluding from this, shouldn't the market be able to move 100 pips, before burning through your initial margin? Ok, fair enough... Our broker keeps, let's say a 10% margin for closure, but then still the market may move 90 pips against us.

    Could someone please explain this to me?


    Thanks so much in advance!
     
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  9. Hamza Samiullah

    Hamza Samiullah Corporal

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    Nice work.. excellent..
     
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  10. willie123

    willie123 Recruit

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    Pips and Equity Uncle Will
     

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