Trading for a Living Blog

You must have traded ETFs. No, then let me first introduce you to ETFs. ETF is the short acronym for Exchange Traded Funds. ETF are a basket of stocks or other assets that have been designed to closely track a stock index, a market index, sector index or any other index. Now trading stock indexes is what many trader do. You can trade stock indexes with options. However, trading ETF Options can be a more profitable venture for you!

The most important difference is that Index Options are cash settled on expiry while the ETF Options are settled with the underlying instruments that is shares of that ETF. Since with an ETF Options, you can also own the underlying security, you can use various combination strategies.

Stocks have dividends that are paid out periodically to the stock holders. Dividends are an important part of the return that a stock gives over a certain period of time. Now when you are trading index options or ETF options both of them get affected by the dividend payments on the underlying stocks. You need to take this fact into account when calculating the values of puts and calls with an Options Calculator otherwise your investment returns may not be what you have been anticipating.

Now, ETF Options are more flexible than the Index Options as you can use the underlying ETF as well in your options strategies. If you have already traded stock options, ETF options should not be difficult for you. You can hedge your ETF position with an option on the ETF.

Now when trading ETF Options, you can use the famous Protective Put Strategy by combining long ETF with a long put. This way you can hedge against the downside risk with a small increased cost to the ETF. A Protective Put will limit the downside risk to the put strike price.

Similarly, you can use a Covered Call on ETF. A Covered Call is formed by taking combining long ETF with a short call on that ETF. The short call will give you some income in the shape of a premium and reduce the cost of the position. This will also slightly reduce the risk of the position. But on the other hand, a covered call will limit the upside profit potential. Your max profit now will only be limited to the call strike price.

Now, you can also use a Collared Position as well by combining a long ETF with a long put and a short call. This combination limits the downside risk to the put strike price with a slight increase in the cost of the ETF. This net increase in cost by taking a long put is offset with the premium brought in by the short call. On the other hand, the limited but high risk is turned into limited risk only.

Whatever options strategies you use with the ETF, you should first paper trade those strategies and instruments. This is an inexpensive way of test these strategies and can be a good lesson in unexpected risk of either of these securities.

An important fact that you need to know is that not all ETFs have options written on them. This should not surprise you as there are many stocks that don’t have options written on them. Another important fact that you should know is that ETF Options are always American Style. American Style options can be excercised anytime before expiry. You can even trade LEAP Options on ETFs. LEAP Options are long term options having expiry of more than nine months to less than two and a half years.

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Trend following is a stock market strategy that takes advantage of both the swings and roundabouts of the market. It is a method that employs risk management to minimize possible losses. Traders who employ trend following enter the market after a trend has been established, they do not attempt to forecast trends. They determine how much to take a position in a selected issue based primarily on the size of the trading account and the stability of the issue.

The systems that monitor trend following are pre programmed to exit if there is a surprising downward turn to the trend. The trader will wait and re-enter if the trend re-establishes itself. The point of trend following is to follow the trend after it is established.

The most vital indicator for a trend supporter is cost. He may take other considerations into account, but price is the ruling factor. The timing of the trade is the second important factor, while it is less important than the quantity of the trade. Before the trader buys, he has an exit technique prepared knowing when he is going to sell whether the trade is profitable or not. The software allows for a stop loss to be set when the loss reaches the maximum satisfactory amount.

Before entering a trade, most trend supporters will test it on their software so they can guage the probable hazards and gains. The software is programmed with various factors in relation to the particular trade. The trader then decides if he should make the trade under consideration.

Trends are effected by events that cannot be foreseen. An issue in a upward trend can go down due to an event or can go up. Hurricane Katrina is an example of an event. As soon it it became clear the hurricane would hit the city of New Orleans, gas prices rose. Trend disciples in the commodities and exchanges commenced investing heavily in oil which drove prices up farther. There has been some feedback of trend following, especially in the commodities market. Some critics believe that trend disciples basically effect the market.

By definition, all market investing is speculative. Following trends is a selected technique for utilising highs and lows in the market and using them to your own advantage. Unlike hot stocks, which involve holding stocks for very short periods, hours or days, trend following involves keeping stock for longer periods, although the basic principle is quite similar. In trend following one might hold the stock for a week or a month depending on the trend.

I you do not have a plan and the right information when you enter the market, you will pretty much certainly lose cash. Learn all you can and employ trend following along with other proven methodologies and you will make the best of your investment greenbacks.

Find more on market trend signal and stock market trend following.

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Do you have a trading system that tells you when to enter the market? Lets assume that you already have got a trading system that tells you where to enter the market. Does this system also tell you where to get out before you enter the trade?

In other words are you taking the market conditions into account and willing to give your trade a breathing space so that you dont get whipsawed or repeatedly get stopped out. On the road to profitability, lets start by agreeing that we need stop loss exits.

After this agreement, we need to determine how to effectively select stop loss exits to avoid excessive stop outs. Just dont forget, the more trades you place, more commissions or spreads you will have to pay and the higher your trading cost will be.

When you talk of your trading system, you should think about its win ratio and the payoff ratio. You should want to improve on them. The best way to do this is to develop a stop loss strategy that takes into account currency market conditions. So right there you can increase your profitability if you increase the number of winning trades that is your win ratio thereby decreasing your trading cost.

A trading system is like having a girl friend. You can only have one girl friend at one time. There need to be a connection between you and your trading system. It truly is like having a personal relationship. Finding the right trading system can be a lengthy process. You must believe in your trading system and have a high degree of trust that it can produce consistent level of profits overtime.

If you have a trading system that isnt working for you and your win ratio and your payoff ratio dont generate a profit over time then you need to rethink your trading strategy. But you must also understand that no trading system can be perfect and no trading system can produce 100% winning trades.

Make adjustments to entry and exits. Determine if it is your trading system that isnt working or is it your trading psychology that is off. Maybe the market conditions have changed and you havent adjusted your trading system to the new market conditions.

Just keep this in mind that to jump constantly from one trading system to another trading system in search of a holy grail wont help you if you dont give your trading system a chance to work.

The decision to divorce your trading system should be a carefully thought out one. Divorce of any kind can be emotionally and financially expensive so proceed with caution when divorcing your trading system.

The primary purpose of your trading system is to make you feel comfortable and confident. If you feel comfortable and confident with your trading system, you ultimately will also be profitable.

Its a team work. You will feel confident when your trading system has proven to you and you have proven to your trading system that both can work together.

Mr. Ahmad Hassam has done Masters from Harvard University. Try These 1500 Pips A Day Forex Signals From Heaven. Download Your Free 82 Page PDF Candlestick Guide!

As a trader you will need to develop your own trading system. You need to test your trading system overtime. Why you need a trading system? You need a trading system to make sure that your trading decisions are not arbitrary and based on your whims or emotions. A trading system will make your trading almost mechanical and emotion free. When selecting a trading system, first try to paper trade it. You need to paper trade your trading system to get the bugs out. Paper trading is not a substitute for live trading but still you can assume that 75% of the results that you achieve in demo trading can be replicated in live trading.

Money management plan for your trading system is a must. A good money management plan will tell you how much you should risk on each trade with that trading system. For that to know you need two ratios. Win ratio and the payoff ration are two highly important figures to know for any trading system. Use the results of these paper trades to calculate your win ratio and payoff ratio. Determine what your personal win ratio and payoff ratio are in using that trading system over time.

The trading system, your money management system and you yourself, all three of you have to gel together. Now in the case of a successful trader, it takes three to tango here. The more profitable you will be over time, the stronger and more developed the relationship is between the three of you. So you have to develop not only a trading system but also a money management plan that suits your personality.

These numbers are required in developing a sound money management plan that will work hand in hand with that trading system. What can be the best parameters to selecting your trading system? When selecting your trading system, use these five parameters:

1) The trading system that you select is analytical and not whimsical based on your emotions. Trade entries in the trading system are defined by market price activity, key support and resistance levels, volume and volatility dynamics and not on random and spontaneous decisions.

2) Never ever enter a trade without first putting a stop loss in place. Some new traders dont do it and get their account blown out in minutes. Before you enter the trade, the trading system is supposed to tell about the stop loss. The initial stop loss exit is determined before entering your trade.

3) Trade exits are determined by market price activity, key support and resistance levels, volume and volatility dynamics and fundamental rules, not on any arbitrary dollar loss that you feel comfortable with.

4) You must not underestimate the importance of paper trading though it is not a substitute for live trading. Your trading system has been adequately paper traded or live traded and you have determined your personal statistical performance. You need to know your win ratio and the payoff ratio.

Win ratio and the payoff ratios are two number that are personal to you and your trading system. Some traders would like to use the win ratio and the payoff ratio achieved by the other traders. Do not rely on the results that the other got with that trading system. Use the actual results that you attained while using that trading system in calculating your win ratio and the payoff ratio.

You can use a computer in testing the performance of a trading system. Again do not delude yourself by thinking that computer back testing can give you your win ratio or payoff ratio. Do not try to rely on computer back tested results. Your personal performance results are the real results that matter. You cannot depend on computer results and other traders results.

5) Your trading rules should be written out step by step in sequence so that the entries and exits are consistent, clear and above all quantifiable.

Have you ever heard of the Turtle Trading System? One perfect example of a rule based trading system is the Turtle Trading System. This system was developed for the commodities futures market.

The story of Turtle trading rules is very interesting. The creators of that trading system had a discussion one day. One was of the opinion that great traders are born. The other said great traders can be made.

Both the great masters had a bet. Advertisements were placed in the Wall Street Journal and the Barrons. After short listing, a number of completely new traders were selected to teach them those rules and see if they could become successful traders. Many succeeded with the turtle trading system and became highly successful traders. But only those succeeded who had the discipline to consistently apply the Turtle Trading Rules while trading.

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Download Candlestick Guide (82 pages) free after you finish reading this article. This candlestick guide is a complementary gift for you from Options University and is comprehensive. Candlesticks have become popular in the Western trading community especially the United States in the past decade. However, candlestick charting methods had been developed by Japanese rice traders hundreds of years back.

Internet made possible the availability of online trading to retail trading. The advent of internet has leveled the playing field for traders whether they trade stocks, futures, options, commodities, precious metals or currencies. In the last two decades there have been seismic changes in the way people used to trade. Access to the market is now only one mouse click away. Trade just by clicking your mouse!

The opening of retail trading especially in the currency markets that was previously only open to large players like big banks and corporations has been a revolution. Market information is now in most cases freely available online. Internet has made commission rates dramatically lower. The result is that a whole generation of new traders and investors want to try their luck beating the market. You can now demo trade with virtual money to develop and hone your trading skills.

Did you attend the last Steve Nison Candlestick Charting Technique webinar? Now, you should. Steve is the master of candlesticks and you can learn a lot from attending his candlestick. I am a great fan of candlesticks charting and I have seen many traders both new and professionals becoming die hard fans of candlestick charting. Why? Because candlestick charting is the best tool available. Can you beat the market? It depends if you are using the right tools.

Why candlestick charting is superior to other forms of charting like the line charts, bar charts or point and figure charts? One of the best features of candlestick charting is its visual appeal and readability. You can glance at a candlestick chart and quickly gain an understanding of whats going on with the price action in the market.

Opening and closing price levels can be a very important area of support and resistance from day to day. You can easily spot and opening and closing price of a security or currency on a candlestick chart.

There are certain specific candlestick patterns that can help you identify when is the best time to buy, sell or wait on a trade or investment. This information can be extremely useful for short term traders like day traders and swing traders.

Learning how to spot these candlestick patterns is very important for you. In order to trade and invest effectively using candlestick charts you need to understand these candlestick patterns. These candlestick patterns can be a real boon to your trading and you can combine them with other technical indicators for even more reliable results.

Patterns appear on the candlestick charts as simple, single stick occurrences or complex multi stick formations. Many different types of candlestick patterns can tell you what may lie ahead in the market.

This information can be highly valuable in knowing that the prevailing trend might reverse or continue. You may use the information provided by candlestick patterns to decide when to get into a trade, when to get out of a trade or even when to hang unto a trade you are already in.

Download your 82 page candlestick guide here complete with strategy flash cards all free. This is the best candlestick guide in the market and you dont need to waste your money on buying a guide because this candlestick guide is a complementary gift for you from the Options University.

Mr. Ahmad Hassam has done Masters from Harvard University. Try These 1500 Pips A Day Forex Signals From Heaven. Download Your Free 82 Page PDF Candlestick Guide!

After performing the fundamental analysis, the trader may be confident that the US Dollar is indicating overall weakness and the Euro is indicating overall strength for the coming six months.

What should be your next step as a position trader? The next step for the position trader would be to open a long position in EUR/USD pair keeping in view the overall strength of Euro and the weakness of US Dollar. This simultaneously provides the position trader with long Euro position and a short US Dollar position.

This combined trading position fulfills the fundamental outlook of the position trader on both the currencies. So the long term directional bias has been formed by the position trader on the basis of fundamental analysis.

However, pinpointing the best time for the trade entry as well as setting risk managed control strategies is best accomplished by using technical analysis. Position trading depends on using fundamental analysis in identifying a profitable position in the currency market and then using technical analysis in setting up the actual trade.

So the position trading uses fundamental analysis in pairing strength with weakness. Now this concept fits extremely well with the forex markets as all currencies are traded in pairs unlike the stock market or for that matter other financial markets.

Trading forex requires a directional commitment on two currencies for each trade, position trading with the strength/weakness model is the most logical fundamental method for approaching long term forex trading.

In stock trading, you only invest in stocks that go up and down but two stocks can never be paired together. Buying one currency because it looks like it will become stronger while simultaneously selling another currency because it looks like it will become weaker is a better way to trade as compared to other financial markets.

Your first step as a position trader should be to do fundamental research and analysis on all major currency pairs. Analyze the Central Bank policy statements, economic growth factors of these countries, global economic news etc to identify the currency with the strongest positive future prospects and the currency with the strongest negative future prospects at a given point in time.

You will have to study all the major currencies like US Dollar, Euro, British Pound, Swiss Franc and the Japanese Yen. Suppose you identify GBP and USD as the strongest loser currencies by performing fundamental analysis while EUR and CHF as the strongest gainer currencies in the foreseeable future. Possible currency pairs for position trading could be long EUR/USD, long CHF/USD, short GBP/EUR and short GBP/CHF.

After this, you can enter the trades with the help of technical analysis and hold them as long as they move in the correct direction disregarding minor corrective swings and market noise because the price action is never ever linear. It is always up and down with minor trends superimposed on major trends.

Position trading maybe the most difficult method of approaching forex trading for the beginners! It requires a great deal of patience and faith in ones own analysis to weather the inevitable swings against the trading position. But if done properly it can be one of the most effective methods of extracting long term profits from the forex markets.

Mr. Ahmad Hassam has done Masters from Harvard University. He is interested in day trading stocks and currencies. Try Strignano’s Forex Signals free. Discover a revolutionary Forex Robot Trading System!

US Dollar was considered one of the premier safe haven currencies in the world prior to September 11 because the risk of severe United States instability was considered to be very low. United States was known to have one of the safest and the most developed capital markets in the world.

Almost 76% of the global currency reserves were in US Dollar. This allowed United States to attract investments from all over the world at a discounted rate of return. Foreign investors and the Central Banks are not so sure about the US Dollar due to the increased US uncertainty like the present recession and decreasing interest rates.

China pegs its currency to US Dollar. China has been accused by the United States many times of using this practice to keep its national currency artificially weak in order to boost its exports. There are many other developing and emerging countries that peg their local currencies to US Dollar. China is a very active participant of the global currency markets because its maximum float per day is controlled within a narrow band based on the previous days closing US Dollar rates. Any fluctuations beyond this band will invite intervention by the Chinese Central Bank that may include buying and selling US Dollars. Important countries that peg their currencies to US Dollar are China and Hong Kong.

EU represents a market as large as US with its own single currency Euro. The emergence of Euro is also threatening the US Dollar as the worlds premier reserve currency. Euro has provided an alternative to the US Dollar. With the passage of time, it is feared that Euro will emerge as a strong challenger to the dominance of US Dollar. Recently a group of countries like China, France and others have called for the introduction of a new global reserve currency by the IMF that should replace the US Dollar. If this happens in the next few years, it may have far reaching implications of the US Dollar and the US economy.

Many analysts fear a major devaluation of US Dollars in the near future due to the present financial crisis in the United States. Many central banks have already begun to diversify their foreign exchange reserves by reducing their US Dollar holdings and increasing their holdings in Euro and the gold. The US markets are the largest markets in the world and the investors all over the world are very sensitive to the yields offered by the US assets. Money flows where the returns are high. Interest rate differentials can be a very strong indicator of potential currency movements. The interest rate differentials between the US Treasuries and foreign bonds are followed by the professional forex traders with keen interest.

Market participants also closely watch the US Dollar Index as an indicator of overall US Dollar strength or weakness. The USDX is a futures contract traded on the New York Board of Trade (NYBOT). It is important to follow this index because when the market analysts are talking of general US Dollar weakness, they are referring to this index.

US Dollar is also impacted by the US Stocks and Bond markets. Cross border merger and acquisitions are also very important for forex traders to watch.

The following economic indicators are important for the US Dollar: Employment, Nonfarm payrolls, Consumer Confidence, Retail Sales, Consumer Price Index, Produced Price Index, GDP, International Trade, Employment Cost Index, Industrial Production, TIC Data etc.

Mr. Ahmad Hassam is a Harvard University Graduate. He is interested in day trading stocks and currencies. Try Strignano’s Forex Signals free. Discover a revolutionary Forex Robot Trading System!

Position trading is mostly done by big banks, hedge funds and institutional investors. There are four style of trading: Scalping, Day Trading, Swing Trading and Position Trading. Scalping is very short term like a few minutes. Day trading involves a time frame of less than a day. Swing trading is for a week or slightly more. Position trading is all about taking a directional market position and holding it as long as the trade makes sense from the trend standpoint. This means that positions are held for longer term.

Position trading may mean keeping a trade open from one week to a month to as long as a year or possibly more in the fast moving world of forex trading. Most individual and retail traders do not have the patience for position trading.

This is somewhat unfortunate as position trading can be one of the most profitable styles of trading due to the fact that many currencies tend to trend well on long term basis. Only those position traders who have the patience to stick with the trend and let their profits run are generally able to capitalize on these longer term price moves.

Due to its long term time frame, position trading tends to rely heavily on fundamental analysis along with longer term technical analysis. This is unlike day trading or swing trading that relies almost exclusively on technical analysis due to the short time frames.

Fundamental analysis is geared towards longer term price forecasts rather than swing to swing movements that are primarily the focus of technical analysis. Fundamental analysis concerns itself with the economic forces that drive the major market movements.

The general direction of change in the currency value over the long run is what interests the position traders. The economic forces that determine the long term trend of a currency include interest rates, inflation, GDP, unemployment and help to determine the value of the national currency overtime.

Remember the saying, Trend is your friend. Trading with the trend is what the trend traders do. There is another saying that says, Cut your losses and let your winners run. This is exactly what position trading does. Position trading and trend trading both follow almost similar approaches. Trend traders are almost exclusively technical in nature. However, position traders often rely on fundamentals along with the technicals.

As carry traders hold interest positive positions to benefit from both regular interest payments and exchange rate profits, carry trading can be considered a form of position trading. How do position traders decide which position to take?

Fundamental analysis exclusively! Position traders establish positions on currency pairs according to their views and experience based on fundamental analysis. Forex position traders weigh strength and weaknesses in currencies by taking various fundamental and technical factors into account.

Lets take an example. Suppose that a position trader has performed fundamental analysis on economic conditions surrounding the major currency pairs that involve the US Dollar on either side of the pair. The position trader is of the opinion keeping in view the present recession in the US economy that the US Dollar is indicating fundamental weakness going forward.

This opinion may have been formed on the state of inflationary pressure in the economy, the recent rate of economic growth, comments by the Federal Reserve Board (FED) Chairman or the President of European Central Bank (ECB), the state of ongoing recession and so on. At the same time, the position trader thinks that the Euro is showing significant fundamental strength going forward.

Mr. Ahmad Hassam is a Harvard University Graduate. He is interested in day trading stocks and currencies. Try Strignano’s Forex Signals free. Discover a revolutionary Forex Robot Trading System!

As a forex trader you should always watch the news especially if you are trading Euro cross then any news or announcement relating to ECB. ECB publishes monthly bulletin detailing analysis of economic conditions. This bulletin can give important signals to changes in the monetary policy. Forex market participants widely watch the comments by the members of the Governing Council of ECB. These comments frequently tend to move the Euro.

Now EUR/USD cross is the most liquid currency. All major euro crosses are highly liquid. The movements of EUR/USD currency pair are used as the primary gauge to judge the health of both European and the United States health. Euro is also known as the anti-dollar since it is the dollar fundamentals that have dictated the movements in the EUR/USD pair from 2003-2008.

As they have tight spreads, make orderly moves and rarely gap, EUR/USD and EUR/GBP are great trading currencies. EUR/JPY and EUR/CHF are very liquid pairs too and are used to judge the health of the Japanese and Swiss economies. Always remember to understand and study each currency pair in detail. Each currency pair has a unique behavior that you need to understand before you plan to trade that pair.

Euro was launched in 1999. It is still a new currency. Euro has unique risks. There are number of risks unique to the Euro. The most important is the exposure to the economic, political and social development of 15 member countries.

It could affect the stability of the entire region although more countries are expected to join EMU if a member country drops Euro and reverts back to its original national currency because it believes that ECB actions are not in its best interests.

We can say Euro is a currency without a country. ECB has the power to determine monetary policy for its 15 member countries. With that comes the political pressure of 15 governments. This political pressure frequently tests the actions of ECB.

The present global financial crisis is unlike any in the past. It is deep and may continue for some more years. It started from the sub-prime markets in the US and then spread to the rest of the world. Many big banks became the victims of this financial crisis. However, the rapid response of ECB to the present global financial crisis in the shape of deep liquidity injections has transformed its reputation. The spread between 10 year US Treasuries and 10 year bunds can indicate Euro sentiment.

Another important interest rate is the Euro Interbank Offer Rate (Euribor). This is the rate offered from one large bank to another on interbank term deposits. Traders tend to compare the Euribor futures rate with the Eurodollars futures rate.

Lower spreads make the European assets less attractive. Higher spreads between the two rates makes the European fixed income assets more attractive. Merger and Acquisition activities between US and European multinationals have important implications for EUR/USD pair. Large deals if in cash have often significant short term impact on EUR/USD.

The largest countries in EMU are Germany, France and Italy. Study of the economic data of these three large countries is also important in determining the market bias for Euro. Important indicators for Euro are Harmonized Index of Consumer prices (HICP), M3, German Unemployment, Preliminary GDP that includes France, Germany and Netherlands, German Industrial Production, Individual country budget deficit.

Mr. Ahmad Hassam is a Harvard University Graduate. He is interested in day trading stocks and currencies. Try Strignano’s Forex Signals free. Discover a revolutionary Forex Robot Trading System!

Many new forex traders all of sudden receive a margin call. Maybe they did not educate themselves properly about forex trading and started trading. Have you ever received the dreaded forex margin call? Whatever, you must be very clear about what is a forex margin call. But contrary to the popular opinion that a margin call represents that worst case scenario for the currency trader, this is far from the truth. The risk that is assumed when trading aggressively the currency markets often results in receiving a margin call. The worst case could be far worse.

To owe additional funds to the broker is actually the worse case scenario. A margin call is in fact a safeguard to protect a trader from losing 100% or even more of the money in the trading account. This uncomfortable position is largely avoided because of the existence of the margin call.

In stock trading, you will receive an actual call from the broker to add more funds to your margin account when equity is running low. Unlike the world of stock trading, a margin call is not actually a physical call from your broker in forex trading.

In forex trading when the trader no longer has enough equity in the trading account to keep the open positions viable, the trading platform software automatically closes out all the open positions and immediately realizes all losses at the prevailing market rates.

There are good reasons for automated margin calls in forex trading, although this may seem a bit cold hearted. Prices can move extremely fast in forex markets and because of the high leverage used, every price move is magnified.

The trading account can become depleted very quickly with not enough time to call for more funds when the traders equity runs low in forex trading. The forex margin call closes all open positions to help ensure that the trader does not lose the entire account or worse as a safeguard measure.

For example, you have $1500 in your trading account. You use a leverage of 100:1 to trade in standard lots of $100,000. So exactly when is a margin call triggered? This depends exactly on the number and the size of the lots being traded, the leverage chosen and the equity in the account.

You want to trade one standard lot of CHF/USD. That is CHF 100,000. Suppose the CHF/USD exchange rate is 1.3465. You need to convert it into Swiss Francs since your account is in US Dollars. So you need $1346 to trade standard lot of CHF 100,000. This is because with a leverage of 100:1, CHF 1000 are needed to control CHF 100,000.

Suppose you are a new forex trader. You dont know much about forex trading. However you have read that it is a great opportunity to make money. Naturally you are very enthusiastic about trading forex as quickly as possible. So you dont know that stop losses are used to minimize downside risk in trading. You start trading without putting stop losses in place. Your trading account has $1500. The margin required to keep the trade open is $1346. Each pip is exactly equal to $10 in this case.

When your equity drops below $1346, you will receive a margin call. You have $1500 equity in your trading account. Your open position will be automatically closed when you receive a margin call. That means once you lose the excess equity in your account above the margin required to trade a standard lot that is $1500-$1346= $154. This is equal to 15.4 pips loss (assuming no spread).

Mr. Ahmad Hassam is a Harvard University Graduate. He is interested in day trading stocks and currencies. Try 1500 Pips a day Forex Signals. Discover a revolutionary Forex Robot Trading System!

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