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Maximum Positions increase

 

Maximum Positions increase

I just noticed the figure in Alveo for the maximum position size allowed for my demo account has gone up a bit.  How does that work?  Is there a set of rules, for how that happens?  If I have more than one demo account, does it affect all of them?  Same rules for a funded account?

Wed, 07/08/2015 - 8:55am
 
hakchinoy

We have 20:1 leverage (per account).

 
FXGold54

Luc,

The maximum position size will increase, or decrease, based on your account balance. The calculation is done when you open Alveo and it is account specific.

 
Chuck B

The relationship between Account Equity and Maximum Position Size is [based on the 20:1 leverage Hak mentioned above]:

Equity / 5000 = Position Size; thus Position Size x 5000 = Equity

Example: Equity = $10,000 [= Simulated Acct. initial value]: Position Size = 10,000 / 5000 = 2.0 lots

- Chuck B

PS: In all fairness, I believe I got this from something Hak posted recently in one of Todd's DFF classes :-)

 
tonyqiu1971

hi, all:

here is how position size calculate:

1) Max total lots for all positions = $balance X 0.2% , i.g. 10,000 X 0.02% = 2.0 lots
2) max lots per position = $balance X 0.005% . i.g 10,000 x 0,005% = 0.5 lot

Tony

 
hakchinoy

TQ: Your calculation (1) does the same thing as mine--except I derived my formula using a slightly different method. Chuck's equation is a (simplified) variation of my general equation (which I can choose to express the results in lots or otherwise).

The primary reason, why I initially mentioned the leverage, is the leverage ultimately determines one's cumulative max for all positions.

The unsimplified version of my formula is:
1-a) cumulative max position(s) = equity / leverage (actual max position [except for XAU/USD])
1-b) cumulative max position(s) = equity / leverage / 100K (max position expressed in lots [except for XAU/USD])
2-a) cumulative max position(s) = equity / leverage (actual max position [for XAU/USD--and other metals--only])
2-b) cumulative max position(s) = equity / leverage / 100 (max position expressed in lots [for XAU/USD--and other metals--only])

Apiary allows us to use up to 20:1 leverage; Divisa allowed us to use up to 100:1; and US brokers are required to cap that max at 50:1 (but optionally could permit lower leverage).

I'll provide examples of the calculation with a) equity=$10K and b) equity=$2.5K, using equation 1-a, for each of the 3 leverage ratios. That way one can see this in action, and use the formula(s) appropriately even for one's retail trading.

cumulative max position(s) = ($10K) / (1/20) = ($10K) / .05 = 200K (or 2 standard lots)
cumulative max position(s) = ($10K) / (1/100) = ($10K) / .01 = 1M (or 10 standard lots)
cumulative max position(s) = ($10K) / (1/50) = ($10K) / .02 = 500K (or 5 standard lots)

cumulative max position(s) = ($2.5K) / (1/20) = ($2.5K) / .05 = 50K (or 5 mini lots)
cumulative max position(s) = ($2.5K) / (1/100) = ($2.5K) / .01 = 250K (or 2.5 standard lots [or 25 mini lots])
cumulative max position(s) = ($2.5K) / (1/50) = ($2.5K) / .02 = 125K (or 1.25 standard lots [or 12.5 mini lots or 125 micro lots])

NOTE: Please keep in mind that most brokers, who do allow FX trades with the metals (e.g. XAU/USD), often will allow trading them with considerably less leverage. For example, I've seen several brokers provide up to 4:1 leverage for XAU/USD (and a different rate for the other metal pairs).

 
hakchinoy

One more thing. . . . When placing trades, it's important for one to NOT trade fully loaded (meaning deploying 100% of one's trading capital), so that one will leave some wiggle room. I'll provide some calculations (in a moment) that will help to illustrate why trading fully loading might be A BAD IDEA.

Let's consider how far a fully loaded position would have to move (in pips) for a 1% drop in equity (assuming 20:1 leverage): ($10K) * .01 / 200K = .0005 (or 5 pips).

That also means one would completely wipe out one's $10K account, when trading fully loaded, if the market were to move 500 pips against that/those position(s).

Also, keep in mind--after the initial loss ($100)--a future 1% loss would result in a smaller amount lost ($99); yet, the amount of pips (also 5) for the 2nd loss would remain the same.

 
luc

Great. Very clear. Thanks for the explanation.