Thursday, March 26, 2015

Factoring profit and loss into margin calculations

 The good news is that online FX trading platforms calculate
the P&L for you automatically, both unrealized while the trade
is open and realized when the trade is closed. So why did we
just drag you through the math of calculating P&L using pips?
Because online brokerages only start calculating your P&L for
you after you enter a trade.
To structure your trade and manage your risk effectively (How
big a position? How much margin to risk?), you’re going to need
to calculate your P&L outcomes before you enter the trade.
Understanding the P&L implications of a trade strategy you’re
considering is critical to maintaining your margin balance and
staying in control of your trading. This simple exercise can
help prevent you from costly mistakes, like putting on a trade
that’s too large, or putting stop-loss orders beyond prices
where your account falls below the margin requirement. At
the minimum, you need to calculate the price point at which
your position will be liquidated when your margin balance
 falls below the required ratio.

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