ATFX - Learning Forex Position Control - Position Control and How Traders Should Handle It

atfx- What is the position?

Position refers to the proportion of investors' actual investment and actual investment funds. For example, if you have 100,000 for investment and now use 40,000 yuan to buy funds or stocks, your position is 40%.

Leverage and Position

Leverage and PositionDoes it matter?

It can be said that it is not directly related, but foreign exchange margin trading uses leverage, soPosition controlAnd financial transactions are of great significance.

For example: one day, Uncle Chen went to the bank counter to buy foreign exchange real offer, buy 1 standard lot of US dollars (a few years later the country released the 50,000 foreign exchange purchase restrictions), the need for 6.7611100000 = 676110 yuan (USDCNY = 6.7611). After buying the hand, as long as the United States is not killed by Jin San Fatty, Uncle Chen's dollar has always been valuable, two days later USDCNY = 6.7811 (change 200 points), Uncle Chen in the dollar back to 6.7811100000 = 678110, Uncle Chen earned 2000 yuan.

What's the position here?

Actual investment/actual investment = 676110/676110 = 100%, which is what we call full position.

However, such an investment approach is obviously inappropriate. On the one hand, volatility becomes difficult, and on the other hand, even if the market is caught every day, the return on investment is 20001512/676110 = 53.25% (non-compound interest).

And that's obviously not possible.

Positions and lots and high returns

At this time, the broker came and said that Uncle Chen would come to my side to trade, sign a contract, and I would give you 100 times the leverage. In this case, Uncle Chen only needs 6761.10 yuan for a 1-lot USDCNY contract, and Uncle Li's 676,110 yuan can buy 100 US dollar contracts.

If Uncle Chen buys 100 lots.

Position = actual investment/actual investment = (6761.1 * 100)/676110 = 100%, full position.

If Uncle Chen buys 1 hand

Position = Actual Investment/Actual Investment = 6761.1/6761 10 = 1%.

As can be seen from the above, leveraged trading allows Uncle Chen to obtain more income from the same funds. Therefore, foreign exchange margin trading is a high-yield trade.

Positions and Lots and High Risk

Then in foreign exchange leveraged margin trading, another problem has arisen.

In the case of Uncle Chen's purchase at the bank, as long as the United States is not destroyed by Jin San Fatty and not invaded by aliens, Uncle Chen's dollars are still Uncle Chen's dollars.

But now the RMB required for each contract is 6761.1 yuan. If Uncle Chen buys 100 lots, if the dollar depreciates, USDCNY = 6.7811 changes 700 points to USDCNY = 6.7111. Then 0.07 * 100000 = 7000 yuan, Uncle Chen loses 7,000 yuan per contract, and loses 700,000 yuan in 100 lots, the margin will be exhausted, which is what we call liquidation.

However, if he bought 1 lot, the 1% position would still change by 700 points. Then Uncle Chen only lost 7,000 yuan, and there was still a lot of margin. The exchange rate change continued to be unfavorable, so he could still do it.

Never run out of money.

Therefore, foreign exchange margin trading is a high-yield, high-risk transaction. As for risk control, a large part lies in position control.

Because foreign exchange margin trading is leveraged, you can gain more benefits from the same amount of capital, but you also have to take on more risk.

Position management is particularly important at this time because it is a way to manage your returns and risks.

Position control

talkPosition controlTo be clear, first of all, it is based on a personal preference for risk. Although we have been emphasizing light positions, to be honest, if you have 100% confidence, the exchange rate movement must follow my train of thought.

OK, I will also set it to full.

However, the exchange rate fluctuations are very large, and there are many uncertainties in the market. We often say that history is always strikingly similar, but no one can predict which part of history is similar before it occurs.

Therefore, we will put the light warehouse on our lips.

In general, if investors want toforeign exchange marketTo achieve long-term and stable profits, the accuracy of market analysis can only account for at most 30% of the success factors, while capital and risk management factors account for more than 50%

The control of the position mainly includes: opening, adding, reducing and positioning squaring.

[How to build a warehouse]

We have discussed before that when doing foreign exchange margin trading, the amount of margin in the investor's trading account and the number of open positions are linked to the trading risk. In order to control the risk, whether the investor is a mini account (equivalent to 10,000 US dollars to trade one lot) or a standard account (equivalent to 100,000 US dollars to trade one lot), and no matter how much leverage the investor uses, the amount of margin on the account, according to Gann's buying and selling rules, at the beginning, investors can only open 1/10 of the total amount of funds; even if you are sure, it is best not to exceed 2/10.

For foreign exchange margin trading, the position should be lower, such as the eight-order position trading method ultra-light position.

[How to add or reduce a position]

For the addition or reduction of funds, there are often three ways:

1. Pyramid up the ante

Assume that the investor has $100,000 of principal, and the investor buys 20,000 dollars of euros at point A; when the euro rises to point B, the investor thinks that the euro will continue to rise, but there has been a period of increase, and the room for growth may be limited later, so the amount of funds when buying again is reduced to 10,000 dollars; at point C, the euro is still rising, and the investor still thinks that the euro will continue to rise, but the room for growth may be smaller at this time, so the investor invests another 5,000 dollars. This sequential addition method is the pyramid up the ante method.

2. Inverted pyramid up the ante method

That is, the more money is added later. For example, investors buy 10,000 dollars of euros at point A, 20,000 dollars of euros at point B, and 30,000 dollars of euros at point C, and add additional chips in turn. The difference between this method and the pyramid up the ante method lies in the investor's judgment on the market. As investors become more and more confident in the trend of the euro, the amount of money invested will also become larger and larger, showing an inverted pyramid pattern. It can be seen that this method is more radical than the pyramid up the ante method, and the profit margin may be large in the end, and of course the losses may also be large.

3. Averaging up the ante method

That is, the amount of funds for each position increase is the same, also known as the fixed position increase method. This method is between the previous two methods and is more moderate. Investors' judgment of the possible subsequent profit space and the degree of accurate grasp of the market are between the previous two.

The above methods are also suitable for reducing positions. The methods of using different funds are suitable for different market conditions and investors' different judgments on market trends. The first three methods are mainly suitable for use when the market trend is clear and there is a rise or fall, but when the market is in a volatile range, it is not suitable for use.

[Position squaring]

The choice of position squaring timing is one of the conditions for investors to profit and lose.

We usually say that take profit and stop loss are means of position squaring.

Premature position squaring will make you lose a lot of the money you should have earned in vain, and position squaring too late may make you take profits.

Many investors don't know when to position squaring.

It mainly depends on your appetite for risk and the grasp of the market. If you are not sure about the later development, if the market is too complicated, you can immediately position squaring.

If you are confident, then set a psychological expectation to see how much I can still earn (lose) and leave the market.

Setting stop loss and take profit is a very good method of positioning squaring.