Wednesday, November 16, 2011

Minimum account balance - and why it matters.


This explains the recommended minimum account balances for our EAs.

Micro accounts can trade with much smaller account balances than Mini Acconts.
The minimum account balance recommended for a MICRO account (where the minimum lot size is 0.01 lots) is:
- For the Combo Pack, $750, (better if close to $1000.)
- For the Master Scalper alone, $500.
- For the Breakout Hunter alone, $250.
Your broker's account should allow "micro" lots trading (0.01).

For mini-accounts, where the minimum lot size is 0.1 lots, the smallest recommended balance is much higher than for micro-accounts, that allow 0.01 lots.
The main concern is that you need to be able to open multiple lots on the pairs if you are going to use the Combo pack, to balance the Breakout Hunter in sync with the Scalping pairs, since the SL is much larger, and you do not want a SL in the BH to consume the profits of the MS on a bad day.
If you trade the Master Scalper alone, this is less of an issue, and you can trade flat lots across the board.
To use a MINI account, you need $3000 minimum for MS alone, so SL will not exceed 3% of the balance, trading minimum lots.
BH can work with $1000 when trading alone, and will still keep losses within acceptable percentages of the account.
For the Combo Pack you need 10k to trade a Mini Account, or the BH will be too heavy on the MS pairs.
It is a mistake to open a Mini-Lots account in order to get the better spreads, if you are not going to fund it adequately. You are far better off using a Micro account.

Regarding leverage
Our Money Manager is optimized to trade between 50:1 (max in the US) and 100:1.
When you trade with larger leverage, you expose your account to Margin Calls.
The way it works is that the first few orders will be of the same size, but as more orders come in, you can get in trouble. 
When we trade many pairs simultaneously and our Money Manager uses a percentage of the Free Margin of the account to determine lot sizes. Every time an order opens, it uses some of that available Margin and the Free Margin is reduced. The more orders you have going at one time, the less Free Margin you have, and consequently the MM starts opening progressively smaller positions. 
If your Leverage is too high, it will allow the MM to continue trading at the higher lot size. 
If at a time when you have many positions opened the market reverses for a while, you could get you into the situation in which you have exhausted your Free Margin. This authorizes the broker to issue a Margin Call. Not nice...

"Margin Call" is an excellent movie, highly recommended. Loved it!
But having a Margin Call in your trading account hurts. Been there, done that.
Much better to call the broker and reset your account to a 100:1 leverage, and sleep well knowing that when you wake up it will be a few dollars up or down, but never have been liquidated for trading at a high leverage.

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