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How much Capital do I need ?

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Your capital should cover

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1) Your margin requirements

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Please remember that your margin is always returned to you by the broker ( even after a margin call) so margin is not a cost. It is a finance requirement of trading.

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2) The spread requirements

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The cost of trading is the spread that you have to buy in order to enter transaction.

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3) The holding cost of hedges

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At certain stages the hedges go out of balance. This means that every sell or buy does not have an offsetting transaction. When this happens the unhedged transaction(s) start running at a loss. This loss is the cost of holding the hedge.

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4) This is offset against any gains made from your investments.

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As the grid trading progresses transactions are cashed in everytime the price moves from one gridline or level to the next.

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An example of calculating the capital requirements for grid trading

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Assuming that you are going to trade the flexible grid system described in module 9 your capital requirements will be:

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Most open lots at any one time:
3 against the trend and 2 with the trend = 5
Margin of $50 on a mini account = $ 250

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Loss when the 3rd leg target is reached with no retracement:
Cashin + 100, 150, 200  = 450
Loss -450 (1st lot)-350 (2nd lot) 2x-200 (last 2 lots) = -1200

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Summary

Loss if there is no retracement for 450 pips...... =. - $ 1200

Margin requirements 5 lots x $50 .......................= ....-$ 250

Cashins on the way .......................................... = ...+$ 450
Spreads at 4pips (7 x 4) .................................... =..... -$ 28
Possible interest charges (high estimate).......... = .....-$ 50
Capital required for a 450 pip trend .......... = ...-$ 1078

Margin returned 5 lots x $50................................= ....$ 250

Net loss of 450 pip trend................................=... -$ 828

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Say 3 losses in a row (a trend of 1350) ............= -$ 2 484.

$ 2500 should be adequate capital to trade 1 mini lot

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QUESTIONS OR COMMENTS REGARDING THIS MODULE

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