On margin, StopLoss, Lotsize

[pippa]

Until now I thought that a high margin (say, 1:500) didn't make a real difference and it was more a nice to have vs must-have.

How wrong was I!

My current thinking goes like this: I want to risk, say, 3% of capital per trade.
Let's assume, capital = $1k, Stoploss = 30 pips

capital $1k, risk per trade 3%, Stoploss = 30 pips...1 pip = $1....Lotsize = 0.1
now if a broker offers 1:50 margin, I'd be able to put on 4 trades at the same time,
with a 1:500 margin this goes up to 20 trades.

Why would I want to put on many concurrent trades, when there is more than a distant possibility of another BlackSwan like Fukushima (March 16, 2011), when currencies suddenly move hundreds of pips?

Well I think that having backtested different systems, I did not find any one system that offers
.) a high profit factor and
.) many trades (ie (more than) once per day)

So my reasoning is, one would be better off,
.) using the same EA on different timeframes
.) using the same EA on different currency pairs
.) using different EAs in the same way as mentioned above.

This would lead to running 'many' EAs on one a/c, and therefore the possibility that at the same time more than one position is open.

Which leads to next account condition to be considered: The MinLot.
If, with a very small a/c size of $1k, more positions are open/to be opened, it definitely would be more suitable to have a MinimumLotsize = 0.01 rather than 0.1.

Or if a particular EA works better with a rather large Stoploss, this would also minimize Lotsize.

What do you think?

[pkotak]

Your strategy would inevitably lead to different sized bets running in opposite directions at the same time on the same currency.
There is nothing wrong with this, but it would only work in the UK, and only on Metatrader 4
In the U.S, your positions would be netted off.

[Jim]

In the U.S, your positions would be netted off.

Which is not necessarily a problem, except that ideally you'd need a platform slightly more intelligent than MetaTrader 4, and an set of automated trading strategies (ATS) slightly more intelligent than the average EA.

Once you get over that hurdle, then diversification is indeed the name of the game (IMHO).

Loads of leverage and small lot sizes can help here. However you also need to understand that in such circumstances you can take the afternoon off to take a trip to the beach, only to discover on your return that your account has vanished into thin air. Even if there was no tsunami.

Jim