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Proper Use of the Risk Multiplier

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    Mahbub Kafi
    Junior Member

  • Mahbub Kafi
    replied
    Honestly, which traders use proper money management and risk management policies in their trading! Then never face MC in their live account! You may know, 75% even more Forex traders leave their trading profession within 1st two years, that means most of the Forex traders are not aware of money management and risk management policies! You need to follow a fixed trading plan.

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  • arbtrader
    Junior Member

  • arbtrader
    replied
    Well, I think This should have been one of the main threads for anyone new to this site to be honest as a first read!

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  • SmartTrader
    Team Trader

  • SmartTrader
    replied
    Originally posted by Big River Man View Post
    Yes I see. I follow you @ .68 with my AUD account, therefore my actual true exposure is .75 (which is what I want).
    yes, thats correct. thats why i said your current risk settings are correct

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  • Big River Man
    Senior Member

  • Big River Man
    replied
    Yes I see. I follow you @ .68 with my AUD account, therefore my actual true exposure is .75 (which is what I want).

    Leave a comment:

  • SmartTrader
    Team Trader

  • SmartTrader
    replied
    Originally posted by Big River Man View Post
    I am just confused with the number 8.25?
    Sorry, i meant 0.825

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  • Big River Man
    Senior Member

  • Big River Man
    replied
    I am just confused with the number 8.25?

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  • SmartTrader
    Team Trader

  • SmartTrader
    replied
    Originally posted by Big River Man View Post
    Right now I follow you @ risk .68. The aim is that I actually want 75% risk or 0.75. So I would really like to know if I need to keep doing this from the moderators, I mean not just me but the community here as a whole. So you say it doesn't matter at all, I should just put Smart risk @ .75?
    what i meant is for simple trader EA only the number is important, not the currency. if you have 7000 units of currency A and i have 7000 units of currency B, both are treated as equal. so if you follow me at 0.75 and your currency is AUD so you will be basically taking the risk of 0.825 as you need to have 100 AUD for every 91 USD that i have in my account, i hope i havent confused you. say your currency and my currency are equal and if you want to follow me at 0.75, you will just change the risk multiplier to 0.75, But here AUD is lesser value, so you should follow me at less than 0.75.
    SmartTrader
    Team Trader
    Last edited by SmartTrader; 03-23-2014, 09:18 AM.

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  • Big River Man
    Senior Member

  • Big River Man
    replied
    Right now I follow you @ risk .68. The aim is that I actually want 75% risk or 0.75. So I would really like to know if I need to keep doing this from the moderators, I mean not just me but the community here as a whole. So you say it doesn't matter at all, I should just put Smart risk @ .75?

    Leave a comment:

  • SmartTrader
    Team Trader

  • SmartTrader
    replied
    Originally posted by Big River Man View Post
    Can someone from LFT confirm the risk multiplier function is in fact related to base account currencies. No one in the trading room could confirm which means there is confusion. I was of the understanding that if I have AUD account then follow a USD master such as Smart or Viper, then I put my risk @ .91 right now. Or do I just leave it @ 1? When I copy TA I leave it @1 because his master is also in AUD. What's the correct answer so that we can all finally know for sure.
    Hi BRM

    as far i know, the risk multiplier does not take the value of the currency in to account. Say if the master is USD and the client is AUD and both are trading at 10k USD and 10k AUD, simple trader EA treasts this as same, even though its not the same value, if the master opens a 0.1 lot size, client gets the same 0.1 lot size, so yes your risk settings at the moment are correct.
    SmartTrader
    Team Trader
    Last edited by SmartTrader; 03-23-2014, 07:01 AM.

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  • Big River Man
    Senior Member

  • Big River Man
    replied
    Can someone from LFT confirm the risk multiplier function is in fact related to base account currencies. No one in the trading room could confirm which means there is confusion. I was of the understanding that if I have AUD account then follow a USD master such as Smart or Viper, then I put my risk @ .91 right now. Or do I just leave it @ 1? When I copy TA I leave it @1 because his master is also in AUD. What's the correct answer so that we can all finally know for sure.

    Leave a comment:


  • Khybee
    replied
    Sorry I feel like an idiot these online calculators are obviously compounding the 5.3% on an annual and not monthly basis. Thanks for putting me straight

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  • SmartTrader
    Team Trader

  • SmartTrader
    replied
    Originally posted by Khybee View Post
    Hi Nick, When I put the calculation $5,000 at 5.3% monthly over 5 years into the compounding calculators it comes to $5808.08 and not $120,000. This is quite a difference and I'm wondering if your calculation was correct?
    you will acheive 5808 in 3 months. Khybee? are you still sleeping or in hangover :P

    Leave a comment:

  • pearcey2
    Senior Member

  • pearcey2
    replied
    Khybee I think safe to say you need a new calculator. 800 profit is 16%. 5.3% per month over 60 months does not equal 16%...

    Sent from my Nexus 5 using Tapatalk

    Leave a comment:


  • Khybee
    replied
    Hi Nick, When I put the calculation $5,000 at 5.3% monthly over 5 years into the compounding calculators it comes to $5808.08 and not $120,000. This is quite a difference and I'm wondering if your calculation was correct?

    Leave a comment:

  • Nick
    Administrator

  • Nick
    replied
    Hi Eric,

    Thanks for the analytic post.

    I'm glad you're now considering the correlation between the monthly cost, predicted return and account size required.

    The risk multiplier is easier to use for this in my opinion.

    Let's use FX Viper as an example.

    Average monthly return is 2.37%
    Maximum drawdown to date is 13.81%
    Monthly fee is $99USD per month

    So the calculation is $99/0.0237 = 4,177

    Therefor you would need an account of $4,177 to break even if you were trading default risk to pay for the cost of the subscription fees and past performance continued.

    Personally I think you need around $5,000 at a risk multiplier of 2 or 3 to make the subscription worthwhile.

    Under the 3x risk scenario the calculation is $5,000 x 7.11% = $355. Less $99 per month you can expect to make $265 profit per month (5.3%)

    It's not a huge amount of money intially, however it's sustainable. Give me $5,000 compounded at 5.3% per month for the next 5 years and you will have a balance of $120,000.

    Show me another investment vehicle that can generate that kind of return! (this is why I love forex)

    Leave a comment:

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