In this week’s video, I will cover three topics. The first topic that I will discuss will be how to protect your money from your broker. The second topic will be an update on my small account challenge. The third topic that I will discuss I will be comparing the spot Forex market to the currency futures market.
How To Protect Your Money From Your Broker
What I learned during the financial crisis of 2008 was that nobodies money is safe. During the financial crisis, I was trading very actively, and I had a banking account with a bank that is no longer standing. 2008 was a tough time for many people around the world, but through tough times the bet lessons can be learned. One of the lessons that I learned during the period was how to protect my money.
After seeing other lose their money from shady brokers or shady people at those brokers and seeing multiple bank collapse. I realized I needed a way to protect my money. I was very fortunate during the crisis. My bank was bought out by another bank, and no customers lost their money, but I did speak with several people over the years that lost their trading accounts. Before that time I never imagined that a trader could lose their account from people stealing their money.
How To Protect Your Money From Your Broker Using Your Bank
After talking with traders that lost money not from trading, but instead from shady people or shady companies. I developed a way to protect my capital. The way that I am about to show you will not protect your capital 100% but I feel it does a pretty good job. Let’s imagine for a moment that you have $10,000 to trade with now the number can be smaller or bigger the same concept will apply.
What I do is leave $5000 in a bank account that insures deposit. In the United States, our deposits are insured up to $250,000. The remaining $5,000 I wire or transfer into my brokerage account. Now you may be saying to yourself that you want to trade $10,000, not $5,000. A Trader can still trade as if that trader has a $10,000 account in the spot Forex Market or Futures Market due to leverage.
Here’s how it works. I like to risk 1% of my account per trade. So with a $10,000 account, I can risk $100 per trade. In Futures or Forex, the margin needed to put on a trade is very small for example most standard lot size (100,000 lost size) cost between $2000 and $4500 risking 1% you would only be able to have a 10 pip stop. If you wanted to use a 20 pip stop, then your position size would be 5 mini’s (50,000 lost size). In both examples, a trader would have plenty of margins to trade with while protecting their money from their broker. For Futures traders, most day trading margins are between $500 – $1000. Risking 1% of $10,000 gives a trader lots of flexibility. The very low day trading margins that the Futures Market provide is how I have been able to generate more than a 60% return in 2 weeks.
My Small Account Challenge
Over past 2 weeks, I started a Futures account and gave myself a challenge 2 weeks ago. My challenge is that I wanted to see if I could grow a small account by 100%. If I succeed, then I will add funds to the account and turn my futures account into a trading account that I can start to make some real money. Over the past two weeks in a day I have managed to grow a $1,442 to around $2,400. I am proving to myself that I can trade futures with good risk management. I am excited about trading the currency futures once I have enough funds to cover the overnight margins all the backtesting is looking excellent at this time.
Spot Forex vs Currency Futures
Over the past month, I have been studying the futures market. Thanks to FXCM being banned in the United States the markets have forced me to look for new options. The options that I have explored I like what I am seeing so far. Below I have attached a screenshot of the Eur/Usd and the 6e Futures contract (Euro Futures).
The on the left is Eur/Usd and the chart on the right is the 6E futures contract. Both charts trade the same so the same stratagies that I have used to trade the spot Forex market will work for the currency futures market.