This is the ultimate show down, we all know what a rebate and a bonus is, but do we really understand the pros and cons of each? Watch out for sucker punches!
The broker bonus is commonly used by brokers to entice business their way. It usually works as an addition to the equity and is vested on a volume of completed trading.
Most deduct the extra equity when the client withdraws before completing the required trading volume, and so binding the client to keep their money with the broker until that point.
Heres the deal folks
The extra buying power of the bonus can greatly assist some trading strategies, even if it is not realised. It can be seen as an insurance against a position going against the trader and an account that may have been lost will still be able to be held until turning positive.
When the bonus is realised the broker essentially pays back a portion of the brokerage that has been collected up until that time.
The rebate is earned from trade no 1. Each position either profits more by the amount of the rebate or loses less by the amount of the rebate. The buying power is not as great as with a bonus but there is no trading volume requirement.
Traders that are prolific and making in and out moves with thin take profits and stop losses and sensible money management practices will benefit more from a rebate as each trade counts and the margins are where the profits are to be had.
The spread is influential in the resulting profit or loss and a discount or rebate can actually make the difference.
Euro down overnight as the European Central Bank (ECB) loans failed to raise investor confidence in any form of recovery for the European debt crisis. It seems that all last ditch efforts by the European powers to avoid a debt crisis and possible recession by Xmas has failed miserably.
The ECB loans were meant to provide relief for other regional banks who are struggling to stay afloat. A whopping 489.2 billion EUR was made available over a few years to help ease the crunch and keep the struggling banks afloat across the EURO zone.
The decision sent the EUR skyrocketing close to week highs at 1.32000, only to finish significantly lower. The loan amount made available- although a large sum of money- has not shifted the thinking or overall sentiment ofpreventing a further melt down of the Euro.
Watching the close of the US session this morning our time, it seemed the floor was filled with a slight optimism that the highs for the Euro were only temporary and helped the USD rally the pair back to close around 1.30460.
Commodity prices especially precious metals; also closed lower for the day after previous rallies. Gold as discussed in a previous post, has lost its credibility as a safety zone, and has adopted a more risk sensitive character.
Watching Gold prices over the past year, we are still looking at gains over 10% this annum and we believe this will remain the year where Gold has broken records, fell out of bed, and yet still managed to finish in the green.
It’s clear though that Gold is somehow affected by the Euro crisis, and Dollar strength. Dollar index goes down, Gold price rallies, Dollar index goes up, and Gold price comes down. Not forgetting that the USD Index currently derives its value mostly by the EUR strength or weakness, which is especially true over the past three months.
The overall outlook for next year will see the US economy post moderate gains, whilst we predict the EUR to remain on the current bias. This will obviously have an affect on the likes of Gold, and one of our favorites the AUD. India and China’s economies also show signs of tiring, and the numbers are showing a slowing in growth.
In line with popular 2012 “world ending” theories, we might see a kind of “reset” and shifting of powers as happens every so often in the world financial markets. Will Gold once again become a safety zone, will the US Dollar indeed lead the growth for 2012 or will we see a similar outlook as we have throughout 2011.
Its holiday time folks, and “tis the time to be merry”. Markets will loose liquidity as investors, banks and markets slow down, and close over the Xmas period. Trading opportunities will thin, and we are going to slow down with our views until the New Year.
EURUSD Daily Outlook
Looking at the EURUSD we mentioned in our last trades that we are short, however mentioned there was room to “fill the gap” which was around 1.32000. This level was hit, and then price regressed back to finish off considerably lower.
If you were in the trade at the right time, most of you would have taken profits during the first day of trading. For those who got the timing wrong would have been stopped out.
We had priced in the possible move upward to close the gap and had taken the profits when it came. We now however are looking at the next and possible last phase in this leg of the EURUSD short trade series, and will be looking at short opportunities as it possibly slides further.
Once again, we do notice that the leg seems tired, however due to the gap close (represented below on chart) and the platform that has developed we will take our chances with one last go keeping our trade short, and sweet.
Gold Daily outlook
Gold has been affected by the EUR rally and then decline. We are looking at Gold as we look at the EUR, if the EUR looks to slide, we will then short Gold and vice versa.
To back this decision we also will look closely at the USD Index, as if the index runs, gold should slide. If todays price finishes lower or we see a start of the sell offs we will then be tempted into going short. If this does not happen we will refrain from trading until after the New Year.
Happy trading folks, and happy holidays to you all!
Once you have learnt the basics of how to set a stop loss (S/L) and take profit (T/P) order correctly using a traditional risk reward ratio as your benchmark you are now able to learn how to size a position correctly taking your risk management into consideration yet allowing for enough play to survive the market noise.
If you have not learnt the basics of how to set a S/L and T/P order using a risk reward ratio please visit our previous lesson on this by clicking here.
Lets look at a trading scenario and work out our S/L and T/P order:
EURUSD is currently trading at 1.30000 and you believe that the market will be a bearish market and your target is 1.29900.
On a risk reward ratio of 3:1 your S/L and T/P orders are set at 1.30033 (S/L) and 1.29900 (T/P).
The next phase is to determine the trade size and what value of your equity you are willing to risk in order having a stab at the win? The above trade looks good on paper but we need to determine how this trade in itself fits in with your account balance, and existing risk management strategies.
ALL traders and investors must have a risk management system in place as without this you are doomed to fail. In most cases the maximal risk any trader is willing to put on any one trade is somewhere in the vicinity of 0.1-0.25% of their total equity.
We prefer a model of keeping our maximal exposure to less than 0.25% at any given time. This also includes any open trades. Apologies for the lack of formulas on this one folks, explaining it this way keeps the method simple and easy to remember.
Lets take 0.25% maximal exposure as our base, and presume our account equity is currently at $10,000. Moreover we are presuming that we have no open trades at present.
This means that we are only willing to risk a maximum of $25 on this particular trade. So we need is to be able to withstand a “stop out” of 33 pips whilst not loosing more than $25.
We then need to move on to calculate the value of a pip in order to determine what size trade to open. If you do not know or remember how to calculate a value of a pip please take the time to cover our short lesson by clicking here.
We know that the value of a pip on a full lot trade on EURUSD is $10 per pip. If we are getting “stopped out” at 33 pips it will cost us a matzo at $330 for a loss. This is a lot more than our measly 25 bucks.
Next look at 0.1 as our size, which is $1 a pip and still above our $25 exposure level if we get stopped out.
We then look at pricing our pips in the vicinity of 10c a pip, which is 0.01 lot size. If we get stopped out on this trade we are out of pocket a total of $3.30, which is well within our limit.
We are now able to work backward and potentially open a trade of at least 0.07 (take the our max risk amount and divide it by $3.30). If we open a trade of 0.07 we are 70c per pip on EURUSD, which at a risk of 33pips for this trade would cost us $23.10 if we happen to get stopped out.
The trade size we will open is 0.07.
Please note the above includes the spread you pay and not the margin required to hold the trade. This simply is a method to calculate the trade size to open allowing for your stop loss to be hit whilst still remaining well within your maximal risk exposure in dollar value.
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