Tag Archives | risk management

Positions, Risk, and Buffets

You don’t want to have too many active positions open; it’s like eating too much food at your favorite buffet. Buffets can be good. Buffets can be very good. However, you almost always–or at least I do–walk (if you still can) away from a buffet in pain–sometimes in a great deal of pain. I like the illusion that I have control over myself around food, but that disappears as soon as I see a soft serve ice cream machine paired with caramel and hot fudge pumps. There’s this mode that I enter when I’m in a buffet. I become this mindless food eating machine that inhales plate after plate of mediocre greasy food just because I can. Forget the fact that I’ve been working on not eating carbs for the past three weeks, I’m have four or five rolls with honey butter.

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Did you know that Apiary limits the number of open or pending trades you can have? This isn’t an all-you-can-position buffet, and for good reason! Apiary limits the number of open trades or pending orders in an account for risk management purposes. Mainly because during extreme market conditions, slippage is of serious concern; a lack of liquidity on either the buy or sell side means orders may not be filled before slipping far beyond any stops. By limiting the number of pending or open positions, Apiary can better manage risk across the entire portfolio. Mitigating risk is beneficial for us as a company, and for you as a client.

In addition to Apiary’s risk management model, limiting the number of open positions is a good practice at the personal level. One argument for multiple positions is the benefit of diversification.  However, after about 8-12 open positions, the benefit can become incrementally smaller and can actually turn negative.  For example, a trader actively managing 100 open positions is far less effective than a person managing 10. In fact, this is one of the ideas that helped found Apiary! It’s far better to have a group of ten traders individually managing ten positions than to have one person managing 100. In the end, the same number of active positions are being managed, but with far less risk.

Happy Trading!

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Apiary Fund Traders Manage Risk on the Markets Darkest Day

August 24th will go down as a dark day in market history as the Dow Jones Industrials dropped over 1000 points in early trading.  Days like this bring an ominous air to the hive.

The first profit and loss report was run early Monday morning.  The Dow was just recovering from a 1000-point opening plunge and tensions were tighter than the e-string on a violin.   The seconds seemed like hours while the server churned out the calculation that would give the bottom line for the fund – how many losses, how many gains, and is the fund up or down…

The first number to show up was profits: $33,638.

Next, the losses:  $5,196.

Winners were beating losers by a 5:1 ratio; the early read on profits was nearly 3%.   Tension turned to pure exhilaration as we started going through the detailed report.

The traders here at Apiary Fund are amazing.

I always tell people that the risk management system is for safety and learning.  Yes, it’s true, Apiary Funds money is kept safe by the program that constantly monitors accounts and makes the call many of us are too timid to make – cut the losing trade.   But performance on days like this cannot be attributed to the fail stop of the risk management system, but to the skill our traders have developed as they work toward funding.

The Apiary Fund risk management system keeps the fund safe, but it’s more than that. It’s teaching traders how to manage risk in the tsunami of market disasters.

As good as the numbers were in that first report of the day, what was an even greater accomplishment was the fact that not a single funded trader had been stopped out by the risk management system.

Again, I repeat.  The Apiary Fund Traders are amazing!

Keep up the good work, and happy trading!

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Money Management

In forex trading, money management is the most important subject that needs to master before trading skill. Why? Because trader most important job is protecting the capital before grow it. Trader’s capital is the main ingredient, the fuel, the blood, that need for trade. How can a trader trade when the capital is gone already? Money management is the way to configure capital before jumping into the market.
Remember, the money management main purpose is to make sure that the trader can trade as long as possible or stay in the market as long as needed. When people search in the internet, they will find that to start trading in forex trading, the minimal capital requirement is around $25. Most of the people have $25. What people don’t realize is that forex trading is a business, not slot machine. Common people only see how easy to make profit in forex market with little money. They don’t learn deeper about leverage and money management. Then after trade once or twice, they lose the whole money. People blame that forex trading is equal to gambling. For me it’s same like blaming the knife because the cook got cut. Ignorance is that make most people lost money in forex trading. Greed is good,but be smart greed.
Apiary Fund emphasis consistency above big-huge profit. That’s because by nature big profit attached with big risk. You can’t avoid that. Apiary Fund has ‘safety net’ is 2 % total risk from capital in one day trade. Once the associates trader hit safety net 2% risk, the account will be locked and all open trading will be close, forcing to take 2% losses. Trading is a marathon, not a sprint. The Apiary Fund goal is to keep establish for a long time, not just for a short period. Money management is crucial and need to master before trading skill, to do that you can get a deeper understanding with Apiary Fund. Learn to trade properly and trade with company funds, not your own hard-money. Trading with Apiary Fund is a good start in money management, because trader uses Apiary Fund’s money, not their personal money, so one risk factor is gone.

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Market Overlaps & What You Should Know

The currencies market is different from all others because it’s a truly global market. Its hours of operation begin at 6pm EST on Sunday and runs until 4pm EST on Friday. And while it might be possible to trade the entire 118 hours in between, we don’t recommend it—you need to sleep sometime! There are times when the markets are active and moving, and you can use these times to benefit your trading!

There are four major currency centers in the world: Sydney, Tokyo, London, and New York. Though these hotspots are all across the globe, you can probably guess that some of the most active markets will be found within their overlap. Here are the three market overlaps you should know about:

New York/London (8am to 12pm EST) – More than 70% of all trades occur within this time period, making it by far the heaviest market overlap in the markets.

Sydney/Tokyo (2am to 4am EST) – The ideal currency pair to aim for in this period is the EUR/JPY, as these are the two main currencies involved.

London/Tokyo (3am to 4am EST) – This overlap sees the least amount of action of the three because most American traders won’t be awake at this time, and the one-hour overlap gives little opportunity to watch large pip changes occur.

As you can see, all hours are not created equal in the currencies market. If you have the opportunity, take advantage of these market overlaps in your trading and see what happens. Good luck!

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Ask & Bid: Knowing the Spread

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One of the most frustrating things for new traders is overcoming the spread. The spread is the difference between the bid price and the ask price at a given time. You should always consider the spread before you enter a position, as the move you’re anticipating may not be significant enough for you to turn a profit.

This difference in price can dishearten some traders. When they’ve gone into a position on a currency with a wide spread, they’re starting off in the hole, and the price has to climb that much further before they make a profit. A tighter spread, however, means you can turn a profit that much faster, as the moves don’t have to be as big.

Spreads are directly tied to volume. When there’s less volume in the markets, spreads will be larger; when there is more volume, spreads will be tighter. Volume trends aren’t a secret by any means, and you can use this knowledge to your advantage. The markets see the most volume between 8am and 12pm EST. Around 5pm EST, the markets see the lowest volume of the day.

It’s also worth noting that certain brokers offer a fixed spread while others offer a variable spread. Variable spreads bring the potential both for tighter spreads during periods of high volume in the markets, as well as wider spreads when the market is seeing low volume. Though fixed spreads are generally wider than variable, they bring predictability during periods of market volatility.

We know—it’s just another thing you need to think about before you get into a trade. But as you take these things into consideration, you’ll start to just see these things without thinking about them! But for now just remember:

Less Volume = Wider Spread
More Volume = Tighter Spread

As a side note, we at the Apiary Fund have done everything we can to make our narrow spread work for our traders. If you’re not a part of the fund currently, check out our Trader Orientation Webinar to find out more about the unique advantages provided by the Apiary Fund.

 

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Lots and Lots — Understanding your Position Size

Just as stock investments are measured in shares and futures investments are measured in contracts, investments in the currencies are measured in lots.

Simply put, 1 lot is 100,000 units of the base currency (You’ll recall that in any currency pair, such as EUR/USD, the first quoted currency is the base currency, and the second is the quote currency). So if you’re trading 1 lot of USD/CHF, you’re trading $100,000 USD. If you’re trading 1 lot of EUR/GBP, you’re trading €100,000 EUR.

I know, 100,000 of any currency seems like a lot, so don’t worry—you don’t have to trade full lots! In fact, we at the Apiary Fund encourage all our traders to at least start out with smaller position sizes. Traders will be able to protect themselves from larger losses by trading fractions of full lots, such as .10 lots (also called a mini) or .01 lots (also called a micro).

Hopefully you now know a bit more about lots and position size. For more information, check out our glossary!

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3 Advantages of the Forex Market

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Lots of investors prefer different markets for lots of reasons. There’s not really a single answer for why any market is better than another, but today I thought I’d share three advantages of the forex market:

1. Volatility

The volatility of the forex market is sometimes cited as its biggest risk–and I won’t try to tell you that’s not true. Volatility comes with inherent risk.  But just like any other investments, securities with the highest risk also come with the highest yield.

I remember my early days of trading when I’d place an order and go to sleep, only to wake in the morning and find that my hopes and dreams had been crushed overnight. Naturally, I blamed the market when I should have blamed myself. I now know that with proper risk management, as taught in Apiary’s curriculum, you can make the market volatility work in your favor!

 2. Volume

So how does the increased volume of the forex market afford you an advantage? If you’ve had any experience trading other securities, you no doubt are familiar with placing an order and waiting hours, or even days, for that order to be filled. With fewer buyers and sellers in a certain market, you might not always have someone looking to fill an order–so you wait.

But forex is by far the largest market, so volume isn’t an issue. With so many buyers and sellers out there actively trading, you’ll find that you never have to wait for an order to be filled.

 3. Leverage

I’ve written a bit on leverage before, but if you haven’t heard of it before, here’s a simple explanation: Think of leverage as money a broker lends to a trader to increase the trader’s buying power. In the United States, brokers can give traders fifty-to-one leverage. This means that for every dollar a trader puts into an investment, a broker will match it with forty-nine.

Leverage is a huge advantage to the forex market because it gives you more weight to throw around. Because Apiary works through a broker in New Zealand, our traders actually get 100:1 leverage. That means when a newly-funded trader starts working with a $2500 account, they’re really working with $250,000 worth!

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Japanese July and Seasonality

Just as time can affect trading on a 24-hour basis, there are also times when the currency market develops patterns of activity throughout the year. This is called seasonality.

One of the most notable examples of seasonal currency patterns is called Japanese July. Eight of the past ten years has seen the US dollar strengthen against the yen in July. Though it’s difficult to pinpoint an exact reason behind this pattern, there is definitely a strong correlation between these two currencies during the month of July! Keeping this sort of seasonality in mind can tell you that July might be a good time to scale up in good long positions and to take smaller-than-usual short positions.

There are other historical patterns that seem to happen throughout the year, so find out what they are and take advantage! Good luck, and happy trading!

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