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Google translate is used for all non-english emails. 4xsolutions is not responsible for any errors or misunderstanding due to the use of this translation software. We appreciate your business and do all that we can to service your needs

Our replicator works with any broker world wide who support an MT4 account. Your account is connected on our website interface run on our dedicated servers. There is no software to download or install. You do not need to keep your home pc or you MT4 account running for trades to replicate.You will be able to set your own money management options in your client area to suit your trading needs.

Depending upon a trader's financial resources, it is vital to understand how to properly allocate trading capital.

Specifically, if I start with a total of $5k should I put it all in one trading account? Would it be better to spread it across multiple accounts? Let's explore.

The answer is simple if the trading is manual. Assuming I am using proper risk management, one account is sufficient.

However, with the growing popularity of Expert Advisers (EA's) that work with the Metatrader 4 (MT4) platform, the solutions are not as simple.

Automated trading has its own set of challenges by its very nature. Trades can be open at almost any time and frequency depending upon the strategy used. Therefore, using multiple trading robots on the same account can bring about unintended consequences.

In addition, I may want to take advantage of a managed account or two or even services provided by a new technology called a "trade copier". These will be covered in more detail in future articles.

One other limitation may be that the broker will only allow me to open a certain number of accounts. Always check with your broker in advance to see if there are limits.

Let's say we have decided to trade live with 3 different EA's. One of them is considered a high-risk scalper because I could lose 20% of the account if a full stop loss is hit.

The second one is moderate risk because a full stop loss will lose 10% of my account. Finally, the third one is low risk, only losing 5% of my account with a stop loss.

If I use all 3 robots on the same account, one issue is record keeping. MT4 does not yet have the ability to provide statements by breaking down results for each EA separately. As a result, there is no easy way for the trader to track results.

How will he know which EA is the most, or least, profitable? One of the robots could be eating up all of the profits and the trader would not know.

Another potentially harmful problem is available margin. If the 3 EA's open multiple trades that stay open and go into deep draw down, then the account could be in danger of a margin call.

A better option to consider would be to allocate the trading capital according to risk. In other words, put the least in the account using the highest risk strategy. In this example, the high-risk account could start with $500. The moderate one could have $1500 and the low-risk $3000.

Theoretically, the greater the risk is the greater the reward. However, there is a huge risk of a margin call as well. Needless to say, it is better to lose $500 than the other amounts in our example.

In addition, we are spreading the risk and diversifying our capital at the same time. Sound familiar? Yes, these are key concepts for any type of sound financial planning.

Even though it is tempting to grow our capital quickly, most of the trading robots simply do not produce the results claimed by the promoters. Be very careful when using them. Another article will cover the exact method to use to calculate risk because many EA's do not do these calculations correctly.

Slow and steady always wins the race! The key is to be consistent and have enough trading capital to trade another day. Stay in the game long enough and you can't help but be profitable.

This article will cover calculating risk in manual trading and also how to check Expert Advisers (EA's) to make sure they are making this calculation properly.

The first is to decide how much I am willing to risk per trade based on my account size and risk tolerance. Only you can determine your tolerance. No one can do that for you.

There is a huge difference between gambling and taking calculated risks. If you are a gambler and trading Forex, then be prepared to lose all of your trading capital! On the other hand, if you are willing to manage risk you can't help but make slow and steady profits over time.

A general rule of thumb is to risk no more than 1-2% of your account on any one trade. Next you need to determine in advance how much each pip is worth for the currency you are trading. This value is not constant for each currency nor is it the same.

There are many good currency calculators out there. Find one and keep it handy. Just because 0.10 standard lots of the EURUSD is worth a dollar a pip does mean the value is the same for the USDJPY for example. You must do the calculation before trading the currency.

Let's assume I have a $5k account and I am only willing to risk 1% per trade. One percent of $5000 is $50. Therefore, if I am trading a dollar per pip, I can only risk 50 pips. If I trade with a 1:1 risk/reward (r/r) ratio, then I would make 1% or $50 when I make 50 pips.

There is no guarantee that I will always hit my target profit but I can always limit my losses. That is proper money management (MM). In other words, I do not always know in advance what my profit will be, but I do know what my exact loss will be minus factors such as spread and slippage.

This is especially important when using EA's. Many claim to have an automatic MM setting, yet that does not mean that the calculations are correct. Before trading any robot on a live account, you must do the math to make sure the settings are correct.

I personally use an EA that uses incorrect money management. The robot is actually very good. However you could lose more than you think if a stop loss is hit.

Specifically, there is a setting that supposedly controls risk. If set to "10", you would assume that a full stop loss would cause a loss of 10% of the account balance. This assumption could cost you dearly if you do not do the math in advance.

There were some users of this robot who had two full stops in one month. Many were using risk=20 as a very high-risk setting. Their assumption was that a loss would mean losing 20% of their account. The actual amount was 26%!

Now instead of losing 40% in one month on two losses, the actual amount was 52%--a big difference. The reason for the difference with this specific robot is that it has an unusual strategy. If the first trade goes against you, it then opens a second trade at twice the lot size in the same direction.

The theory is that the second trade can make fewer pips to be profitable and close out lower or higher than the first trade depending on the direction of the trade. In other words, the first trade will actually close at a loss but the gain from the second trade makes for a net profit.

That is a great strategy if it works. What happens if both trades hit the stop loss? When you do the math, you discover that the actual loss is not just the supposed risk amount. Instead, it is 30% more! An expected loss of 10% is actually 13%; 20% is actually 26%.

In addition, if the strategy works, the net profit is only about half of what it would have been if the first trade hit the target take profit (TP). You can see that it is vital to make these calculations in advance.

It would be nice if the developer did it for us but we cannot rely on that. The responsibility lies with us to do the math. Now that you know how to calculate risk properly, be sure to be aware in advance of the actual risk you are taking on each trade before trading live either manually or with automated software.

Put the program shortcut in the start up folder located in All Programs so that the program itself will start up when the vps restarts. However you also need to follow the instructions in the link using your vps-user password. So the server itself gets configured to automatically log itself back in, http://www.win2008workstation.com/configure-auto-logon/.  

You can run the following MT4 instances on our different vps packages:

Bronze VPS: 5-7 MT4 platforms
Silver VPS: 7-15 MT4 platforms
Gold VPS: 15-25 MT4 platforms
Platinum VPS: 25-40 MT4 platforms
*The number of platforms will depend on the number of charts open and the requirements of the
EA’s on the platforms. The more add on's you have the more cpu is required to run the vps. 

If you have a service which is on a performance fee based plan, then there will be additional charges based on the performance that the provider attains in your account. Each trade that is taken by the provider is logged in our database. We record the entry / exits prices and times, the ticket number, and the overall outcome in terms of pips and profit. We only record for the purpose of performance billing trades taken by the provider; any other trades taken on the account will not be recorded.

On the 1st of each month our billing script will run, and look to see if over the billing period you are in profit. If you are then it will issue an invoice for a % of those profits, and mark all closed trades as paid, and the billing cycle will reset. If you are not in profit, then you will be skipped until next month, where it will once again check to see if you are in profit or not. For example, if on month 1 the provider made 5%, you would be issued for a performance fee on that 5%, if in month 2 he lost 2% -- no bill, month 2 a loss of 3% -- no bill (we are down 5% at this point) if on month 4 he made 4% -- still no bill as you are down 1% overall -- month 5 he makes 2% you are billed for the 1% that the account is over the last time you got billed.

The invoice will contain a detailed breakdown of the trades, and allow you 7 days to check that you are happy with it by reconciling it against your own trading account. After 7 days the invoice will become due, and will be automatically collected from the card we have on file.

Please note that each signal service is billed seperately. So if you have more than one and one of them has a loss and one has a gain the signal service that has a gain will be billed. 

Per the terms of service, if a trade copier is not cancelled before the invoice date then the invoice is final. 4X Solutions has a hard cost to host the trade copier as well as licensing fees for each account. As the copier was not cancelled, then the costs for this month have already been incurred and therefore the invoice is final and is under contract to be paid. You may view the terms of service at www.4xsolutions.com and clicking on Terms and Conditions at the bottom of the page. 

Slippage is a Myth

Every day I read about people complaining about so-called "slippage". As someone with a background spanning years of retail experience in Forex, it looks like some education is in order.

Over the years, I have worked with both market makers (MM's) and now STP/ECN brokers. Guess where the slippage comes from? The dealing desk guys, that's where.

Look at this way. MM's make their own market. That's where the phrase comes from. In other words, these guys trade AGAINST you. Don't believe me? Just read the agreement that you signed when you opened an account.

Who do you think is better at trading? You or the MM's? If you don't know what you are doing, you can kiss your account balance good bye. Harsh but true.

Having been on both sides, I can say with utmost confidence that the MM business model is severely flawed. Why do some of them have tens of thousands of clients? P.T. Barnum has been credited as saying that there is a sucker born every minute.

Truer words have never been spoken.

Why in the world would anyone trade an account where the game is rigged? Some of these guys even have the nerve to offer to "teach you how to trade". Right, but can you trust them to act in YOUR interest? You decide.

The fact is it is in the MM's best interest for you to LOSE so they can WIN. Back in the day, there were literal dealing desks where traders sat and made sure the house always won. Now all bets are off because of the wonder of electronics.

The deck is totally stacked AGAINST the retail trader with market makers. With the finger on the button, they can 'balance the books' in seconds. And in their favor of course. Now you know why over 90% of retail traders FAIL in the Forex market.

But it's not all bad. Enter my client-friendly choice, the modern-day STP broker. "STP" stands for "Straight Through Processing". For the layman, that means that all orders go straight to the liquidity provider (LP). Look for my next expos© on LP's.

The STP business model works and makes sense. In order for this type of broker to succeed and profit, they need clients to actually MAKE money! Instead of trading against you, they need to work WITH you.

As a result, these brokers will make available all sorts of resources to help clients succeed at trading. It is in their best interest to do so.

When an order is placed on your MetaTrader 4 (MT4) platform, it is instantly sent to the LP as a "market order". In other words, the order is filled based on an actual market price and not the price determined by an electronic dealing desk.

Within seconds, your order is filled. You can then modify it by adding a take profit and stop loss. When either price is hit, the exit market order is then filled by the LP in the same way.

Now here is where it gets interesting. What is called "slippage" occurs when your entry or exit price is a few pips higher or lower than what you expected.

Knowing what you now know from reading so far, what type of broker benefits more from slippage? You got it, the market maker! Since he makes his OWN market, all of those extra pips go in HIS pocket.

On the flip side, the STP broker only makes money on the actual spread. If the entry or exit price slips, it is based on REAL market conditions, i.e. what price was available to you at that exact point in time.

That price was determined by the LP and not by the broker.

See the difference? It is huge! Market maker slippage is intentional. STP is not. It's really that simple.

Our next article will cover yet another myth, this one about LP's. Be sure to check it out.
 

In another article, we covered the basics of calculating Risk/Reward (R/R) in order to protect our trading capital.

Generally, the less we risk per trade, the better chance we have at succeeding in the long run. However, can the case be made that all of the same rules may not apply to robotic trading? Let's see.

There are possibly a good number of retail traders who use automated software ”known as Expert Advisors (EA's)" to place trades for them so they do not have to stare at the computer all day. Over the past year or two, there has been a proliferation of these trading robots. Some are good but most are not and that will be covered in detail another time.

For the scope of this article, we will cover how R/R can perhaps be treated differently when trading with EA's.

One primary advantage to using robots for trading is that one of the biggest roadblocks to successful trading is removed. That obstacle is human emotion. Many trading mentors teach that the profession is upwards of 99% controlled by emotion rather than logic.

Unless feelings are controlled, losses will almost surely outweigh gains because, quite frankly, we hate to lose! That may be normal and justified but is a surefire killer of trading success.

Enter the automated trading robot. Load it on your trading platform and it effortlessly takes trades day or night. These EA's never take a coffee break and never once express any emotion. They just mechanically do what they are supposed to do.

Logically, then, if the software will perform the operation correctly and systematically each time, there is the possibility that the user can assume more risk per trade. Let's face it. A human can only trade so much before becoming tired or, even worse, frustrated. These emotions can and will literally cost the trader money.

Since EA's can trade long, hard and constantly, the sheer volume of trades can be enormous. Therefore, even if the R/R is high at say 5:1, the robot may be able to win more than 81% of the time and be successful.

Theoretically this could work and perhaps does in some cases. However, the downside can be huge. Reflecting back on past articles, the trader must be careful about what leverage and margin is being used during each trading session. If either too many trades are open at one time or there are too many consecutive losses, an account can be easily margined out.

For all intents and purposes, this means the trading capital is mostly or entirely gone. Because the risk is higher, the chances of "blowing up the account" are increased greatly. On the other hand, if the trader can manage this higher risk properly, larger and faster profits can also be made.

One key in this scenario is to remove these profits regularly. Compounding profits while using high risk is almost certain account suicide. Doing the math in advance proves this to be true in most cases.

Another important aspect of taking large losses quickly is the amount of damage that can be done to the account and what it takes to recover. If the calculations are not done in advance, the damage can be catastrophic.

Here is a quick example. I start with an account size of $1000. My robot does really well and makes me a net profit of 20% this month. Now my balance stands at $1200. Next month, I do not do as well and lose 20%.

The new balance is back to break even, correct? No it is not! In fact, the new balance would be $960. That is a negative effect of compounding. My account is actually now down 2% more than the beginning balance.

In month three, I have a further 15% loss. Now my balance is $816. The account is now down 18.4% from the starting balance. By what amount do I need to increase the balance now just to get to break even? Is it 18.4%? No, in fact I have to increase by about 22.5% to get back where I started!

Now you can see how it is possible to dig the hole so deep that it may take a long time, if at all, to recover. Note also that my lot sizes will have to decrease if I take the same risk. This alone contributes to a longer period of time to recover.

Should the account get to a balance of $500, a 50% loss, it will take a 100% increase just to get back to break even!

To sum it all up, can a trader make a lot of profit quickly with an Expert Adviser? The answer is, yes. However, if I can make 30% in a month, I can also lose 30%. If I do not remove profits and am not careful with R/R, the account can quickly disintegrate as well.
 

We are actually changing our VPS specs shortly, so i will give you the new figures:

1) Foundation - 1 Core, 1GB RAM, 25GB Disk - £22.97
2) Classic - 2 Core, 2GB RAM, 40GB Disk - £36.97
3) Advanced - 3 Core, 3GB RAM, 55GB Disk - £49.97
4) Professional - 4 Core, 4GB RAM, 70GB Disk - £63.97

All come with unlimited bandwidth and connections to multiple Tier-1 providers at 1GB/s

*The number of platforms will depend on the number of charts open and the requirements of the
EA’s on the platforms. 

In addition to all of the new regulations that went in to effect on October 18, 2010 and that affect all US citizens, there is a new CFTC risk disclosure that contains many interesting elements.

The purpose of this article is to point out some of the more important aspects of this disclosure. The full text can be found at most broker sites. In addition, you can send an email to mt4tradingforum@gmail.com with "CFTC disclosure" as the subject and you will be sent a copy.

Rather than quote the entire text, only portions will be noted. Beginning with the very first point, it would seem that the CFTC has not done its homework. They state "YOUR DEALER IS YOUR TRADING PARTNER WHICH IS A DIRECT CONFLICT OF INTEREST".

Even though this is clearly the case with dealing desk brokers (market makers), apparently the CFTC does not understand that STP brokers are indeed not a counter party in transactions. That is a discussion for another day.

In any case, this statement makes it perfectly clear that market makers clearly trade against clients. As we discussed in a previous article, who do you think is better at trading, the broker or you? It would seem the deck may be clearly stacked against the average retail trader.

Point #2 says "AN ELECTRONIC TRADING PLATFORM FOR RETAIL FOREIGN CURRENCY TRANSACTIONS IS NOT AN EXCHANGE." That should be obvious but perhaps some traders have not yet understood this reality.

In fact, there is no central exchange in the Forex market. Since it is worldwide market, there may never be such a central exchange. That is why prices and spreads can be very different among brokers.

Would having a central exchange level the playing field? You decide.

The third point is especially striking. It states, "YOUR DEPOSITS WITH THE DEALER HAVE NO REGULATORY PROTECTIONS."  In other words, if the broker goes out of business, the trader is basically out of luck and out of money in his account!

The section goes on to say, “Your dealer may commingle your funds with its own operating funds or use them for other purposes.” The phrase “other purposes” is especially alarming. In essence, the broker can do whatever they please with client funds. That does not look as though the broker is acting in the client's best interests, does it?

After reading point #4, you may begin asking yourself why you even trade in Forex! It says, "YOU ARE LIMITED TO YOUR DEALER TO OFFSET OR LIQUIDATE ANY TRADING POSITIONS SINCE THE TRANSACTIONS ARE NOT MADE ON AN EXCHANGE OR MARKET, AND YOUR DEALER MAY SET ITS OWN PRICES." That sounds like legal price fixing, does it not?

For all intents and purposes, the broker can charge anything it wants for spreads and can fill orders at any prices it chooses. Again, this does not technically apply to STP/ECN brokers but the CFTC in its wisdom has chosen not to make a distinction.

Finally, the fifth point declares, "PAID SOLICITORS MAY HAVE UNDISCLOSED CONFLICTS." The reference is to introducing brokers (IB's). It is somewhat ironic that IB's are now required to be registered yet they are still able to have conflicts of interest with clients. 

To sum it all up, these disclosures do not seem to bring much comfort to the retail trader. In fact, they seem to scream "buyer beware" and do not trade in Forex unless you plan to lose all of your money, have your broker trade against you, and have all sorts of conflicts of interest!

What is a trader to do then? One suggestion is to read the disclosure, understand the risks and continue trading! After all, what market is not risky?

Arguments could be made that all markets are rigged in some way or another. The key is to enter with one's eyes wide open, manage the risk and develop and use an edge that provides more profits than losses. Simple, or so it would seem.
 

In a previous article on slippage, we discussed the distinction between dealing desk brokers (market makers or MM's) and Straight Through Processing (STP) brokers.

Both types of brokers have orders filled using Liquidity Providers or LP's.

So what exactly is an LP?

Very simply, it is generally either a bank or financial institution that fills currency orders placed on what is known as the spot forex market.

If you go to most any large bank that handles foreign currencies and wish to exchange one currency for another, you will pay what is called the "exchange rate" plus a fee for the transaction.

When trading the same currency market, you pay what is known as the "spread" or the difference between the "buy" and "sell" prices. These are referred to as "ask" and "bid" respectively.

For example, if I wanted to buy or take a long position on the EUR/USD, I would pay the "ask" price. This is higher than the "bid" price. The opposite is true if I sell the currency or take a short position.

The difference is measured in pips". Each pip has a monetary value based on the current value of each currency traded. If the LP makes two pips on the transaction, then that is what they keep for filling your order.

The volume and liquidity available for a specific currency are very important factors in determining spread. The EUR/USD is considered to be one of the most liquid currencies. As a result, spreads will often be very low compared to less liquid currencies.

Liquidity is determined by the marketplace. In other words, the currencies that are traded the most tend to have the lowest spreads.

Volume, on the other hand, is determined mostly by the time of day and the time of year that currencies are traded. There are 3 distinct sessions and these will be covered in another article. In addition, summer time in the Northern Hemisphere and holiday time tend to offer lower volume.

The lowest volume session is usually the Asian session. Basically there are many fewer traders during this time. Since there has to be a buyer for every seller and vice verse, having less volume at this time makes perfect sense.

Less volume can mean more difficulty in getting orders filled. This should be taken into account when using either trading robots or when manually trading.

If you recall from the previous article on slippage, dealing desk brokers make their own market. STP brokers do not.

Even though both use LP's to fill orders, there is much more room for profit taking with a market maker. Remember that they trade AGAINST their own clients. With STP brokers, you are trading against other traders.

It is important to note that the price feeds offered by LP's break down into two categories: 1) institutional and 2) retail.

These categories also apply to two distinct types of traders. Institutional traders make up the vast majority of the market and comprise banks, hedge funds and any larger financial institutions.

It is estimated that this group does over 90% of the volume generated daily. In fact, most of the $2-3 trillion that is quoted as "changing hands" daily is mostly done among these large groups. This leaves only about 5-10% of the volume for the rest of us, known as retail traders.

If you do the math, you will quickly see that there is not as much liquidity available each day as you may have been led to believe. Another reason for this is leverage, a topic that will be covered separately.

Suffice it to say that there is NOT unlimited volume and liquidity for ALL currencies and at ALL times. That is a complete myth.

Don't believe it? Just try to open and close trades during important news events. At these times, spreads for ANY currency can widen substantially. Once again, who benefits the most during these times, MM's or STP's?

You guessed it, the dealing desk brokers tend to make a killing during these times. On the other hand, orders from STP brokers are simply filled at whatever prices are available at that point in time in the actual market.

The technology used by all parties is by no means perfect and that must be factored into the equation. The MetaTrader 4 (MT4) platform is completely free yet rises to the occasion quite well, all things considered.

Assuming your trading account is hosted with a VPS (Virtual Private Server) that protects against power outages and dropped Internet connections, most orders are placed flawlessly in seconds.

However there can be disconnects either at the broker or the LP end and the user must be diligent in watching for these occurrences.

To sum up, an LP is the party that ultimately fills all orders in the Forex marketplace. The huge difference is that market makers can tack on more cost (spread) to each transaction arbitrarily. STP brokers give the user whatever the market is offering at any point in time.

The difference in results can be tremendous. Be on the lookout for future articles covering leverage, margin calls, VPS services and more.


 

Spot Forex is traded in lots. The standard size for a lot is $100,000. There is also a mini lot size and that is $10,000. Currencies are measured in pips, which is the smallest increment of that currency. To take advantage of these small amounts, you need to trade large amounts of a particular currency in order to make either a significant profit or loss.

Examples:

These assume we will be using a $100,000 lot size. The end result shows the value per pip.

USD/JPY at an exchange rate of 119.90
(.01 / 119.80) x $100,000 = $8.34 per pip

USD/CHF at an exchange rate of 1.4555
(.0001 / 1.4555) x $100,000 = $6.87 per pip

In cases where the US Dollar is not quoted first, the formula is slightly different.
EUR/USD at an exchange rate of 1.1930
(.0001 / 1.1930) X EUR 100,000 = EUR 8.38 x 1.1930 = $9.99734 rounded up will be $10 per pip

GBP/USD at an exchange rate or 1.8040
(.0001 / 1.8040) x GBP 100,000 = 5.54 x 1.8040 = 9.99416 rounded up will be $10 per pip.

Your broker may have a different method for calculating pip value. Be sure to check with them if you have any questions. As the market moves, so will the pip value depending on the currency.

A Forex margin call happens when a client's account equity falls below the required margin.

Leverage financed with credit is one definition of a margin account. This is very common in Forex. A margined account is a leveraged account in which Forex currencies can be purchased for a combination of cash or collateral. Various brokers accept different limits.
Investing on margin isn't the same as gambling. There are some similarities between margin trading and the casino. Margin is a high-risk strategy that can yield a huge profit if handled correctly. The dark side of margin is that you can lose your shirt and many other assets you own. Investing on margin without understanding what you're doing is very risky.

As with any other investment research is the key to not losing your shirt! If, for instance, a client has 10 lots of open positions, a margin call will occur if account equity drops below $5,000. At this point, some or all of the client's open positions will be closed immediately at current prices.

Traders are also able to monitor both usable margin and used margin from the "Account Information" window of his/her online trading platform. Positions will be automatically closed once usable margin drops below zero. Check with your broker for specifics since requirements vary.

Traders may avoid margin calls by either using stop loss orders or maintaining adequate funds in the account.

Normally the broker will have a minimum account size also known as account margin or initial margin e.g. $5,000-$10,000. Once you have deposited your money you will then be able to trade.

Can a margin call hurt me? The answer is yes and very badly. But as in any other business there are things you can do to minimize your risk.

If for any reason the broker thinks that your position is in danger--i.e., you have a position of $50,000 with a margin of one percent ($500.00) and your losses are approaching your margin ($500.00)--he will call you and either ask you to deposit more money, or close your position to limit your risk and his risk.

Automatic stop loss is utilized as the safety net where the position is forced to cut automatically when the losses are at a certain point. It happens when the balance of margin account, that is, the asset value with deducting the losses, falls short of the margin limits set by your Forex broker. This practice is a common practice in the Forex market.

There is a difference from weekday trading and over the weekend trading. Reduced leverage is available leverage for over-the-weekend. The purpose of this policy is to protect clients from the risks caused by possible price swings during market closure. This could have a very serious affect on your invested funds.

How Do I Avoid A Margin Call?

There are some common sense ways to avoid a margin call:

1. Good money management, manage how you trade.

2. Use a stop loss for every position if you don't
have adequate margin.

3. Do not over trade. Have rules and stick to them.

A pip is the smallest price increment in forex trading - pip stands for percentage in point.

Prices are quoted to the fourth (and sometimes fifth) decimal point in the forex market - for example EUR/USD might be bid at 1.1914 and offered at 1.1917. In this example we can see that the spread is 3 pips wide. The Japanese Yen (JPY) is an exception - it is quoted only to the second decimal point.

It is also important to note that pips are not the same in every currency pair.  A pip is worth 10 of the second currency in the pair except for JPY for the most part.  Examples: anything ending in USD (example: EUR/USD) is $10/pip on a 100k lot.  Anything ending in CHF (example: USD/CHF) is 10 CHF/pip on a 100k lot.

The exception is JPY.  Anything ending in JPY (example USD/JPY or EUR/JPY etc..) is 1000 yen/pip on a 100k lot.  Most brokers will show you the USD equivalent or whatever your account is funded with.  At the interbank level people know this.  It is rare that a retail trader is made aware of this.  Some brokers will charge conversion to put the money back into the account's funded currency.  Make sure to ask your broker how they handle this.

Previous articles have touched on using proper Money Management (MM) when trading, especially when trading with a live account.

One of the most important aspects of MM is Risk/Reward ratio, also known as R/R.

It is said by some traders that the only thing that matters when trading is risk, period. In other words, as long as I know my risk per trade and I manage that risk, then I will be successful at trading in the long run.

Some traders further argue that high R/R is just not worth it because gains are quickly reduced when losses take place. Yet there is a saying that"The greater the risk, the greater is the reward".

Let's do some analysis and you can draw your own conclusions.

In Forex, R/R simply means how much am I risking in dollars, pips or percentage of my account each time I trade. One of the simplest measures is percentage.

For example, if I am willing to risk 2% of my account balance, then I need to calculate the lot size for each trade in advance. Assuming my account is at $10k, the risk per trade is $200. If I trade one standard lot of the EurUsd, then I am trading $10 per pip.

(Note that pip values vary by currency. Be sure to always know a currency's exact value when doing these calculations. Currency converters are readily available by doing a Google search.)

Therefore, my stop loss (SL) must be 20 pips for this example because 20 x 10 equals 200.

Conversely, if my take profit (TP) is 20 pips, then I will make $200 if I hit the full TP. This is known as trading with an R/R of 1:1. With this risk setting, I only have to win 51% of the time to be profitable.

Now, if I set my SL to 40 pips and my TP to 20 pips, now I am trading at a higher R/R of 2:1. Each loss costs me $400 vs. $200 for each win. As a result, I need 2 wins for every loss just to break even. You can see that R/R clearly makes a difference in overall results.

Suddenly, I have to win over 68% of the time to be profitable. That's a big difference.

It should be obvious that in order to risk more pips per trade, I simply decrease my lot size. By trading with 0.10 lots, I risk $1 per pip. My SL can now be set at 200 pips and likewise with my TP assuming I want to trade with an R/R of 1:1.

You can do the math for other scenarios. Note that these rules generally apply to both manual trading and automated trading.  In another article, an argument will be made that there may just be room for higher R/R with robotic trading.

In the end, you must determine your risk tolerance in advance. In other words, you ask yourself how much you are willing to lose when a trade goes against you. Risking more per trade can mean higher gains when you win but also higher losses when you lose.

A primary goal of trading should not just be making a profit but living to trade another day. With proper MM and R/R, that goal can be effectively accomplished.

What is Leverage?

In forex, investors use leverage to profit from the fluctuations in exchange rates between two different countries. The leverage that is achievable in the forex market is one of the highest that investors can obtain. Leverage is a loan that is provided to an investor by the broker that is handling his or her forex account.

When an investor decides to invest in the forex market, he or she must first open up a margin account with a broker. Usually, the amount of leverage provided is either 50:1, 100:1 or 200:1, depending on the broker and the size of the position the investor is trading.

Standard trading is done on 100,000 units of currency, so for a trade of this size, the leverage provided is usually 50:1 or 100:1. Leverage of 200:1 is usually used for positions of $50,000 or less.

To trade $100,000 of currency, with a margin of 1%, an investor will only have to deposit $1,000 into his or her margin account. The leverage provided on a trade like this is 100:1. Leverage of this size is significantly larger than the 2:1 leverage commonly provided on equities and the 15:1 leverage provided by the futures market.

Although 100:1 leverage may seem extremely risky, the risk is significantly less when you consider that currency prices usually change by less than 1% during intraday trading. If currencies fluctuated as much as equities, brokers would not be able to provide as much leverage.

Although the ability to earn significant profits by using leverage is substantial, leverage can also work against investors. For example, if the currency underlying one of your trades moves in the opposite direction of what you believed would happen, leverage will greatly amplify the potential losses.

To avoid such a catastrophe, forex traders usually implement a strict trading style that includes the use of stop and limit orders.

The 4x solutions VPS's are our own VPS's, located in the same data center as the replicator cluster. This means that the trades are being copied over a 1GB/s local network, rather than the internet. Coupled with the fact that there are fewer devices such as firewalls in the way, this ensures that we are able to deliver the trades as quickly as possible.

We also do not oversubscribe our servers. We know 100% that there will not be any performance problems on the VPS its self, which can typically dramatically slow down execution of trades. As they are part of our own infrastructure, in the event of a problem, we can support you completely rather than referring you to your VPS provider, who would probably refer you to us. We take complete ownership of any problems.

Our VPS's can be used by other software though, so if you are in a position where you already have a VPS with another provider, you can switch everything over to our service. A number of our clients use our servers to great affect with other applications.