The simplicity and convenience of performing speculative operations using the client terminal attracts many users of the worldwide network to try their skills in the Forex market.
The axiom of success in this event is buying a foreign exchange instrument at a lower price and then selling it at a higher price. In this case, the trend can be directed in any direction, since a similar result can be achieved by selling a currency pair at a high price and buying it in the future at a lower price.
Any Forex trade involves the performance of two operations - opening, or entering the market and closing, or exiting the market. Based on the above reasoning, a trade should be opened after monitoring the market behavior and determining the direction of the trend. The best result can be achieved by opening an order at the beginning of an emerging trend. When opening a deal, a trader risks only in terms of correctly determining the direction of price movement, and in case of great doubt, he can simply refuse to participate in the auction. It's another matter if the market entered the market. Closing a deal is a mandatory procedure and the level of real profit or real loss depends on the correct solution of this issue.
Closing orders manually cannot always guarantee success, since the trader is not able to constantly monitor price movements, especially with a long period of the transaction, as well as technical failures in the network and other unforeseen circumstances. The best option is to use the management tools for closing orders built into the terminal, which allow you to automatically complete the deal when the required profit (take profit) or the maximum allowable loss (stop loss) is reached. Stop-loss and take profit orders should be placed at the moment of opening a trade based on mercantile considerations and expected price behavior.
Depending on the behavior of the market, there are several rules for closing a trade that most experienced traders adhere to:
- the market has gone in the opposite direction, and there are no preconditions that the trend will reverse. The triggering of the stop-loss order will protect against unacceptable losses in this case;
- the market went in the opposite direction, but did not overcome the resistance or support line. The correct choice of the stop-loss value will allow you to survive the period of loss and achieve a profitable completion of the transaction;
- the market went in the right direction, but did not reach the take profit level. There are precursors of a trend reversal. It is better to close the order manually. A smaller profit is better than any loss;
- the market is moving confidently in the right direction. There are all the prerequisites that the movement will continue. In this case, you can adjust the stop-loss and take profit levels, as well as use the trailing stop mechanism.
In any case, Forex trading without rules almost always leads to a fiasco.
Watch a video tutorial on making deals on Forex:
Why is there a forced closure of positions in the process of trading on Forex? This issue is mainly of interest to those who have just started their activities related to currency trading.
Stop out, margin call, drain, etc., whatever you call it, but it only means one thing - your trading deposit has reached the minimum allowable level, or it is no longer there. How does this happen, why and is it possible to technically control this process and close losses?
Why is forced closing of positions in Forex trading in absentia? What is the brokers' initiative?
So, forced closing of positions in the Forex market occurs at the initiative of brokers, through which traders trade and, as a rule, this situation brings them (traders) a lot of trouble. Why does this happen unexpectedly? Forced closing of positions, completely initiated by brokers, occurs when traders' own funds on the trading account are insufficient to provide margin coverage for their transactions.
Usually it is traders who unknowingly make mistakes without placing stop orders, violate money management rules, incorrectly determine the direction of the trend, etc. All this leads to the fact that open positions become unprofitable, which forces the broker to forcibly close such positions. In slang, the occurrence of such situations is called "deposit drain". How this happens, we will consider below.
How is the forced closing of positions carried out in absentia?
When opening new orders, you will notice that the amount of funds on your personal account begins to constantly change. This happens due to a change in the current state of an open position, i.e. it is either profitable or unprofitable. Such a change, you guessed it, is the reason for the constant change in exchange rates.
Brokers, through which traders trade, automatically track the financial results of their operations, because their task is to save their own money used by traders thanks to leverage. As you understand, in any of the scenarios, the company will benefit.
To understand the essence of the problem, how the absentee closing of positions occurs and what are the reasons, it is necessary first of all to define some concepts.
So, the size of the required margin for forex trading is the amount that traders use to open trading positions. Typically, this amount is the ratio of the lot sizes to the leverage itself. You can define it, for example, like this:
Let's say that the EUR / USD quote = 1.5000, the lot size is EUR 10,000 and the leverage is 1: 100. With this option, the lot size in relation to the leverage (10,000/100), the required collateral will be 100 EUR or 150 USD.
The next concept is the minimum level of collateral, which is key in the forced closure of positions. This parameter can vary from 10% to 50%, but, as a rule, brokers use 20% size. You can see it in the trading terminal with which you make transactions.
Consider an example for which we will use the data above and add a 20% minimum collateral level to it. So, in our example, the minimum collateral level is 30 USD, i.e. 20% of 150, and the remaining 120 can be used to open the next position.
It should be remembered that for open positions, their financial results are also taken into account, i.e., if your position shows losses, for example, by 10 USD, then this amount, of course, will be subtracted from the funds available for trading.
Now let's look at an example of the circumstances under which the forced closing of positions by a broker occurs. Let's take the following approximate indicators: current funds on the trading account - 4,495.00, collateral - 346.00. In this case, the margin level will be 4 495/346? 100% = 1 299%. In the event that, under the influence of losses, the size of your trading funds becomes less than 69.20 USD, i.e. the margin level drops below 20% (69.2 / 346? 100% = 20), then the broker has the right to forcibly close such a position.
The main task of the trader is to prevent the occurrence of such situations, but for this it is necessary to understand for what reasons, forcing brokers to forcibly close positions, they arise.
Forced closing of positions - what are the reasons?
Forced closing of positions in the Forex market can take place according to 2 main scenarios (we will not take into account fraud), which already depend on the trading conditions offered by brokerage companies.
The first scenario of closing positions is a gentle option, when brokers close traders' positions after their deposit reaches the minimum margin level, i.e., as we said above, the amount of funds from 10% to 50% of the unprofitable transaction remains on the trading account.
The second scenario, the one most commonly used by some brokers, is the most insidious. Forced closing of positions according to this scenario occurs when the trader's trading account does not have funds left for further trading.
At the same time, such a closure occurs with a small margin, which allows brokers to be guaranteed to avoid their losses. As a result, such a forced closing of positions leads to the fact that from a deposit of 150 USD, as in the example above, there remains not $ 30, but a maximum of 5, or even less, it all depends on the case.
So, why do situations arise that force brokers to use the above scenarios for closing trading positions and for what reasons do they, in fact, arise?
Some brokers can forcibly close a position if its lifetime has expired. For example, under the terms of dealing, one deal cannot last more than two weeks. Therefore, for supporters of long-term trading, it is necessary to study the trading conditions very carefully.
Margin Call is used by brokers in cases where they believe that the trader's position is irreversibly threatened, and, accordingly, further provision of leverage can bring losses to the company. When such situations arise, brokers make a decision on absentee, forced closing of positions. Usually, Margin Call appears when less than 20% of the funds remain on the trader's deposit. The decision to use Margin Call in each case is made on an individual basis.
Stop out is an automatic forced closing of positions at current prices, i.e. the decision on its application is not made individually, and is used by brokers when, for a number of reasons, the Margin Call has not been applied.
Well, the Stop out level, as a rule, is indicated separately for different types of accounts on the official websites of brokers. When using this type of forced closing of positions in transactions, traders lose up to 90% of their own deposit.
Forced closing of positions - how to avoid it?
To prevent forced closure of their positions on Forex, traders need to take certain measures. Brokers, as a rule, forcefully close only clearly unprofitable trades. In order to avoid such situations, it is necessary to choose the right trading strategies, as well as to use additional funds to determine the most optimal opportunities for opening positions.
Strictly adhere to the principles of equity capital management, never take unnecessary risks, timely close deals that are clearly erroneous (unprofitable) and correctly set stop orders and then the broker will not apply forced closing of positions.
BE SURE TO SEE:
Closing positions in trades in fractional parts
There is a lot of talk about the ideal entry point, combining different indicators and fundamental conditions in order to find the best trading opportunity. Much less attention is paid to the importance of how to close a trade in Forex, which is very bad, since the correct exit is just as important as opening a trade, if not more important. If you are only at the stage of acquainting yourself with closing deals in the foreign exchange market and are poorly guided in the trading terminal, we recommend watching the following video, which tells about closing a position.
Opening a trade in Forex, for example, can do nothing to stop unsuccessful trades, while closing a trade has the ability to capture profits at any point or interrupt the trading process before it goes in an unfavorable direction.
You can use automated trading as an alternative to manual trading. will allow you not to think about the entry point and the exit point. An automated robot will do everything for you, but the Forexone blog warns you that in addition to the many advantages of automated trading, it also has serious disadvantages, which you can read about on the blog.
Effective techniques for closing a deal on Forex
If you want to close a Forex trade with maximum profit and profit, then you should carefully study the following 4 effective techniques:
- Systemic criterion.
One of the most logical ways to close trades directly relates to the strategy that became the primary reason for the opening of these trades. The strategy suggests that you have planned your exit well in advance, so if you entered trades based on a moving average crossover, for example, then it is usually best to exit based on the opposite crossover. This approach suggests that you should provide even the smallest systemic criterion that will help you get out of the trades. - Trailing stop.
Stops of this kind help traders to protect themselves from losses, as well as to hold on to profits if there are any. Trailing stop can be used alone or in combination with other methods of closing a trade in Forex. The only difficulty when working with trailing stops is choosing the right place to place them. If you set them too close to the price, then you can take profits early, and if they are too far, then you can lose profits altogether. You can find a suitable distance by testing a trailing stop based on historical data. - Price targets.
A good example of how to close a trade in Forex is setting price targets. The main thing is to set a realistic goal. If you set the bar too high, then chances are you will never reach it and end up losing your money. And if the price target is low, then you will earn some money due to the small trading risks.As a rule, it is good to use pivot points to set price targets. First of all, pivots use recent information, so they adapt well to market volatility. This means that key pivot levels are the most effective price targets. Secondly, the pivot levels are watched by thousands of professional traders, which makes them good tools in predicting pivot points.
- Technical indicators.
Fibonacci as well as the Elliott Wave Cycle are indicators that can sometimes provide reliable exit points for their users. For day traders, the ATR indicator provides a search for exit points.
Very often, while working on the exchange, problems with the deal may arise, it does not work out the way we would like. Considering the possible options, he uses the theory of proof from the opposite, i.e. Let's consider the situations of how you can get into a losing trade, so that later in reality this does not happen.
It is believed that when working on the exchange, the loss should not be more than 2-3%, with an increase in these rates, in order to avoid further disadvantages, transactions should be closed. In trading, there is a main rule: It is not so important where you bought it, it is important where you sold it.
Every trader wants to make money on financial markets, but according to statistics, only 5% from their total number receive a systematic income, while the rest 95% sooner or later they "drain" their deposits, because they do not know or do not want to follow a few simple rules, which we will analyze further. How to close losing trades to be among the 5% lucky?
How to exit a losing trade on the exchange
Conducting 100% of transactions with a profit is impossible to grasp right away, which means that sooner or later the moment comes when you will have to close unprofitable positions on Forex.
It is always worth keeping track of the rolling loss levels... You should not rush to close accounts immediately. It is important to track the levels, after which the drawdown begins, and calculate how you can average all your open positions, take a script as your assistant, start a new trade, or wait a short time. In this situation, the main task should be to focus not on profit, but on keeping your balance.
Along with the usual one, there is also a more cunning tool for automatically exiting the market with minimal losses - Trailing Stop.
- Trailing stop Is an advanced algorithm for managing stop orders according to predefined parameters.
The essence of trailing is to automatically move Stop Loss up following the price by a fixed number of points each time, if the market moves in your direction and the profit grows. No one knows what will happen next, at any moment the entire profit can melt away, but it is also unreasonable to close the deal when the profit continues to grow.
The main disadvantage of Trailing Stop is that it works on the client side, and not on the server side, therefore, for its execution, the terminal must always be open, otherwise nothing will happen.
How long can you hold a losing position in a trade?
Usually, closing a deal on the exchange is associated with the achievement of a certain profit or loss. We will talk in detail about what to do with profit another time, today we will figure out how long you can hold unprofitable positions.
From the point of view of risk management, a problem order can be held until the loss on one trade reaches 2-3% of the total deposit volume or 20-30% for all simultaneously open positions.
But in practice, these ideal numbers are not observed by anyone except robots.
The deal must be closed as soon as it became clear that you made a mistake with the choice of direction.
How to determine this?
- As soon as the price has broken through the channel (strong resistance or support) in the opposite direction from you and consolidated, the order must be closed.
- When you are trading with a trend and it becomes clear that it has stopped, you need to exit.
- If, in accordance with your trading strategy (TS), there are confirmed signals to close, price reversal or open an opposite position.
- If the time for making a trade is too long (applicable for short-term transactions).
How to avoid losing positions on the exchange
Most novice traders commit fatal mistake when a trade starts to depreciate, they take a wait-and-see attitude. Let the money lie down, then the course will return. But the main rule of the exchange is to buy and resell, not store.
Many users of the exchange are sure that they made the correct forecast and the price will soon turn in the direction they need. At this point, they increase volumes towards a losing position.
The market is always right.
In itself, active trading is risky, and we are exacerbating it. We must reduce risk, not increase it. Therefore, increasing volumes on a losing trade is not the right step. Perhaps you do not know everything and your forecast is not correct.
Ideas on how to protect yourself from losses on the stock exchange
- Trade only according to the strategy, avoiding intuitive haphazard trading, which is guaranteed to lead to loss of funds.
- Never deviate from the rules of the trading system, do not try to "sit out" or use martingale in the event of a market movement against you - losses are likely to grow even more.
- Apply risk management, set fixed stop-losses in accordance with the TS or at support / resistance levels, do not transfer stops if the price approaches their triggering.
- Use Trailing Stop orders in your trading practice.
- Do not enter the market without first analyzing the situation or not receiving a sufficient number of signals on the chart, rush and spontaneity in trading always leads to losses.
- Trade the assets you know the most about, and leave experiments for demo and cent accounts.
- Follow the economic calendar. During the release of important news, volatility usually increases, and the price movement can fluctuate strongly in both directions for some time, be sure to take this into account.
- No need to be greedy, try to set not only stops, but also take profits, since the lack of profit-taking can lead to the market reverses and you incur losses.
It often happens that a novice trader, opening an order on a small timeframe, subsequently transfers it to a longer one. For example, in case of an unsuccessful scalping attempt, the trade is not closed, but transformed into an intraday one, and then into a long-term one. This does not bear direct damage, but it indicates either the absence of a strategy or its non-compliance, both the first and the second will sooner or later lead to collapse - it is only a matter of time, so there is no need to unreasonably increase the duration of the transaction.
Don't build on losing positions.
Yes, some traders think that having missed once, instead of closing the deal, it is better to try their luck again and open another order in the same direction. Doing this is not worth it, if prices went against you, close the wrong order and it is better to “roll over” than to increase the volume of a losing trade, increasing the load on the deposit.
Conclusion
If deep drawdowns appear when trading on the stock exchange, i.e. losses, the player has to rely only on the fact that the market will turn in his direction again. This is a common beginner mistake. Therefore, the main advice of most specialists is to close all existing negative trades. This minimizes waste.
With the right strategy, if something went wrong, you minimize losses, learn from this and, by redistributing goods on the exchange, you will definitely make a profit.
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It doesn't matter if the trade is profitable or unprofitable. The ability to manage your position well and correctly is the key to good profits.
The reason why many traders do not know how or cannot competently manage a trade is, of course, emotions. Agree, very often there is a desire to move the stop loss when the price approaches it, or just wait for the price to return and close “to zero”. Hope dies last, this is an indisputable fact. However, this action can lead, and more often leads to big losses... Emotions play not only when the price goes against us. Very often we can notice ourselves when the price has just started to move in the direction we need, as we already want to close the position as soon as possible. Fear is triggered and this is also normal. Some people manage to overcome this fear, the price continues to move towards take profit, but stops. Greed is triggered, we decide that the price just decided to take a break, after which it will continue its movement. However, this usually does not happen. As the saying goes, the miser pays twice. Here are two main points when emotions do not allow us to act correctly, observe risk management and money management. And now we'll talk how to avoid such situations in your trading.
- 1) Installed and forgotten. I am deeply convinced that this is the best technique for getting rid of emotional stress in the market. The principle is very simple: we place an order according to our strategy, set profit and loss fixing levels and turn off the terminal. In any case, even if the stop loss is triggered, this trade was correct, according to the strategy. This means that you can analyze it and make adjustments to your trading methodology.
- 2) The second method concerns the stop loss. When the price passes 1-1.5 stop loss in the right direction, you can move the trade to breakeven, then follow advice # 1. This method differs from the first one in that after moving the level of limiting losses, we continue to move further after each closed candle according to its size.
But this applies to money management and risk management. As for the deals themselves, the best of all, of course, is constantly monitor the deal, learn to deal with emotions and become stronger than them. Set the stop loss and take profit levels according to the strategy. But it so happens that the price moves in our direction and suddenly stops. Of course, we need to wait, the price will not always go straight to the profit-taking level. But it so happens that during this stop, a signal appears opposite to the signal of our trade. Definitely need to go out. That is why the best option would be to constantly monitor the situation and track your position in the market.
