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Please help me to calculate the worst case scenario
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Please help me to calculate the worst case scenario

  #1 (permalink)
Trading Apprentice
Thailand
 
Futures Experience: None
Platform: FXPRO MT4
Favorite Futures: currency
 
Posts: 2 since Jan 2016
Thanks: 0 given, 1 received

Please help me to calculate the worst case scenario

Hello,

I'm totally lost with calculating the worst case scenario:

I would like to buy Spot UK Brent Oil with FXPro for $10.000,-
Let's assume the price is $31 at the moment I've bought in
(never mind spread at the moment).
I would like calculate when I would get a margin call if the odds go against me (FXPro 25% - margin call 20% stop out)

Data:
Brent crude oil Price $31.00
Leverage 100:1 (I'm not sure about the leverage matters in this case)
Balance: $10.000,-
lot size: 1 lot = 1.000 Barrels
Minimum price fluctuation: 0.01
1 tick: $10
Used margin per 1 lot: 0.50%
Margin Call: 25%
Swap long: -15.84
Swap short: -14.97

How many days would I survive ?
For example the price drops to $ 26 over a period of 6 months ?

Is there someone who can help me out ?

Thank you
Kind regards
Patrizio

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  #2 (permalink)
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  #3 (permalink)
Market Wizard
Germany
 
Futures Experience: Intermediate
Platform: Other
Favorite Futures: ES, YM, 6E
 
Posts: 2,640 since Feb 2013
Thanks: 4,893 given, 6,422 received
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Patrizio View Post
Hello,

I'm totally lost with calculating the worst case scenario:

I would like to buy Spot UK Brent Oil with FXPro for $10.000,-
Let's assume the price is $31 at the moment I've bought in
(never mind spread at the moment).
I would like calculate when I would get a margin call if the odds go against me (FXPro 25% - margin call 20% stop out)

Data:
Brent crude oil Price $31.00
Leverage 100:1 (I'm not sure about the leverage matters in this case)
Balance: $10.000,-
lot size: 1 lot = 1.000 Barrels
Minimum price fluctuation: 0.01
1 tick: $10
Used margin per 1 lot: 0.50%
Margin Call: 25%
Swap long: -15.84
Swap short: -14.97

How many days would I survive ?
For example the price drops to $ 26 over a period of 6 months ?

Is there someone who can help me out ?

Thank you
Kind regards
Patrizio

Assuming that your CFD shop uses risk-based margining, you can only estimate the move that will ruin the account.

Theoretically, $10k / $10 per tick would = 1000 ticks would wipe out your initial balance.
Practically you can get margin calls anytime on the way down to ~$2500, depending on
the number of CFDs that you use (that's also where leverage comes into play since position
size and leverage fasten or slow down this process). Speaking in images: The number of days
that you survive in an adverse price move depends on the fact if you meet a shark (a large loss
on size) or a swarm of piranhas (many small losses).

In regulated markets (i.e. the futures) you are practically out as soon as you cannot put up the initial margin
for the next trade. The remaining difference in a running trade is a virtual risk buffer of the clearing house against
unexpected adverse price moves that would let you (i.e. the counterpart) fail. If the move is larger than the risk-based
margining anticipates, you are prompted to put up additional cover (your account can already be shredded at that point
and you are working for clearing your debt).

Since Brent is only second to CL, I take the current CL data for the regulated exchange: Initial intraday margin is $2125
at the moment, overnight it's $4250; for maintenance, it's $1700/$3400. I.e.: As soon as your account
falls below ~$2125, your intraday oil trader career is terminated. If you think of holding overnight, ~$4250 is
your point of ruin - i.e. less than 600 ticks for your account size.

CFD shops normally allocate the different margins etc into one spread, so they normally offer individual "margin
calculators". Ask your shop for that. Secondly, many CFD shops don't put in the contract size brake at the size
of a real market contract but let you shred an account to near 0 (or below with larger than anticipated price moves)
with ever smaller contract fractions. Anyway: Even with any CFD shop "feature" used - 1000 ticks against you and
$10k are gone for every full contract (i.e. $10 per tick) that you trade.


Last edited by choke35; February 17th, 2016 at 09:37 AM.
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  #4 (permalink)
Trading Apprentice
Sydney Australia
 
Futures Experience: Intermediate
Platform: TradeStation
Favorite Futures: Emini ES, Gold GC
 
Posts: 2 since Jul 2016
Thanks: 0 given, 1 received

Further explanation on the worst case scenario

Thanks choke35 for your response to the query. I wanted to see if I understand your response correctly.

I trade mostly ES with Tradestation. Let's say I have a balance of $10K ($5K is the minimum margin requirement + $5K to trade). And if I am long with 4 contracts and my system crashes and I don't have a Stop Loss (or my SL is not honored for some reason), what is my largest exposure if the market keeps on going against me? Will the margin call trigger and I'm out $10K max? Or is there more risk here?

Also, I'm not sure what you meant by - "your intraday oil trader career is terminated" in the following part -

"Since Brent is only second to CL, I take the current CL data for the regulated exchange: Initial intraday margin is $2125
at the moment, overnight it's $4250; for maintenance, it's $1700/$3400. I.e.: As soon as your account
falls below ~$2125, your intraday oil trader career is terminated. If you think of holding overnight, ~$4250 is
your point of ruin - i.e. less than 600 ticks for your account size."

Isn't this just a case of blowing out your account? Why can't I refill my account and continue trading?

Thanks,

ESTrader1

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  #5 (permalink)
Market Wizard
Germany
 
Futures Experience: Intermediate
Platform: Other
Favorite Futures: ES, YM, 6E
 
Posts: 2,640 since Feb 2013
Thanks: 4,893 given, 6,422 received
Forum Reputation: Legendary


EStrader1 View Post

Isn't this just a case of blowing out your account? Why can't I refill my account and continue trading?

Thanks,

ESTrader1

Surely, you can refill your present account or open a new one and go on as long as you have any capital left.
But basically you have wiped out the initial account. (Besides, there is always an added risk by black sway events
that cost more than the margin and leave the trader with debts.)

Some traders have a considerable history of serially shredding accounts that way - always keeping up the
illusion that their trading is alive since there is still money left to be shred. But that's hardly the intention
of successful trading ...

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  #6 (permalink)
Trading Apprentice
Sydney Australia
 
Futures Experience: Intermediate
Platform: TradeStation
Favorite Futures: Emini ES, Gold GC
 
Posts: 2 since Jul 2016
Thanks: 0 given, 1 received

Agreed

Thanks for the response Choke35. Understood. I was just trying to understand/clarify your comment. Completely agree about serial account blowups.


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  #7 (permalink)
Elite Member
Cleveland Ohio/United States
 
Futures Experience: Advanced
Platform: Tradestation
Broker/Data: various
Favorite Futures: futures
 
Posts: 2,385 since Jul 2012
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EStrader1 View Post
Thanks choke35 for your response to the query. I wanted to see if I understand your response correctly.

I trade mostly ES with Tradestation. Let's say I have a balance of $10K ($5K is the minimum margin requirement + $5K to trade). And if I am long with 4 contracts and my system crashes and I don't have a Stop Loss (or my SL is not honored for some reason), what is my largest exposure if the market keeps on going against me? Will the margin call trigger and I'm out $10K max? Or is there more risk here?

A

Isn't this just a case of blowing out your account? Why can't I refill my account and continue trading?

Thanks,

ESTrader1


Realize you are on the hook for whatever debits your trading account incurs...

Take your example - you have a $10K account, trading 4 ES contracts. Some Black Swan event hits, and ES drops 200 points before you get out.

Your account goes from $10K to NEGATIVE $30K.

You are on the hook for paying back that $30K.

It is possible that the brokerage decides to write off the debt. But in that case, you probably will never be able to ever open an account at another broker. No broker wants a trader who has history like that.

If you have any questions please send me a Private Message or use the futures.io "Ask Me Anything" thread
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