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Hi traders, I have a question regarding micro futures and risk exposure. Its pretty basic actually, however I coulden´t find a clear answer online.
Since futures using leverage I`m moving a big contract with a small amount of money. Lets say I enter the market and set a 1 point stop. In case that stop got hit, I loose 5$. So the risk I take is limitet to 5$ and I`m not responsible for the big contract I move thru the leverage? In other words, my loss is limited to 5$ per point.
Am I right?
Can you help answer these questions from other members on NexusFi?
Yes. With the caveat that you can always incur slippage, that is, your stop order, when the price trades, is converted to a market order, which means you can get *any* price. However, in practice, you will be filled at or near your price. Big news can see a lot more slippage but you're talking about the common case.
But yes, if you buy MES at 2902.50 and you sell at 2901.50, you will lose $5.
Another way to calculate and think about it. The contract multiplier for MES is $5. When you buy at 2900, you have bought 2900 * $5 = $14,500 of notional value. That's your leveraged position, since you only need $1200 (about 12:1) -- brokers are offering $40 daytrade margin though, which is 362:1! If it goes down to 2899 and you sell, you are selling 2899 * $5 = $14495 worth of notional value. $14,500 - $14,495 => $5 loss.
Basically I`m aware of the risk envolved in trading… I`m just wondering, how it can be possible to lose an amount greater then my deposit? If Im setting a stop loss and follow a risk management system?
Trading: The one I'm creating in the present....Index Futures mini/micro, ZF
Posts: 2,311 since Nov 2011
Thanks Given: 7,341
Thanks Received: 4,518
Markets can move....sometimes in extreme volatility situations there may not be anyone to take the other side of your trade nearby the price you want. Might be VERY far away.
If you get out like this the distance from entry might be greater than your account balance. BOOM, you now owe your broker more money than your account had.
Times like these are rare ... but can happen...hence the text from your brokers account opening papers.
Ron
...My calamity is My providence, outwardly it is fire and vengeance, but inwardly it is light and mercy...
The steed of this Valley is pain; and if there be no pain this journey will never end.
Buy Low And Sell High (read left to right or right to left....lol)
Trading: The one I'm creating in the present....Index Futures mini/micro, ZF
Posts: 2,311 since Nov 2011
Thanks Given: 7,341
Thanks Received: 4,518
I will never forget the Flash Crash of May 6 2010. I was in the kitchen on the phone with Interactive Brokers and I saw, before my eyes, the Dow drop 700 points in just a couple of seconds.
I screamed.........lol.....
Ron
...My calamity is My providence, outwardly it is fire and vengeance, but inwardly it is light and mercy...
The steed of this Valley is pain; and if there be no pain this journey will never end.
Buy Low And Sell High (read left to right or right to left....lol)
Thanks Ron! I already thought it is referring to situations like that. Reading all that paperwork from the broker can get quite confusing hahaha so i wanna be sure about that one