I blogged about this idea not too long ago. The concept is to use very small trades relative to your available margin and net asset value (NAV). I'm doing this with the AUDJPY pair so that when I accumulate positions I am earning a positive carry trade return.My trade size over the last week has been such that the margin involved in each trade is 0.2% of my NAV. That's tiny. Twenty five trades in and you are looking at using 5% of your available margin.However, the carry trade interest would represent approximately a 3.65% return if annualized. At the same time my unrealized profits had me up almost 4% earlier this morning. This 4% unrealized profit is due to only the last 10 days of trading. We've had a downturn, I've accumulated positions, and the AUDJPY has jumped just recently.Anyway, I hope this demonstrates that short term scalping is not the only way to earn money using forex. While this concept won't make you rich overnight the risk is very low and the returns can be good compared to currently available financial instruments.
Theory: Trading With Little To No Margin
As I often do, especially when the markets are excruciatingly slow in determining when to make the next significant move, I've been thinking about Forex.Take a mental walk with me...The DOW falls from 10,000 to 5,0000 and loses 50% of it's value. It returns from 5,000 to 10,000 and gains 100% of it's value.Wait, think about that for a minute. In the normal world having the ability to gain double digit gains, per year, is considered excellent.If you are confident that an upward cycle will eventually happen, in a suitable time frame of course, then movement is valuable. If you aren't trading on margin, and you don't have the associated risk, then you can afford to look at each dip in price as an opportunity.While this may be applicable to the DOW, it is ever more applicable to the Forex markets. If you are trading with little or no margin it's simply a matter of scaling your entry and exit based on price moves. This is very similar to the gridding concept that I posted recently.However, when the margin is gone the risk is gone. You choose the price range you expect and scale your entry and exit points within it. If you must, you leave some positions in place while you recapitalize to attack another range. In fact, perhaps you simply allocate a set number of dollars per thousand pip trading range. If the price falls into a lower range you simple ante up and play within a lower range -- while your higher range positions provide interest income.However, keep in mind, it's possible that currency pairs adjust interest rate differential. This could erode or reverse the suitability of holding a pair over a long period of time.
Theory: Trading With Little To No Margin
As I often do, especially when the markets are excruciatingly slow in determining when to make the next significant move, I've been thinking about Forex.Take a mental walk with me...The DOW falls from 10,000 to 5,0000 and loses 50% of it's value. It returns from 5,000 to 10,000 and gains 100% of it's value.Wait, think about that for a minute. In the normal world having the ability to gain double digit gains, per year, is considered excellent.If you are confident that an upward cycle will eventually happen, in a suitable time frame of course, then movement is valuable. If you aren't trading on margin, and you don't have the associated risk, then you can afford to look at each dip in price as an opportunity.While this may be applicable to the DOW, it is ever more applicable to the Forex markets. If you are trading with little or no margin it's simply a matter of scaling your entry and exit based on price moves. This is very similar to the gridding concept that I posted recently.However, when the margin is gone the risk is gone. You choose the price range you expect and scale your entry and exit points within it. If you must, you leave some positions in place while you recapitalize to attack another range. In fact, perhaps you simply allocate a set number of dollars per thousand pip trading range. If the price falls into a lower range you simple ante up and play within a lower range -- while your higher range positions provide interest income.However, keep in mind, it's possible that currency pairs adjust interest rate differential. This could erode or reverse the suitability of holding a pair over a long period of time.
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