How to trade with ESMA new regulations on leverage ?Hi everyone,
Some of you may or may not know that big changes will take place on august 1st 2018 on Forex and CFDs market especially for retail clients.
ESMA for European Securities and Markets Authority decided to ban binary option and apply a drastic decrease on leverage on all financial instruments including forex, CFDs and crypto.
All UE regulated brokers are affected by these changes. Even non-UE brokers (I mean serious ones) are applying these changes. All clients from UE or not are affected by these changes. This a worldwide earthquake on trading planet.
New rules, new attitude... how to deal with these changes ?
First find below the new leverage :
Major FX: 30:1 (USD, JPY, CAD, GBP, CHF)
Minor FX: 20:1 (ALL OTHERS including AUD, NZD)
CFDs: 20:1
Stocks: 5:1
Crypto: 2:1
Before, a trader could start trading with $100 with leverage up to 400, a micro lot (0.01) required $4 margin average.
Starting august 1st a trader with a $100 account will need a required margin of $30 ON EURUSD for a micro lot (0.01).
EURUSD new magins on august 1st:
0.01 lot: $30
0.1 lot: $300
1 lot: $3000
Of course this post is not dedicated to criticize this new law but to provide ideas to deal with it and continue making money.
Normally I recommend using 0.01 lot per trade with a $1000 account but this rule can be adapted if we reduce drastically the number of opened positions simultaneously. For example, if you take only 1 trade a week in swing looking for 80 to 150 pips, you can obviously increase your lot size from 0.01 to 0.05 or even 0.1 for experimented traders.
Selecting carefully trading opportunities
The first consequence of the low leverage is the fact that you cannot open several trades simultaneously. You really need (and you won't have choice anyway) to be selective on trading ideas. Choose only opportunities with the best configurations and in which you have a really good confidence.
Strategy 1: If you have a $1000 account, you can decide to keep up to 4 trades opened at the same time with a reasonable stop loss.
If you risk 2% of your capital per trade , you could use 0.05 lot at $150 margin with a stop loss of 40 pips ($20). If you apply a risk/reward ratio of 2 or more then you can expect 80 pips ($40) on each trade.
With this strategy you must lose 20 trades in a row ($700 loss at 40 pips stop loss) before not being able anymore to place 4 trades simultaneously at 0.05 order.
You need to win 35% of your trade to be flat because of the risk/reward ration of 2 minimum. (See the attached post about risk reward ratio)
Strategy 2: If you have a $1000 account, you can decide to keep only one trade opened at the same time with a reasonable stop loss and with a bigger leverage. Assuming that you risk 5% of your capital per trade , you could use 0.1 lot at $300 margin with a stop loss of 50 pips ($50). If you apply a risk/reward ratio of 2 or more then you can expect 100 pips ($100) on each trade.
With this strategy you must lose 14 trades in a row ($700 loss at 50 pips stop loss) before not being able anymore to place a 0.1 order.
You need to win 35% of you trade to be flat because of the risk/reward ration of 2 minimum. (See the attached post about risk reward ratio)
Strategy 3: For scalpers, if you have a $1000 account, you can decide to keep only one trade opened at the same time with a reasonable stop loss and with a bigger leverage. Assuming that you risk 2.5% of your capital per trade, you could use 0.1 lot at $600 margin with a stop loss of 10 pips ($20). If you apply a risk#reward ratio of 0.5 then you can expect 5 pips profit ($100) on each trade.
With this strategy you must lose 20 trades in a row ($400 loss at 10 pips stop loss) before not being able anymore to place a 0.2 lot size trades simultaneously at 0.2 lot size. Obviously you really need to get a high winning rate to stay alive.
Hope you enjoyed this post.
Happy trading!
