“Hi Timon, I've just joined you and I'm ready to pickpocket my first trade. I just have four quick questions I need answered first.
1. What order type should I use to set my trading price?
2. What should the TIF be?
3. Can you tell me how to work out the Risk in Trade for the last trade idea sent out?
4. How do I calculate the No. of CFDs to buy if I want to risk 3% of my portfolio and I have a starting portfolio of R234,000?”
Great questions Meredith. I will answer each one below…
Q. “What order type can I use to set my trading price?”
Whenever you have an exact trading price you wish to enter your trade, the best option is to use the ‘Limit Order’. The limit order allows you to Limit (choose) the price you wish to enter…
I prefer this order to the market price, as I can manage my risk better with each trade.
Q. “What should the TIF set to?”
Just to note. The TIF stands for ‘Time In Force’. This instructs, how long the trade order will stay in the market.
As we are not scalpers or intraday traders, we don’t need to set a time for how long the trade order should stay in the market…
And so, I believe the best TIF option to choose is GTC (Good ‘Till Cancelled).
GTC is an instruction where your trade order will remain in the market until YOU cancel it…
Q. “Can you tell me how to work out the Risk in trade for the last trade idea sent out?”
Yes… The ‘Risk In Trade’ is simply the price difference between the Entry and the Stop loss…
Here are the trade details for the most recent Pickpocket Trade idea sent out…
Market: USD/ZAR (US Dollar VS The South African Rand).
Entry price: R14.60
Stop loss Price: R14.10
Risk in Trade = (Entry price – Stop loss price)
= (R14.60 - R14.10)
= R0.50 or 50 cents
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Q. “How do I calculate the No. of CFDs to buy if I want to risk 3% of my portfolio and I have a starting portfolio of R234,000?”
With CFDs you should always convert the rands to cents… This will help with the calculations.
With a portfolio value of R234,000 your maximum risk (3%) will be R7,020 or 702,000c…
Now that we have the Portfolio risk and the Risk in trade, we can calculate the No. of CFDs to buy…
No. CFDs to buy = (Portfolio risk per trade / Risk in trade)
= 702,000c ÷ 50c
As most brokers have minimum increments of 1,000 CFDs, you’ll need to round down your answer to the nearest 1,000.
This is to ensure you don’t risk more than 3% of your portfolio.
And so, the No. of CFDs to buy in this trade is 14,000…
Analyst, Red Hot Storm Trader