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The only Gearing calculation you'll ever need with any market…

by , 12 May 2022
The only Gearing calculation you'll ever need with any market…
Q. “I'm a member of Pickpocket Trader and Red Hot Storm Trader. I am currently using the Velocity Trader platform. My question is when I take a trade and follow your system, what order type should I choose and why? Please see attached picture”

A. Hi Zweli, Thank you for the question.

Out of the list above, there are only two market orders I like to use:

Market Order
This is where the order fills in (immediately) at the best price the market is trading at.

When the market price is close to the entry price by a few ticks, I like choosing this Order Type as it fills it in the quickest.

The second Order Type is a little more accurate and one where you can’t ever go wrong.

It’s called the…

Limit order
Whenever you have an exact trading price you wish to enter your trade (Such as when you’re given an entry level)

The best option is to use the ‘Limit Order’.

The Limit Order allows you to Limit (choose) the price you wish to enter…

When you type in the price you wish to get in at using this order type, you’ll then wait for the market price to touch your chosen level.

Once it touches, it will get you in whether you buy (go long) or sell (go short).

With the Limit Order you’re also able to manage your risk better with each trade. Hope this helps.

 

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Q. “I received a trade signal to go short the EUR/ZAR (Euro Vs South African rand) by Pickpocket Trader on Monday at R17.10. I like to know the gearing when I take a CFD trade however, I don’t know how to calculate it. Could you help give me an easy calculation?”

A. Hi Tommy,  

Thank you for your email and question.

Yes absolutely. Just a reminder.

Gearing (leverage or margin trading) is a function that, allows you to pay a small amount of money (deposit) in order to gain control and be exposed to a larger sum of money.

In short. You put in a small amount of money in order to be exposed to a larger sum of money in a trade.

The only gearing calculation you’ll ever need with any market, currency, index or even a crypto currency is the following.

(Exposure ÷ Margin)

To calculate this, we’ll need to follow three simple steps. But first let’s write down the trade specifics in order to calculate the Gearing:

Currency pair: EUR/ZAR
Market price: R17.10
Margin % per trade: 1% (Ask your broker)
No. CFDs: 1 CFD = (1,000 units)

Step #1: Calculate the exposure of the trade
Exposure per CFD
= (No. Units exposed X Market price)
= (1,000 X 17.10
= R17,100

This means, when you buy 1 CFD you’ll be exposed to R17,100 worth of EUR/ZAR.

Step #2: Calculate the margin (initial deposit)
Initial margin per CFD (1,000 units)
= [(Market price X 1%) X 1,000 units]
= [(R17.10 X 1%) X 1,000)]
=  (R0.171 X 1,000)
= R171.

This means, when you buy 1 CFD (where you’re exposed to R17,100) you’ll only pay a margin (initial deposit) of R171.00.

Step #3: Calculate the gearing of the currency pair
Gearing
= (Exposure per CFD ÷ Initial margin per CFD)
= (R17,100÷ R171)
= 100 times or 1% of exposure

With a gearing of 100 times:

For every one CFD you buy for R171 per CFD, you’ll be exposed to 100 times more (R17,100) or the value of 1,000 EUR/ZAR.

See the power of trading and how we need so little money to gain access to a large amount of a market to profit from?

Always remember – Geared trading is dangerous, if you don’t know how to use it.

That’s why we like to help guide you through our services like
Red Hot Storm Trader or Pickpocket Trader.

Trade well, live free.

Timon Rossolimos
Founder, Mati Trader System

PS.
"These three stocks could accelerate your early retirement", according to my friend Josh over at Real Wealth, you can find out how to get the full analysis here.



The only Gearing calculation you'll ever need with any market…
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