Why the higher the leverage the better a trading account is for Captain Algorithm?

> There is a recurrent and deep rooted mystification concerning the leverage in trading - and particularly in Forex trading online - that consists in purporting the idea that high leverage is to blame for all the dangers in retail Forex trading and that high leverage is the main culprit for the high loosing rate of retail traders.

 

So let's Captain Algorithm clarifies on the matter and demonstrates that much to the contrary high leverage is actually good - if not essential - to retail Forex trading.

 

What is leverage in the first place?

Leverage is a credit facility offered by your broker to complement the taking of your positions - your purchase of  "Buy" and "Sell" positions. For instance consider the case in which 1 USD allows for the purchase of 1 unit of a good. Then for 100 USD you can purchase 100 units of that good - in an unitary proportion. Now consider that you have a leverage on that trade of 50 : then for 1 USD you can purchase 50 units of that good. Should the leverage be 100 then for 1 USD you can purchase 100 units of that good. So leverage is simply a temporary multiplier of your ability to purchase a given good or a position in the case of retail Forex trading.

 

Why leverage is essential to Forex trading online?

To understand this you should consider the minimum volume with which one can take a position. In Forex one standard lot - i.e. one lot in a Standard Account - is equivalent to 100,000 units. So without leverage you will need 100,000 USD to take a position that is equal to 1 standard lot. For example with a leverage of 100 you will only need to wage 1,000 USD to take a position of 1 standard lot. One important point to bear in mind in retail Forex trading is that it is the volume the retail traders have to trade with that makes the leverage an important parameter. And if there is something to blame in retail Forex trading it is precisely the volume with which one has to trade and not the leverage.

 

Why high leverage is good for good Forex trader?

Now consider the case in which 1 USD buys you 1 unitary good. As a speculative trader - it is what retail Forex trading is - you will buy 1 good for 1 USD. Should the price of that good increase by 1% then you can sell this 1 good back for 1.01 USD making a profit of 0.01 USD. Now if you have a leverage of 1,000 with 1 USD you can purchase 1,000 of that good. And should the price of that good increase by 1% then you can sell this 1,000 goods back for 1,010 USD making a profit of 10 USD.

 

Why high leverage is bad for bad trader?

Considering the case above. In the case there is no leverage, you would have bought 1 good for 1 USD. Contrary to what you have predicted, the price of the good decreases by 1%. Should you sell back the 1 good you just have bought then you will consent to the loss of 0.01 USD. In the case where there is a leverage of 1,000 you would have bought 1,000 goods for 1 USD. Contrary to what you have predicted, the price of the good decreases by 1%. Shall you sell back the 1,000 goods you just have bought then you will consent to the loss of 10 USD - so  the price of the good will need to decrease by only 0.1% for you to loose your initial 1 USD. It is precisely here that bad traders are being revealed : a slightly adverse movement by the market will have them loose their initial investment. The same mechanism applies to retail Forex trading online except that in Forex you do not buy a proper good but you take a position "Buy" or "Sell" and expect to make a profit on the latter.

 

So is high leverage to blame for the death toll of retails Forex traders?

To answer to this question consider the example described above in which you have 1 USD and a leverage of 1,000.

 

The first scenario being you set yourself the ROE of 0.10 USD and buy 10 goods by waging 0.01 USD. The price of the good increases by 1% and you decide to sell back the 10 goods making a profit of 0.10 USD - just as you have predicted. Should the price decreases by 1% - contrary to what you have predicted - then you will loose 0.10 USD.

 

The second scenario is that you decide to purchase a 1,000 goods for 1 USD thanks to the leverage of 1,000. The 1 USD you waged acting as a counterparty to your purchase will be lost shall the price of the good drop by 0.1% i.e. should the market evolves adversely to your decision by just 0.1%.

 

The third scenario can be that you decide to buy 1 good while having a leverage of 1,000 and wage 0.001 USD. Should the price increase by 1% then you would make 0.01 USD profit; should the price decrease by 1% then you would have to consent to the loss of 0.01 USD - which is exactly similar to having bought 1 good for 1 USD without any leverage, except that without leverage you would have to wage 1 USD instead than just only 0.001 USD with a leverage of 1,000.

 

So one can clearly see that high leverage does not increase the risk per se but it is the volume of the position taken that can be risky - your equity serving as counterparty to the position taken. And leverage on the contrary will decrease the "cost" of taking a position by diminishing the required wage to take a position - also called the margin requirement - which is essential when one consider how large the volume allowed for entering the trade is : 100,000 monetary units being a standard lot in a Standard Account.

 

Lastly why high leverage is good when trading with Captain Algorithm?

Firstly because Captain Algorithm will compute the relevant volume of trade depending on the safety level it has assessed for the trading account and the trading mode selected by the user. So a high leverage will allow Captain Algorithm to take more positions without consuming to much margin requirement. And Captain Algorithm likes to take many positions as a way to achieve a "framing" of the market by a relevant set of positions.

 

Secondly Captain Algorithm will automatically shift any position that is unprofitable to the reverse position as the loss exceeds a certain threshold - by closing the unprofitable position and opening a new reverse position - limiting the loss that can be induced by the said position.

 

What is the average profit?

> This is of course a persistent question. The general answer is with Captain Algorithm you can expect a monthly ROE fluctuating between 1% to 2.5%. The more complex answer will be it depends on an array of parameters. One can argue that averaging the weight of apples, peers and potatoes does not make much sense really. Indeed the profit that can be made with Captain Algorithm is quite variable - the most important factors being the symbol(s) you are trading with, the account rating, the trading mode selected by the user, the average spread of the symbol(s), the amplitude of market fluctuation and the trading horizon.

 

For instance with an account with a very good rating you can choose to trade more aggressively without hurting the account's rating while you can expect to double your monthly ROE - the doubling of the monthly ROE is hardly surprising simply because when you select a more aggressive trading mode the volume traded will almost double either as a consequence of Captain Algorithm increasing the positions sizes or being more lenient in deciding new series of trades. Profits can also be increased substantially by trading in longer term.

 

As opposed to the scenario in which the user will be happy with something around 10% annual ROE, he can select a very conservative trading mode to ensure a safe trading. However this is possible only when the account trading parameters allow to - sometime Captain Algorithm simply cannot trade more because the maximum number of positions has been met for instance.

 

Users who are more experienced and dedicated to Forex trading can expect even greater profits by manual profit trailing. Manual profit trailing can increase considerably the profits Captain Algorithm can make - basically Captain Algorithm will manage the series of positions on a given pair until the series is profitable and it will be up to you to decide to keep profit trailing the already profitable series or not - since on automatic mode Captain Algorithm will immediately close the already profitable series.

 

More generally with an account that has met the recommended specifications - giving a satisficing rating - the monthly ROE will fluctuate around 1% to 2.5% with a prudent trading mode.

 

How can I increase my profits?

> Firstly, the simplest way to increase your profits with Captain Algorithm is to change the trading mode to a more aggressive trading mode. However by doing so you will concomitantly reduce the safety level of your trading. So you will have to pay attention when changing trading mode and note whether by choosing a more aggressive mode your account rating would not be reduced too drastically - because the account rating does also take into consideration the trading mode you have selected. Said otherwise selecting a more aggressive trading mode can be at the expense of the safety of your trading. For instance a trading account with a good rating on a prudent trading mode can be downgraded to bad by selecting a more aggressive trading mode. On another hand a trading account with an excellent rating on a prudent mode will not necessarily be downgraded in terms of general appreciation - although the nominal score will be lower - by changing to a more aggressive trading mode.

 

Secondly, when you feel confident that for a given pair there will be significant fluctuation than you can increase the traded volume of that pair. By increasing the traded volume you will mechanically increase your profit. However it shall not be overused in order to preserve the safety of your trading account as computed by Captain Algorithm upon launching.

 

Thirdly, the use of manual profit trailing - when performed correctly - can increase considerably the profits you can make by using Captain Algorithm. When manual profit trailing is set for a given pair, Captain Algorithm will manage the series of positions on that pair until the entire series is profitable and will let you choose when to close the series. There are two modes of manual trailing. In the mode "Manual profit trailing - Keep placing new trades" : Captain Algorithm will continue adding more positions in the same direction than the current trend thus potentially adding more profitable positions to the already profitable series. In the mode "Manual profit trailing - Stop placing new trades" : Captain Algorithm will only maintain already opened profitable positions and shall the market continue with its trend the already opened profitable positions will be even more profitable.  When manual profit trailing is disabled for a given pair, Captain Algorithm will automatically close the series as soon as the latter is profitable in order to recover temporary losses and make profit. Manual profit trailing is a great tool that may help you achieve greater profits while not putting at stake the safety of your account. However it will require the user to be more experienced in Forex and to have more time on his hands. It is recommended that when "Manual profit trailing" you set a net P&L target after which Captain Algorithm will close all positions of the series.

 

Fourthly, with pairs you know will have an ample fluctuation in the future, you can set the trading horizon to a longer period such as "Mid Term" or "Long Term". Longer term trading when performed correctly i.e. on pairs that will have ample fluctuation - can increase substantially your profits. This option is preferable to "Manual profit trailing" for traders that have less experiences or time for their trading.

 

Fifthly, change the symbols you are trading with. The larger the market fluctuation over time, the more profitable your trading with Captain Algorithm will be. Therefore aim for symbol(s) that you know will be fluctuating more - those are for instance the symbol(s) that are often in the news. For less experienced traders trade in priority with Indices and Stocks - Forex can be more difficult for being generally offered with more stringent trading conditions.

 

Last but not least, it cannot be repeated enough but cashback scheme is a boon. Since Captain Algorithm trades in the long run and in large quantities, cashback scheme can deliver a consequential additional revenue stream to your trading while the trading conditions of your trading account and trading logic with Captain Algorithm remain unchanged. Cashback scheme is particularly interesting for traders starting with small equity and trading with Micro (Cent) or Mini accounts.

  

Is Captain Algorithm good for Forex championship?

> No by design Captain Algorithm has been coded to use time to compensate for uncertainties. For users who have fully understood the philosophy of Captain Algorithm the conclusion is clear since Captain Algorithm is precisely an algorithm that tries to compensate risk - which in the case of Forex is the unpredictability of prices - with time for the only certainty one can have is that the longer the period of time considered the likelier prices will have fluctuated away - an possibly back - from a given price line. And it is on that assumption of prices fluctuation versus time that Captain Algorithm has been designed. Consequently when the user set Captain Algorithm to "Land", Captain Algorithm will stop starting new series of trades while still managing already opened positions until the prices will have fluctuated away in order to recover temporary losses and make profits. The duration of the landing process is unknown and will depend on the market fluctuation i.e. until the prices will have fluctuated away from the price lines of the already opened positions - thus compensating unpredictability of prices with time.

 

Any Forex championship has a time limit i.e. a beginning and an ending. So it is possible that by the time the championship ends Captain Algorithm may still be in the process of "Landing" the account - purposefully since Captain Algorithm bets on time - and still has to bear some temporary losses. Consequently the logic of Captain Algorithm of betting on time to compensate for unpredictability of prices is not compatible with the logic of a championship which has a well defined ending time.

 

On another hand one can question the significance of a Forex championship in terms of soundness of the trading methodologies applied by contestants. Firstly one must underline that any championship - precisely because it is limited in time - will necessarily have a winner. Secondly it is difficult to distinguish a winning strategy that is just semi-random from a winning strategy that has a consistent winning methodology. For shall the number of contestants be high enough - of which all are applying random strategies - there will still have at least one contestant that is the best and has a very good performance. Thirdly championship will necessarily favor risky behavior for an "all-in" strategy will potentially pay of more.

 

The limited time championship phenomenon also takes place with the worn-out yet recurrent falsely shocking newly uncovered truth of "a nine years old girl outperforms a veteran of Wall Street in stocks trading" that comes out now and then in the media - of course without putting forward that it is the test results from an 1 month survey. Said otherwise when the test period is limited and relatively short one cannot distinguish whether one is sampling randomness or one is revealing a truly consistent methodology of trading profitably. The only way to ascertain the difference will require the repetition of the experiment. Well of course when the experiment is repeated the "nine years old girl" will just be out of the picture for no one has never heard of a "nine years old girl" becoming multi-millionaire on Wall Street...Similarly the "top performers" of retail Forex on various websites and walls of fame will invariably change at every contest. One can even say with some irony, that the list of "top performers" change as much as the foreign exchange rates themselves...

 

When should I withdraw my money?

 > The most important rule is to not withdraw your money before Captain Algorithm has finished its "Landing" process - first you will have to select the option "land my account" then let Captain Algorithm finish the process. Once the landing process is finished, Captain Algorithm will automatically remove itself from your trading terminal then you can freely withdraw your money. This answers the question of "when" sensu stricto.

 

With regards to the timing of your withdrawal, the answer is that it will depend on your objectives. Basically you can withdraw every time you have let Captain Algorithm finish "Landing".

 

How can I increase the maximum equity cap of 10K?

 > Option 1 : in order to trade with more than the maximum equity cap allowed by monthly subscription plan, you will need a professional license. The professional license will be licensed individually and priced according to the maximum equity selected by you. The Captain Algorithm team is still working on the terms and conditions of the professional license. For more details please contact us.

 

Will there be a MT5 version of Captain Algorithm?

> For the time being there is no clear schedule for releasing an MT5 version of Captain Algorithm. As the number of MT5 users increases in the retail Forex trading environment, Captain Algorithm will without doubt study the possibility of meeting such demand.

 

Are ECN accounts more profitable?

> Yes. ECN accounts are generally more profitable with regard to Captain Algorithm than non-ECN accounts because ECN accounts will offer better spread conditions and faster trade execution.

 

However on non-ECN accounts, one may enjoy additional promotions and advantages that may make such non-ECN accounts more attractive such as deposit bonus, tradable rebates, no commission, contractual negative balance protection etc.

 

As a trader you will have to make a trade-off. Large investors will profit much more from running Captain Algorithm on ECN accounts,
while it can be more advantageous for small investors to enjoy promotional offers.