Day Traders Must Read! The Maths Trap

When you trade at a retail broker you’re typically extended Margin or Leverage to increase your Buying Power. What this means is the brokerage extends you normally 4 to 6 times the money you have in your account so you can capture more opportunities. The Deposit you have with the broker directly correlates to the amount of Leveraged Buying Power you are able to trade with.

There is something called The Maths Trap that very few retail traders know about or consider which can have a profound effect on your ability to succeed. If you lose 50% of your trading account you then have to make 100% on the money left to get back to where you started. Something to really think about.

As an example, if I had $10,000 USD in my brokers account to make $5,000 USD I would need to make a 50% return on my $10,000 USD. However, if I lost $5000 of my $10,000 USD account I would need to make 100% return on my $5,000 USD to get back to my $10,000 USD starting point.

If you're using Leverage at a Retail Brokers all of a sudden after a bad day you have access to quite a lot less buying power than you did the previous day. This is then compounded with the fact that you have to make higher returns using far less just to get back to where you started. This means smaller size and not trading the same stocks etc.

The Maths Trap
effect especially with leverage really then starts to work against you. Typically what happens without the trader really noticing is they try to push harder with less to try and get back to where they started. Which typically means disproportionate risk-taking which worsens the problem as the Math Trap is therefore in full effect causing the demise of the trading account.  

TraderEquity has intelligent solutions to help the trader overcome issues they may not even know exist. All of our traders are trading our capital rather than their own and we hand out FIXED Buying power to avoid this issue. There is no relationship between the performance bond and Buying power. Therefore the better you trade the more Buying power we simply extend to you without having to add to your Performance Bond.

Happy Trading!


Published 31/05/2019

Please Note: We can NOT accept any US-based traders, this restriction is based on their location rather than their nationality and we can NOT accept any Canadian based traders directly.


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