Trade parameters 3 - investment control
The trade size - the number of contracts or currency units purchased - can be determined in three different ways. For directly ordering a certain number of contracts, use Lots. For investing a certain amount of your account balance, use Margin. For risking a certain amount by determining the worst case loss, use Risk.
Trade size given by the number of lots per trade (default = 1; max = 99999). This is the unit used for sending orders to the broker. One lot is the smallest possible order unit of the active account (see remarks). In binary trading mode (BINARY flag) or if Margin or Risk are used for calculating the trade size, Lots determines the minimum number of lots to be opened per trade (normally 1). If Lots is 0, no trades are opened. If Lots is -1, trades are executed in
Trade size given by invested margin per trade, in units of the account currency (default = 0.0001 for always opening at least 1 lot). With no leverage, Margin is simply the money invested to purchase the asset.
On a leveraged account, Margin is a fixed part of the real trade size - for instance 1% at 1:100 leverage - that the broker keeps as a deposit for opening a trade. As long as the trade is open, the margin amount is locked on the account and can not be used for further trades (of course the loss of a trade can be higher than the margin). If Margin is 0 or negative, no trades are opened. Otherwise the trade size is calculated from the given margin.
The Lots variable still determines the minimum number of lots to be opened per trade. If the trade size by Margin is lower than Lots and the MARGINLIMIT flag is set, trades are skipped. If the ACCUMULATE flag is set, the size of skipped trades is accumulated until it reaches the Lots amount. Keep Margin at its default value for controlling the number of lots only with the Lots variable.
Trade size given by the trade risk in units of the account currency (default = 0 = no risk limit). The risk is the theoretical maximum that a trade can lose; it is determined from trade size, stop loss distance, commission, and spread. Since risk is undefined when a trade has no stop loss, the Risk parameter must always be given in combination with Stop. If the risk of a trade at the given Margin is higher than the Risk variable, the trade size is accordingly reduced.
When the RISKLIMIT flags is set, trades are skipped when even with the minimum amount (1 lot) the trade risk is still higher than twice the given Risk value. When Margin is not set, the trade size is only limited by Risk; this can lead to extreme trade sizes and subsequent margin calls when the Stop distance is tight. Due to slippage and minimum lot amount, the displayed risk in the trade log can deviate from the set up Risk value especially with tight Stop distances.
A stopped out trade can lose less or more than Risk.
Initial invested capital in units of the account currency (default = 0 = no initial capital). This has no effect on trading, but on the calculating the strategy performance in the simulation. Set this to the initial capital when the strategy reinvests profits; Zorro then calculates CAGR instead of AR and determines performance parameters from the invested capital instead of the required capital. If drawdown plus
required margin exceeds Capital on leveraged accounts, Zorro will declare a Margin Call and abort the simulation.
Make sure to set Capital well above the required capital on leveraged accounts, and to limit reinvestment so that negative equity is avoided.
For test purposes, setting Capital to a negative amount allows
to continue the backtest even with negative free capital.
Maximum allowed number of open long and short trades with the same asset and algo. If this limit is reached in [Test] or [Trade] mode, enter calls do not open more trades, but still close reverse positions and update the stop limits, profit targets, and life times of open trades to the current values. In [Train] mode the limits have no effect.
- Lot can have different meanings in the trade context. Normally one lot is the smallest order unit; the trade size is always a multiple of 1 lot and can never be less than 1 lot. The lot amount - the number of contracts equivalent to one lot - depends on the broker, the account, and the asset type. Forex brokers often offer mini lot and micro lot accounts. One mini lot is equivalent to 10,000 contracts and about ~50 EUR margin; and one micro lot is 1000 contracts and ~5 EUR margin. On stock broker accounts, the lot amounts and margins for Forex trading are usually higher and the leverage is smaller. For CFDs, some brokers offer lot sizes that are a fraction of one contract (f.i.1 lot = 0.1 contracts). For options and futures, the lot size is determined by the Multiplier. The broker normally displays his trade parameters on his website or in his trading platform, so the lot amount per asset is always available.
- In some platforms, lot has a special meaning. In the MT4™ platform, the minimum Forex lot amount is usually 1 microlot, and 1 "MT4 Lot" is equivalent to 100 micro lots. MT4 lots can be converted to real lots with the script command Lots = MT4Lots * 100000/LotAmount.
- The margin per lot can be determined with the MarginCost variable. The number of contracts per lot can be determined with the LotAmount variable. The risk of a trade - the maximum possible loss at a given Stop distance - is Lots * (Stop/PIP) * PIPCost. The number of lots equivalent to a given margin is (Margin/MarginCost).
- Margin, Risk and Lots must be set before calling enterLong / enterShort.
- Margin, Risk or Lots could be set up in real time with a slider (see script example). This would allow to quickly adapt the trade risk to the market situation, or to disable trades temporarily when you hear of a market crash. The number of lots, the current price, and the real risk is displayed in Zorro's message window when an order is placed (see Trading).
- [Train] mode always uses 1 lot for training parameters or rules, regardless of the setting of Margin, Risk and Lots. When Margin or Lots are zero, no trade is opened.
- Because orders can only be placed in a multiples of one lot, the actual margin can be bigger or smaller than the given Margin value. When the MARGINLIMIT flag is set, trades are not executed when the required margin is more than twice the Margin value; increasing Margin will then increase both the trade size and the number of trades, while increasing Lots only increases the trade size.
- The Capital variable is used for determining the effectivity of the reinvestment algorithm. It calculates performance parameters based on the given capital, not on the equity curve, and thus ignores the setting of the Monte Carlo
- In [Train] mode, trades always open 1 lot, and phantom trades are converted to normal trades. This behavior can be modified with the
// set margin from slider
Margin = slider(1,500,0,2000,"Margin","Average margin in $");
enterLong/Short, Stop, Spread, PIP, PIPCost, MarginCost, Win/LossPayout
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