Dow Theory MT5 Indicator Increases Forex Winning Ratio!
Forex (Foreign Exchange Margin Trading) allows you to leverage your money to make dozens or hundreds of times your actual funds. In this case, profits can increase dozens or even hundreds of times. Naturally, the same applies to losses.
Forex is a high-risk, high-return investment, and this image is particularly strong with foreign forex traders, since they can use leverage of 500 times or more. However, foreign FX firms have a "zero-cut" mechanism, so the risk is lower than with domestic transactions. In this article, we will tell you what a zero-cut is, its benefits, and how to use it effectively.
Contents
What is Zero Cut?
Difference between forced loss-cut and zero-cut
If you use a domestic FX firm, you may often hear the term "forced loss cut. The term is similar to "zero-cut," but the content is very different. With domestic FX firms, generally, a forced loss cut is applied when the margin maintenance rate falls below 100%. For example, if the margin requirement for 10 lots ( 100, 000 currencies) of USD/JPY (USD/JPY ) is 440,000 yen, the margin maintenance ratio is 100% if the effective margin is 440,000 yen. The surplus is at zero. Under these conditions, with 500,000 yen in funds, if the market moves against expectations and the yen appreciates by 1 yen, the unrealized loss is 100,000 yen, so the margin maintenance rate falls below 100% and a forced loss cut is made. The firm will force you to close your account as a confirmed loss. Zero cut is triggered when unrealized loss becomes more than the effective margin. 500,000 yen in funds, if the market moves against expectations and the yen appreciates by 6 yen, the unrealized loss will be 600,000 yen. In this case, the balance in your FX account will be negative. This means that you are in debt. To prevent this from happening, when the balance goes negative, the FX firm will take a zero-cut to cover the negative amount.
No zero-cut adopted in Japan.
Under normal circumstances, the margin maintenance rate should fall below the forced loss cut level before the balance becomes negative, and all positions should be closed. This is because the forced loss-cut mechanism is designed to deal with losses before they grow too large. However, it is not always safe to say that there is a forced loss cut. There have actually been cases where the mandatory loss-cut was not triggered. That was the Swiss franc shock of January15, 2015. The Swiss National Bank had been intervening to stop the appreciation of the Swiss franc by selling the currency without limit, but this was suddenly lifted on that day, causing the euro/CHF (EUR/CHF) to plunge 40% in just 20 minutes after the announcement. The interbank was unable to put a price on the violent and sudden change in the market, and the forex trader paused. When the exchange rate was displayed again, a window had opened due to the plunge and the price had jumped. The forced loss cut was not triggered as it should have been, and the forced loss cut was triggered at the exchange rate that had jumped. This caused some traders to incur debts of tens of millions of yen. In this case, "additional payment" is a demand to repay a debt, and failure to pay the debt will result in seizure of the property. In fact, there is a rule in Japan that zero-cut cannot be adopted, and there is a risk of a negative balance.
Investments that make effective use of zero-cuts and precautions
No additional charges
However, foreign FX firms have zero-cut, so even when prices jumped due to the Swiss franc shock, there was no additional debt repayment (unless the foreign FX firm also employs zero-cut). This means that as long as you use a foreign FX firm, your balance will never go negative, no matter how many positions you hold or how much you trade at very high leverage. Unlike domestic forex traders, foreign forex traders can avoid the greatest risks. Here, it is also possible to "gamble trade" effectively taking advantage of the fact that there is no additional debt repayment. For example, " XM," an overseas FX firm overwhelmingly supported by Japanese, allows ultra-high leverage of 888 times. With this, the margin requirement for holding 10 lots ( 1 million currency) of USD/JPY in a standard account is 126,126 yen (set at 112 yen per dollar; XM offers100, 000 currency per lot ). You deposit the minimum required amount, and if it moves against your prediction, you will be forced to take a loss cut or zero cut in an instant, but if it moves one yen as predicted, you will make a profit of one million yen. Once you have made a profit, you can withdraw the money again, leaving only the minimum required amount, or transfer the balance to another account and gamble trade again.
Even if you fail five times, you can still make a profit if you succeed once. Deposit bonuses and XM points based on the amount of transactions can be used to reduce the deposit amount even further. The zero-cut system and ultra-high leverage can be effectively utilized. If the same thing happens with a domestic FX firm and you hold 1,000,000 currencies, a surprise 40% plunge and price jump would result in a loss of 44,800, 000 yen, which would almost certainly be an additional debt repayment. This is not a very acceptable risk. In other words, gambling trades, such as those made with foreign FX firms, are too risky to be made in Japan.
Open both accounts in two accounts is a prohibited activity.
Incidentally, foreign forex brokers also allow you to have multiple accounts; with XM, an individual can open up to 8 accounts. For example, a standard account for MT4 and a standard account for MT5. Suppose we use two accounts, each with a minimum deposit, and gamble trades. One is a long position and one is a short position in the same currency pair. If a trend occurs, one of them can easily be cut to zero, while the other can earn a large profit. This means that even if you lose, you can limit the amount of your deposit to about 130,000 yen, and if you win, you can make a very lucrative trade of 1,000,000 yen. However, this type of dual-accounting using multiple accounts is prohibited (dual-accounting is not a problem with a single account). Please note that in the worst case scenario, your account will be frozen and you will not be able to deposit or withdraw funds, let alone conduct transactions. In some cases, it is permitted to have both sides of a trade with another company, and in other cases, it is against the terms and conditions, so you need to check the rules carefully when using an overseas FX firm.
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