Good Start to this Week

I started out this week with a few trades.  I'm trading 30 contracts of Kiwi (NZD\USD) right now.  Each contract is 10,000 units of currency.  I have banked 47 pips for $1400 profit.

One may be asking, "Why trade the New Zealand dollar?"  It's simply mathmatics.  I can trade more contracts of Kiwi for the same amount of money.  Kiwi is valued at about $0.78 to one US dollar.  A mini-contract is 10,000 units and I am trading on 50:1 leverage.  Here is the math:

$0.78 x 10000 = $7800

divide by leverage value to get how much money you need to put up to buy one contract

$7800 / 50 = $156 (per contract)

Multiply by the number of contracts traded

30 * $156 = $4680

When trading a mini-contract (10,000 units) on 50:1 leverage, each pip is worth $1.00, so if I trade 30 contracts then each pip equals $30.

If I were to trade Euro's (EUR\USD) which is about $1.30 for every US dollar then my cost per contract would be about $260 per contract, so 30 contracts would cost me $7800.  Almost twice what it cost to trade the same amount of Kiwi!

So why would anyone trade Euro's when Kiwi is almost half the price?  One reason why is becuase of the spread between the bid and ask price.  Euro spreads are typically 1 to 1.5 pips and Kiwi spreads are typically 3 to 5 pips with my FX broker, Oanda.  So if I am trying to get 10 pips, the Euro has to move at least 11 or more pips from my entry price so I can cover the spread and get the 10 pips, the Kiwi has to move 13 to 15 pips to get the same 10 pip profit.  Another reason is the volume of trades, more Euro is traded than any other currency (that is one reason why the spread is so low) and seems to be a little more predictable.

So why am I trading Kiwi right now?  With the size of my account at this time I can can make larger gains.  With a balance of $8000 in my account I certainly can't trade 30 contracts of Euro and have any risk tolerance to think of, it only leaves me $200 of margin to work with.  So effectively I could only trade 15 contracts of Euro, but with Kiwi I can trade 25-30 contracts.  If I capture 10 pips of Euro in this example I would only make $150 for a 1.8% return.  With Kiwi, these same 10 pips would get me $300 for a 3.75% return.  Same pips, same dollar amount risked, same amount of margin and leverage used....twice the return.

I'm using this to quickly build my account base up and then I anticipate going back to the Euro which will be a little more predicable in it's direction and movement and the spreads are thinner.