The question is - about the leverage allowed for the trader.
Initially a trader is given 2000$.So what is the max leverage a trader is allowed to use.Say Indian brokers allow 4 times.
Does this mean that one can take a position of 8000$ per trade ?
Regarding the risk ?
Regarding the brokerage - 6$ per trade - buy and sell - 12$.
Assuming a trader can take 1% risk per trade.
So a trader with 2000$ has to shell out 12$ per trade just to brokerage out of the 20$ risk per trade.
Means a trader is forced to take more than 1% risk per trade.
Do you think with the brokerage structure and capital given one has a better chance of survival ?
What's the daily risk limit ?
Whats the weekly risk limit ?
Whats the monthly risk limit ?
Is the profit accrued to the Trading account ?
When a Trader will be fired or what is the loss limit for a trader ?
Hey Bhagwan mujhe utha le...............after all this gyan you are not understanding what I am trying to tell you.......I think something is drastically wrong with my writing/drafting skills.
Let me just spoon-feed you.......mentioning each and every thing.......even the minute insignificant detail......
First of all that long paragraph was about leverage only. Let me first start by stating what do you mean by leverage. Conceptually it is defined as ASSETS/EQUITY or simply TOTAL HOLDING/ PERSONAL CONTRIBUTION. If someone contributes $20 and buys shares worth $100 then his leverage would be 5. the remaining $80 will be provided by the broker/other institutions as a loan.
Now, you are thinking that Capstone is providing us with Capital. That is not the case. They are providing us with buying power. The question which arises now is that what is the difference between CAPITAL and BUYING POWER. To answer this question we need to understand the mechanism of Buying and Selling in Stock Markets at an intraday level. When you buy any share then you do not have to pay for it immediately. There is a settlement cycle. It is T+2 for Indian markets and T+3 for US markets, i.e. in US markets the money to be paid(assuming that you have a buying position or are simply LONG) by you will be charged on the 2nd day after the trading day and you will receive the shares on the 3rd day after the trading day. When you buy and sell anything on the
same day(intraday trading) then the question of the mechanism doesn't arise. You simply have to pay the for the difference in the buying value(No. of Shares * Buying Price) and the selling value(No. of Shares * Selling Price), if you are making a loss. In case you make a profit then you will receive the amount equal to the difference between selling value and buying value. Now the point which comes is that when we donot need any CAPITAL for intraday trading why will the broker allow us to trade when he faces the risk that if there is a major loss then the company may default on its commitment to pay for the losses. For this, Capstone has deposited some money with the broker and has already leveraged on this deposit and has achieved a particular BUYING POWER. Put it simply, the amount of money that the trader can trade with is being provided by Capstone on an already leveraged capital. Let me make it clear with an example......If capstone deposits $1000 withe broker and the broker allows it to take open positions worth $10000 and then Capstone divides this BUYING POWER among its 4 traders on an equal basis. Then each trader will get to take open position worth $2500. Since, the leverage was 10($10000/$1000), hence, the traders are being provided with BUYING POWER with ALREADY LEVERAGED CAPITAL. Hence, there is no question of LEVERAGE since traders are not provided with actual capital but BUYING POWER.
Now come to brokerage. The value of
$6 if for one tick, i.e. 1000 shares, irrespective of the price of the share, and
not per trade. If you buy 100 share then you pay a brokerage of 60 cents. If you buy 10 shares then you pay a brokerage of 6 cent. If you buy 1 share then you pay a brokerage of 0.6cents or $0.006. If with the allocated capital of $2000 you buy one share of $2000 you pay a brokerage of $0.006. If you buy 100 shares of $20 then you pay a brokerage of 60 cents or $0.6. The total worth of shares bought in both cases is same but the brokerage charged is different. The brokerage is dependent upon the no. of shares irrespective of the price of the share. If you buy costly shares then your brokerage will be low and if you buy cheap shares your brokerage will be high as a percentage of the total worth of shares bought.
Risk limit is different for person to person. Even with two people having the same buying power, risk limit will be different depending upon the trading style of the trader, which is monitored by the Risk Managers. They have their own criteria to determine the risk limit of each trader.
Profit will not get directly accrued to your trading account, but if you make consistent profit for 2-3months then the BUYING POWER will be increased and that too by huge amount.
There is no fixed loss limit for the trader. If suppose a trader makes a profit of say $10000 consistently for 3 months and then in the fourth month makes a loss of $50000, then the Risk Managers will look into the cause of the loss. If the loss was due to one bad trade, or due to some rumor in the market(e.g. the white house bomb blast rumor which hit the market 3-4 months back), or due to a rare event(e.g. the Flash Crash of 2010), etc. then he will be given a warning and will be asked to recover the losses. However, if the trader is making losses consistently, even though they may be small, he might be asked to leave. However, in the training phase you are given a lot of leeway. In the training phase almost everyone makes losses.