How to use the locking of transactions in your trading and whether it should be used at all?

How to use the locking of transactions in your trading and whether it should be used at all?

Execution of exchange transactions in the financial market occurs only after a full and comprehensive analysis of the financial tool. To do this, there are many different methods that are combined into trading strategies, and the specification of the opening can also be divided into several types (buy stop, sell limit, market, etc.).

However, there are also moments in which the opening of positions took place incorrectly and entailed additional risks. Undoubtedly, I recommend to close all such operations immediately or, at a minimum, to limit them to maximum loss. But beyond that, there are two other methods that allow you to manage risks on capital in the already opened positions, namely locking (trade lock) and averaging. Today, I will tell you in more details about the first form, and we will find the answer to the question “Is it worth it to apply it?”.

Locking is one of the ways to manage risks by fixing them at a certain level. For this, an additional transaction is made in the fix api forex market in the opposite direction from the already current loss-making market. Thus, if you already have a transaction that demonstrates a loss, and you are confident that sooner or later it will go to the side you need, you can open a “counter-deal” to limit the loss with its subsequent closure.

Let’s consider an example in order to understand this principle in more details.

Fix api trader opened a deal for sale on the EURUSD currency pair at a price of 1.1900. However, the price continued to grow and reached the quotes at 1.2100. The manager sees that the current value is directed to the global level of resistance, after the rebound, from which the quotes will go to the right side – in a downtrend. Then, he opens a deal to buy with a goal to this level. Thus, at the first the loss is increased, and at the another the profits are increased. But the value itself as a percentage of capital remains unchanged. Accordingly, this situation is called “locking the trading position” or simply “lock”.

This technique is widely used for algorithmic speculative trading, in which the movement in the corridor is the main one. It is also used in the fix api arbitrage trading with long retention of positions ( ).

I emphasize that there must be good reasons for opening a second position in order to create a lock. Ideally, the trading strategy of the manager should help in this.

Advantages of the lock trade

This technique allows you to fix a certain percentage of risk and if you trade in the capital of a conservative investor, you can resort to this method to not distort the statistics of a losing trade. This approach also fixes the funds, which will delay the time of the Margin Call occurrence.

Disadvantages of this technique

Regardless of the risks fixation, the lock creates additional risks. For example, the second position can also go into deep drawdown and there will be two negative deals. And then, you will still have to close both positions with a fixed risk. In addition, it is quite difficult to get out of the lock and it’s not for every professional to do that, let alone the beginners.

Is it worth to apply it?

The trading strategy should give you the answer to this question. Personally, I do not use this approach in my trade. After all, if you open a deal, then you wait for a certain level or value of the asset. Opening of the opposite position will go to the skew of your strategy and your vision of the market. Therefore, you should find an answer to this question yourself or by using the techniques that you already use. If the risks allow you to resort to such a method, then you can test. But if the capital is limited, it is better to reduce the risk for the transaction, rather than resort to non-standard methods in the form of averaging or locking.



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