One of the main reasons that trader’s fail is a lack of understanding when it comes to Money Management. Given the amount of leverage available to currency traders, the temptation to put on a trade that is larger than their account can realistically handle is great. As a result, when losing trades happen, 20%, 30%, 50% or more of the entire trading account can be lost. If traders had a “rule of thumb” that they could follow in this area, losing trades would not be eliminated but the amount of the loss would be small and manageable as opposed to large and catastrophic.
Steps to follow...
-Determine what a 5% loss represents based on your trading account. This one is easy. Whatever your account balance is, multiply it by .05 to arrive at the 5% number. For example, if you have a $7500 account 5% of that would be $375. Now we know that to adhere to the 5% rule, the maximum amount of risk you can take on at one time is $375.
(To me, not knowing my “5% number” would be like driving without a speedometer on your car and you also do not know the posted speed…you are definitely operating at a disadvantage.)
-Next, look for a higher probability trade to enter. As a trend trader, I prefer to look for pairs that are in a strong trend and then look for an opportunity to enter the trade in the direction of that trend.
-Once I have found the pair, I then find a chart time frame that provides me with fairly defined levels of support and resistance so I can determine my entry level and stop placement with greater clarity.
Let’s take a look at the Hourly chart of the EURNZD pair below…
Since this pair is in a downtrend as price action is making lower highs and lower lows and the EUR is weaker than the NZD, we know that we only want to short the pair. Based on this 1 hour chart, a trader could short the pair if price trades below 1.5842. A logical place for our stop is above the previous high at 1.5906. Subtracting our entry price from our stop, we have the amount of risk that we are taking on in this trade…64 pips.
-The next step, and this is a critical one, is to divide those 64 pips by .05. This will give us the size of the account that is needed to place a 10K trade on this pair and be in compliance with the 5% rule. In this case a trader would need an account size of no less than $1280. If the account size is less than that, seek out another pair to trade whose parameters are more in line with your account size.
Please note that ALL of the above is done before ever actually entering the trade.
If a trader waits until after they enter a trade to make this determination, it is quite possible that they will be entering trades that logical stop placement will cause them to take on too much risk.
Also, if a trader is considering taking a 20K position on this trade the account size would need to be at least $2560 since twice the amount of risk is being taken on.
Although this concept remains the same in either an uptrend or a downtrend, let’s take a look at a pair that is in an uptrend.
Below is an Hourly chart of the NZDCHF…
In this case this distance between the entry and the stop (risk) is 31 pips. When we divide that by .05 we come up with 620. So to place a single 10K trade on this pair using these parameters our minimum account size would be $620. To place a 20K trade, one that was twice the size, the account balance would need to be at least $1240.
Part II of Money Management Made Easy will deal with Risk Reward Ratios
---Written by Richard Krivo
To contact Richard, please email instructor@dailyfx.com . You can follow Richard on Twitter@RKrivoFX.
To be added to Richard’s distribution list, please send an email with the subject line “Notification”, to rkrivo@fxcm.com .
Tech boffins: Spend gov money on catching cyber crooks, not on AV - The Register
The UK government should be spending more on catching cybercriminals instead of splurging taxpayers' money on antivirus software, tech boffins have said.
Blighty goes through around £639m a year trying to clean up after attacks or prevent threats – including £108m it spends on antivirus – but the country is only spending £9.6m on techy law enforcement, a University of Cambridge study found.
"Some police forces believe the problem is too large to tackle," Ross Anderson, professor of security engineering at the University of Cambridge’s Computer Laboratory, said in a canned statement.
"In fact, a small number of gangs lie behind many incidents and locking them up would be far more effective than telling the public to fit an anti-phishing toolbar or purchase antivirus software."
The Cabinet Office said it welcomed "this latest contribution to the debate on cybercrime".
"The government believes the threat is serious and needs to be tackled and that is why we have rated cyber as a Tier 1 threat. Raising awareness and building capacity to resist threats continues to be our focus," a spokesperson told The Reg in an emailed statement.
"That includes investing in law enforcement capability to detect and apprehend cyber criminals. But we also think it is important to make sure people have the information they need to take steps to protect themselves."
The study, which was started after a request from the Ministry of Defence, also said that the amount of money the UK was losing as a result of cybercrime was being exaggerated.
"For instance, a report (PDF) released in February 2011 by the BAE subsidiary Detica in partnership with the Cabinet Office’s Office of Cybersecurity and Information Assurance suggested that the overall cost to the UK economy from cyber-crime is £27 billion annually," the research said.
"That report was greeted with widespread scepticism and [was] seen as an attempt to talk up the threat; it estimated Britain's cybercrime losses as £3bn by citizens, £3bn by the government and a whopping £21bn by companies. These corporate losses were claimed to come from IP theft (business secrets, not copied music and films) and espionage, but were widely disbelieved both by experts and in the press."
Using figures ranging from 2007 to 2012, including some which are "extremely rough estimates" based on data or assumption for the reference area, the study reckoned that all the costs of cybercrime both direct and indirect came out at around £11.7bn.
UK.gov – Cybercrime is expensive
The Cabinet Office spokesman said that Detica was best placed to explain its own methodology, but still disagreed somewhat with the study's conclusions.
"The Cyber Security Strategy was clear that a truly robust estimate would probably never be established, but that the costs are high and rising," he said.
"That said, we think there are grounds for believing that the true cost is higher than the £11bn quoted by Cambridge University.
"For example, the authors say that they can't find any hard evidence of the cost of IP theft and have therefore concluded this doesn't impose any costs beyond the defensive measures they refer to elsewhere in the paper. However, there are suspected cases of IP theft in the public domain and the costs are not nil.”
Aside from differing opinions on the cost of cybercrime, the research team also reckoned that some existing meatspace crime was moving online and being tallied up as part of the cyber cost.
The study pointed out that fraud in the welfare and tax systems, which now often takes place online, is probably costing Brits a few hundred pounds a year on average while card and bank fraud cost a few tens of pounds a year per citizen.
However, what they call 'true cybercrime', scams that completely depend on the internet, are only costing a few tens of pence a year, while the cost of antivirus software can be hundreds of times that.
Basically, the indirect costs of folks trying to protect themselves from cybercriminals actually end up costing them more.
"Take credit card fraud," said Richard Clayton, expert in the econometrics of cybercrime in Cambridge’s Computer Lab. "Direct loss is clearly the monetary loss suffered by the victim.
"However, the victim might then lose trust in online banking and make fewer electronic transactions, pushing up the indirect costs for the bank because it now needs to maintain cheque clearing facilities, and this cost is passed on to society.
"Meanwhile, defence costs are incurred through recuperation efforts and the increased security services purchased by the victim. The cost to society is the sum of all of these," he explained.
The research team concluded that there should be less spent on antivirus and firewalls and other preventative measures and "an awful lot more" on catching and punishing the perpetrators.
The study (PDF, 346KB) is due to be presented at the 11th annual Workshop on the Economics of Information Security (WEIS), which takes place in Berlin on 25 and 26 June. ®
Wasting Money: 29 Ways To Stop Throwing Away Cash - Huffington Post
Money Talks News:
I consider myself a Budget Jedi. I watch my accounts like a hawk, shop sales, and stay home more often than I’d like to save money. But back in February, I realized I was still wasting money. In fact, I blew $35.94 in one week. You can read my full money wasting confession here.
But I don’t think I’m the only one with a few leaks in her finances.
Scroll down to see the 29 ways you’re wasting your money.
More On Money Talks News8 Things Rich People Buy That Make Them Look Dumb
YOUR MONEY-Avoiding panic from Roth conversion glitch - Reuters UK
(The author is a Reuters contributor)
By Amy Feldman
NEW YORK, June 18 (Reuters) - Did you receive a notice about taxes due on your 2010 Roth conversion from the Internal Revenue Service? Don't worry, you are not alone - and you likely do not actually owe any extra cash.
Thousands of these frightening notices went out this spring to taxpayers who converted tax-deferred retirement money from a traditional IRA to a Roth IRA, in which income taxes are paid upfront and not owed later.
The problem stems from the complexities of the 2010 Roth conversion - in which for one special year only, taxpayers could choose to spread the taxes due over two years, rather than paying them all at once.
Add to that a glitch between some of the tax software programs and the IRS. It adds up to a lot of taxpayers who converted their traditional IRAs to Roths in 2010 receiving IRS notices that they owed more taxes (and penalties).
If you received one this spring, you do need to respond, but it is not a reason to panic.
"People freak out about anything they get from the IRS," says Bill Fleming, of PwC's private company services practice. He says he has received a number of these notices for clients. "The software providers and the IRS had a disconnect."
With a traditional IRA, you pay taxes when you withdraw money, but with a Roth you pay the tax when the money goes in and then do not owe income tax again. So if you converted a traditional IRA to a Roth - a move that had been restricted but was opened up to taxpayers at all income levels in 2010 - you had to pay taxes on the conversion.
While most Americans have long since moved on from thinking about tax year 2010, the IRS is only now sorting its way through the massive volume of 2010 returns and trying to find discrepancies that resulted in taxpayers not paying what they owed. Its computer system tries to match documents in the more than 100 million individual tax returns to find errors, and when it discovers a discrepancy it sends a notice to the taxpayers.
"They are running a regular matching for 2010, and they don't know it's a Roth conversion. They are just looking for a distribution from a retirement account. For whatever reason, they are not picking up," PwC's Fleming says. "They are saying, 'Oh, there's a massive under-reporting of IRA distributions. There must be a problem.'"
Details of any Roth conversion appear on Form 8606, rather than on the main 1040 return, making it more difficult to match the information, Fleming notes. A glitch in the e-filing systems of some of the large tax software firms meant some data about these Roth conversions never made it to the IRS.
CCH Inc, one of the large professional tax software firms, sent a note to clients about the issue, noting that some electronic returns were missing page 2 of Form 8606.
"CCH alerted the IRS to the issue and has been working with them on a resolution," according to the notice, which adds that the erroneous notices were halted in late April.
Thomson Reuters Corp, the global information company, another provider of professional tax software, had a similar issue: Its GoSystem Tax product did not signify taxpayers' intent to defer the tax on the 2010 Roth conversions, as permitted for that year only, on returns filed electronically.
"When the IRS later ran validation checks, these e-files were flagged and the affected taxpayers were sent notices," said David Wilkins, a spokesman for the tax and accounting business of Thomson Reuters. "We resolved the issue. Also, the amount of tax owed by these taxpayers was not affected and they were not required to pay penalties."
It is unclear whether consumer tax software was also affected by glitches, or whether most people who did Roth conversions chose to seek out accountants - and thus relied on the professional software - for help. H&R Block Inc spokesman Gene King said that his firm had not seen or heard of the problem in its consumer tax software. A TurboTax spokeswoman did not respond to requests for comment.
The IRS did not respond to a request for comment.
TAXPAYER RESPONSE
This all may sound technical, and it is, but for taxpayers receiving the notices about large phantom tax bills, it is also a big deal. On the Bogleheads.org online investing advice forum, posters have been freaking out about dunning notices that sometimes reached into the tens of thousands of dollars.
If you are among the taxpayers who received one of these notices, and you did everything right on your Roth conversion, you shouldn't worry. However, you cannot just ignore the notice and hope it goes away. Instead, you will need to respond (or have your accountant do so) and mail Form 8606 to the IRS. Doing so "resolves the notice and closes the matter without further action or impact to the taxpayer," the CCH notice states.
Of course, none of this means you avoid paying the regular taxes that you do owe in 2011 and 2012 on those Roth conversions done in 2010. If you converted a traditional IRA to a Roth in 2011, you also owed tax on that this year; and if you do a conversion this year, you will owe the tax on it next April. That all means that you will want to run the numbers closely - especially if you are paying quarterly estimated taxes - so that you are not surprised by the tax hit when it comes due. (Follow us @ReutersMoney or here; Editing by Beth Pinsker Gladstone, Linda Stern and Matthew Lewis)
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