A Little Bit of Background Information

Some basic risk management rules we learnt at the three day training workshop are:

• never use up more than 75% of your trading account in margins (a deposit that your broker takes in order to process the trade)
• never lock up more than 30% of your trading account in margin on any one trade
• never risk more than 5% of your trading account on any one trade (the amount you risk is the difference between the opening price or the price at which you bought the commodity and the stop that you place on the trade)

There are two types of trades you can enter into Long Trades and Short Trades. Let me explain, a long trade is when you expect the price to go up so you buy with the expectation that you can sell later at a higher price. A short trade is when you expect the price to go down so you borrow shares and sell them with the expectation of buying them back later at a lower price and returning them. A better explaination of Trading Short can be found here.

Forex (foreign exchange) for those that dont know is trading in currency pairs. There are ten currency pairs you can trade in ARLT these being:

• US Dollar / Japanese Yen
• Euro / US Dollar
• British Pound / US Dollar
• US Dollar / Canadian Dollar
• US Dollar / Swiss Franc
• Euro / Swiss Franc
• Australian Dollar / US Dollar
• Euro / British Pound
• Euro / Japanese Yen
• British Pound / Japanese Yen

In order to stick with the above risk management rule of using no more than 75% of my account in margins, I would need a opening account of about $37,000 US Dollars in order to trade all of the currency pairs.

Commodities, from the training workshop manual, generally mean a physical substance like wheat, corn or gold etc. there are eight types of commodities you can trade with ARLT these being:

• Currencies
• Energies
• Financials
• Grains (wheat, corn, soybeans etc)
• Livestock (basically cows and pigs)
• Metals (copper, gold and silver)
• Softs (coffees, cocoa, cotton etc)

It is suggested that it is best to stick to trading Grains, Livestock (except pork bellies) and Softs (except lumber) to start with, as these commodities tend to trend well. The margin needed to start trading them and stick within the above rules is about $48000 US Dollars.

So with this in mind I need an account of about $85000 US Dollars in order to start trading all forex currency pairs and all of the grains, livestock and softs. For the purpose of the exercise and to see how well I do with each of these two markets I will keep the two initial amounts seperate. Easy to do with the spreadsheets provided by Lifestyle Trader.