Trade Setup Errors: Not Enough Margin – VEMA Trader

Sections:

Why can't I alter my SL instead of account risk?

What is it?

The "Not enough margin" issue occurs when a user tries to create a trade setup that would require more margin than they have in their account to fund the position.

As it is impossible to use more than 100% account margin (adding more margin to the account still leaves account margin at 100%, that 100% just represents a bigger $ value) these trades are never going to be able to enter, so we've introduced a block to prevent people creating these "impossible trades"

The formula for calculating the margin requirements for a trade is:

Stop Loss % x Leverage x Trade Margin = Account Risk % x Account Margin

The simplest example is a spot trade, effectively 1x leverage.

To risk 1% of an account, with a 0.5% Stop Loss, would require 200% of the account margin to be placed on the trade.

0.5% Stop Loss x 1x leverage x Trade Margin % = 1% account risk x 100% account margin
0.5 x Trade Margin % = 1 x 100

Trade Margin % = 100/0.5

Trade Margin = 200% of Account Margin

This is where leverage comes in handy. We can see if we had access to 5x leverage, this trade now becomes possible.

0.5% Stop Loss x 5x leverage x Trade Margin % = 1% account risk x 100% account margin

0.5 x 5 x Trade Margin % = 1 x 100

Trade Margin % = 100/2.5

Trade Margin = 40% of Account Margin

This position can now be funded as the margin required is less than the total margin in the account.

Error: Over 100% Margin

Formula for error:

Stop Loss % x Leverage < Account Risk %

This error message will appear when a setup is created that would require over 100% account margin. As this trade cannot ever enter, VEMA now blocks these trade setups from being created.

An example of this would be a trade with 20x leverage, a 0.15% Stop Loss, and an account risk of 4%

Stop Loss % x Leverage x Trade Margin % = Account Risk % x Account Margin %

0.15% Stop Loss x 20x Leverage x Trade Margin % = 4% Account Risk x Account Margin %

0.15 x 20 x Trade Margin % = 4 x 100

Trade Margin % = 400 / 3

Trade Margin = 133.33333% of Account Margin

Unfortunately, unlike in the previous case, here we've already used our leverage, so cannot rely on it to bail us out. This trade is impossible to place without getting more leverage, dropping account risk or increasing the stop loss percentage.

Warning: Over 85% Margin

Screen_Shot_2022-05-10_at_3.19.29_pm.png

Formula for warning:

85 % Account margin < Account Risk % / (Stop Loss % x Leverage)

This warning message will appear when a setup is created that would require over 85% but less than or equal to 100% account margin, . As this trade can possibly enter, VEMA allows for creation of these trade setups. However due to dynamic leverage on certain exchanges, these still run the risk of not entering.

Dynamic Leverage: While FTX offers 2x "Maximum Leverage" the actual leverage available fluctuates and often will be less (See image above). The lowest we've seen was 1.74, so for this reason we set a 15% buffer in our warning and suggested account risk percent.

Trades that use more than 85% of account margin can still enter, we just suggest dropping the account risk down to greatly increase the odds of the trade being able to enter. Better to catch a 13:1 for 0.9% account risk than to miss it completely for 1%.

An example of this would be a trade with 2x leverage, a 1.5% Stop Loss, and an account risk of 3%

Stop Loss % x Leverage x Trade Margin % = Account Risk % x Account Margin %

1.5% Stop Loss x 2x Leverage x Trade Margin % = 3% Account Risk x Account Margin %

1.5 x 2 x Trade Margin % = 3 x 100

Trade Margin % = 300 / 3

Trade Margin = 100% of Account Margin

While this trade might enter, it would require access to the full 2x leverage at time of attempted entry and would need to tie up every single cent in the account. As in the screenshot above, that might not be available due to dynamic leverage calculations on the exchange, so VEMA will suggest a lower account risk percentage to reduce the chance of this trade failing due to insufficient margin.

An important note: Positions accepted here still may not enter due to other open positions locking up margin at time of entry.

Why can't I alter my SL instead of account risk?

You can. But I'd recommend against it.

Increasing your stop loss will also decrease the margin required for the position, just as lowering the account risk will. But it does so at the cost of increasing the amount you lose if your Stop Loss is hit, without increasing the profit if you win the trade - essentially trashing your R:R.

Let's run through two examples. In one we'll change the account risk, in the other, the stop loss.

We'll use the same spot trade from earlier:

Stop Loss % x Leverage x Trade Margin % = Account Risk % x Account Margin %

0.5% Stop Loss x 1x leverage x Trade Margin % = 1% account risk x 100% account margin

0.5 x Trade Margin % = 1 x 100

Trade Margin % = 100/0.5

Trade Margin = 200% of Account Margin

But now we also need an account margin value and a take profit percentage.

Let's use a $1000 account, and a 5% Take profit

We also know the Trade Margin will be 85% to meet VEMA's recommendations.

Trade one - Variable Account Risk Percentage:

Stop Loss % x Leverage x Trade Margin % = Account Risk % x Account Margin %

Becomes

0.5% Stop Loss x 1x Leverage x 85% Trade Margin = Account Risk % x 100% Account Margin

Account Risk % = (0.5x85)/100

Account Risk = 0.425% = $4.25 (0.425% x $1000 Account Margin)

And

SL = 0.5% TP = 5% so

R:R = 5 : 0.5 = 10:1

Therefore if this trade loses, we expect to lose $4.25. If it wins, we expect to make $42.5 ($4.25 account risk x 10 R:R)

Trade two - Variable Account Risk Percentage:

Stop Loss % x Leverage x Trade Margin % = Account Risk % x Account Margin %

Becomes

Stop Loss % x 1x leverage x 85% Trade Margin = 1% account risk x 100% account margin

Stop Loss % =100/85

Stop Loss = 1.1765%

( A quick check to make sure this is right - 1% of a $1000 account is $10. 1.1765% x $850 (85% Trade Margin) = $10.00025 (The extra being due to the rounding of the Stop Loss to four decimal places)

And

SL = 1.1765% TP = 5% so
R:R = 5 : 1.1765 = 4.25:1

We can see immediately this trade has reduced our R:R, but what has it done to our profits?

If this trade loses, we expect to lose $10 (1% account risk x $1000 Account Margin). If it wins, we expect to make $42.5 ($10 Account Risk x 4.25 R:R).

We can see that we're risking more than double the amount we did in the first example, to make the exact same dollar value either way.

You're free to make your own decisions, but I know which one I'd be doing.

The important terms:

< - Less than > - Greater than	A way of showing which of two values is larger. I.e. 999<1000 1000>999
Stop Loss Percentage	The raw value of your SL, as measured on the chart. The percentage difference in price from entry to stop loss exit.
Leverage	The Leverage value being used for the trade.
Account Risk	The amount of your account you're attempting to risk on this position. In VEMA this is a percentage figure you select, defaulting to one percent.
Account Margin	The total amount of margin in your account, including any margin currently allocated to open positions.
Trade Margin	The amount of your capital allocated to the trade.
Available Margin	The amount of margin available in your account at the time of attempted entry. This differs from total margin, as any open positions will tie up margin, reducing the available margin while total margin remains the same.

Sections:

What is it?

Error: Over 100% Margin

Warning: Over 85% Margin

Why can't I alter my SL instead of account risk?

The important terms:

What is it?

Error: Over 100% Margin

Warning: Over 85% Margin

Why can't I alter my SL instead of account risk?

Trade one - Variable Account Risk Percentage:

Trade two - Variable Account Risk Percentage:

The important terms:

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