I understand your concern. My trading is done through a PAMM. This account in know way is my money solely. I was risking about 60% in my Spot
FX account with FXCM. However, I want you to understand that I had hedged futures options that make up more than 85% of whatever loss occurs less the premium paid. So MAX loss is the premium paid, because I can excersise.
Please let me explain. I will use small numbers, tis easier to think this way.
I went long GBP at 1.8000 9/29/04 with an entry. When triggered, I called in an options hedge at 1.8000 Strike.
Premium paid was $1475 for a hedge of 125k. So I use a mini account and trade 100k for each. So, $1475 is really 148 pips Loss for worst case scenario. I cash them back in when unwinding the trade, but because my open and options strike are the same, or was within 15 pips, I am only risking 148 pips and 15 pips difference form the strike.
The potential gain was 100-150 pips per lot.
My estimated calculation of loss on options is as follows.
When GBP goes from 1.80 to 1.81, the option value decreases from 1475 to be only worth about half the amount, sometime a little more than half. Lets say about 60% of the value. So I made 125 Pips on the SpotFX trade MINUS 59 PIPS that I lossed due to option decrease.
+125 pips for capital gain
-59 pips for cost of options (Insurance)
=Net Return 66 Pips Per every 100k position.
The options are not as liquid, so somedays it is very tough for pricing and liquidity.
Also you must keep in mind that commissions are not taken into account.
So I maybe leverage my account 75%, or heck lets say I am margin called! The options account will make back 85% if not more.
If it happens in a few days then it is in the 90's, if time goes by and decay happens, then yes that percentage can be in the 70's to 80s of % recovery. However, I still have the freedom to use a stop for both my
FX and options positions.
I went short GBP and am doing very nice on this trade. To see Full analysis check out my other threads.