Trading Simulator Backtesting Essentials

Trading Essentials

1. Market Order

Buy - Long position
Sell - Short position

A market order is a type of order to buy or sell a financial instrument, such as a stock, currency, or commodity, at the current market price. When you place a market order, you are essentially telling your broker or trading platform to execute the trade as soon as possible, at the best available price on the market.

For example, if you want to buy a certain currency pair and you place a market order, the platform will execute the trade at the current ask price (the price at which sellers are willing to sell the currency), which is the best available price at that moment.

Market orders are generally executed quickly, as there is no price limit or range specified in the order, and they are often used when speed of execution is more important than the exact price at which the trade is executed. However, it's important to note that the execution price of a market order may not always be exactly what you expect, especially in very volatile markets or with low liquidity.

2. Limit Order

Buy Limit Order
Sell Limit Order
Buy Stop Limit Order
Sell Stop Limit Order

Limit order: A limit order is an order to buy or sell a financial instrument at a specific price or better. When you place a limit order, you are essentially setting a maximum price (for a sell order) or a minimum price (for a buy order) at which you are willing to enter or exit the market.
Buy limit order: A buy limit order is a type of limit order that is placed below the current market price. This means that you want to buy the financial instrument at a lower price than the current market price. When the price of the instrument falls to your specified buy limit price, the order is triggered and the trade is executed.
Sell limit order: A sell limit order is a type of limit order that is placed above the current market price. This means that you want to sell the financial instrument at a higher price than the current market price. When the price of the instrument rises to your specified sell limit price, the order is triggered and the trade is executed.
Buy stop limit order: A buy stop limit order is a type of limit order that is placed above the current market price, but below a specified trigger price. This means that you want to buy the financial instrument at a higher price than the current market price, but only if the market continues to move in your desired direction. When the market price rises to your specified trigger price, the order becomes a limit order and is executed at or below your specified buy stop limit price.
Sell stop limit order: A sell stop limit order is a type of limit order that is placed below the current market price, but above a specified trigger price. This means that you want to sell the financial instrument at a lower price than the current market price, but only if the market continues to move in your desired direction. When the market price falls to your specified trigger price, the order becomes a limit order and is executed at or above your specified sell stop limit price.

3. Account type

Hedging account
Netting account

In forex trading, there are two main types of accounts: hedging and netting accounts.

A hedging account allows a trader to hold multiple positions in the same currency pair, both long and short, at the same time. This means that if a trader has an existing long position in a currency pair, they can open a short position in the same currency pair without closing their long position. The goal of hedging is to reduce risk by balancing out the exposure to price fluctuations in the market.

On the other hand, a netting account only allows a trader to have one position in a currency pair at a time. This means that if a trader already has an open long position in a currency pair and they want to go short on the same currency pair, they would have to close their long position before opening a short position. The profit or loss of all open positions in a netting account is calculated as a single net position, rather than each position being treated individually.

In summary, the key difference between a hedging account and a netting account is the ability to hold multiple positions in the same currency pair at the same time. Hedging accounts allow traders to hedge their risks by holding both long and short positions, while netting accounts only allow for one position at a time.

Why hedging was removed in the latest app

Today, forex brokers in the United States are required to adhere to a "First-In-First-Out" (FIFO) rule, which means that if a trader has multiple positions in the same currency pair, the first position that was opened must be closed first. This rule effectively eliminates the possibility of hedging, but it is intended to protect traders by promoting transparency and preventing brokers from engaging in unethical practices.

Explaining Trading Simulator Parameters

Equity: Equity refers to the current value of your backtesting game account, including any profits or losses that you have incurred on open positions. It is calculated as follows:
Equity = Balance + Floating Profit/Loss
Where "Balance" is the amount of money you have into your backtesting game account, and "Floating Profit/Loss" is the unrealized profit or loss on your open positions.
Max Drawdown: Max drawdown is the maximum percentage loss from a peak in the equity of a backtesting game account to a subsequent low point. It is calculated as follows:
Max Drawdown = (Peak Equity - Trough Equity) / Peak Equity
Where "Peak Equity" is the highest equity value reached in the backtesting game account, and "Trough Equity" is the lowest equity value reached after the peak.
Margin (free): Margin (free) is the amount of money that is available in your backtesting game account to open new positions. It is calculated as follows:
Margin (free) = Equity - Margin (locked)
Where "Margin (locked)" is the amount of money that is currently being used to maintain open positions.
Margin (locked): Margin (locked) is the amount of money that is currently being used to maintain open positions. It is also referred to as "Used Margin".
Use of Leverage: Use of leverage refers to the amount of leverage that is being used to maintain open positions in your backtesting game account. It is calculated as follows:
Use of Leverage = (Margin (locked) / Equity) x 100
The result is expressed as a percentage.
Margin Level: Margin level is the ratio of equity to used margin, expressed as a percentage. It is calculated as follows:
Margin Level = (Equity / Margin (locked)) x 100
Max (Floating P/L): Max (Floating P/L) is the maximum unrealized profit that has been achieved on any open positions in your backtesting game account.
Min (Floating P/L): Min (Floating P/L) is the minimum unrealized profit that has been achieved on any open positions in your backtesting game account.

Open position: details dialog overview

To show the position dialog simply click/tap on the trading position object, the field where trading volume (1) is displayed.

forexthrive-backtesting-open-trade-dialog

ID: This is a unique identification code assigned to the trade for record-keeping purposes.
Instrument: This refers to the currency pair being traded, in this case, the EUR/USD.
Volume: This represents the size of the position taken in the trade, which is 22,000 units of the base currency (in this case, the euro).
Side: This indicates whether the trade is a buy or a sell, with "buy" meaning that the trader is expecting the base currency to appreciate relative to the quote currency and "sell" meaning that the trader is expecting the base currency to depreciate relative to the quote currency.
Open Price (Avg Fill): This is the average price at which the order was filled, which is 1.22069 for this trade.
Current: This is the current market price for the currency pair.
Open Time: This is the date and time at which the trade was executed.
Leverage: This refers to the amount of leverage used in the trade, which is 50:1, meaning that the trader is required to have 1/50th of the total position size as margin.
Margin (requirement): This represents the amount of margin required to open and maintain the position, which is $539.3 in this case.
P/L USD: This is the profit or loss in US dollars for the trade, which is currently $109.78.
Fees: This refers to any fees or commissions paid to the broker for executing the trade, which is -$3.20 in this case.

In forex trading, T/P stands for "Take Profit" and S/L stands for "Stop Loss".

Take Profit Price (T/P): This is the price at which the trader has set a limit for their profit. When the market price reaches this level, the position will automatically be closed, and the profit will be realized. In this example, the Take Profit Price is 1.2303.
Take Profit Sum: This is the estimated profit that will be realized if the Take Profit Price is reached. In this example, the Take Profit Sum is $211.42.
Stop Loss Price (S/L): This is the price at which the trader has set a limit for their loss. When the market price reaches this level, the position will automatically be closed, and the loss will be realized. In this example, the Stop Loss Price is 1.2237.
Stop Loss Sum: This is the estimated loss that will be realized if the Stop Loss Price is reached. In this example, the Stop Loss Sum is $66.22.

Take Profit and Stop Loss are important risk management tools used in forex trading to manage potential losses and profits in a trade. By setting a Take Profit level, a trader can lock in profits at a specific price level, while a Stop Loss level limits potential losses by closing the trade if the market moves against the trader beyond a certain point.