Trading Log

Choosing a currency pair to trade and deciding on the currency pair’s direction are two things that constitute the lion’s share of what a trader has to do each day.

Knowing Your Position and P&L

Traders also have to do some simple bookkeeping to ensure that decisions about taking profit or stopping a loss are correct.

Let's say a trader would buy €100,000 at 1.3900 and watch it move to 1.3945 for a 45-pip profit or $450. Whether the trader is doing a handful of trades a day or many more, he may choose to have a hand-written blotter as well as a PC spreadsheet. In this case, at the end of the day, with only one deal on the blotter, the trader’s profit is $450.

However, a trader may do many deals in the same currency or different currencies and needs to keep track of these deals. You need a blotter for each currency pair. The blotter for a single currency pair might look like this (two full-round positions or four deals):

Some traders also note the exact time of day a new open position is put on, which could come in handy in the event of a dispute with the broker over the exact price.

Whether a trader does this in an Excel spreadsheet or uses a trading platform with a sophisticated blotter/log-keeping system, it is important always to know the size of your gains and losses. This is the same if you are trading a single currency or many currencies. A trader cannot make a smart decision on proper position sizing without knowing his average loss and without tracking his win/loss ratio.

In the yen scenario above, the trader might have wanted to go long USD/JPY at ¥103.50 and take a profit at ¥104.50 (for a $95.69 gain) with a stop at ¥103.00 (maximum loss of $48.54). By entering into and exiting new deals, the trader’s average win ratio and average profit have changed, so it may be appropriate that the position size also changes. In this case, the trader made a bit less than planned but very close to his original goal.

Position Rollover

If you keep an FX position overnight, you will usually earn the interest rate differential if you are long a higher-yielding currency versus a lower-yielding currency or pay instead for the cost of being short the higher-yielding currency versus a lower-yielding currency. This is called the rollover gain/cost. You roll the position from the spot date, which is typically two working days, to the third working day, which the next day becomes the spot date. If today is Tuesday and the spot date is Thursday, a trader would roll the spot position one day until Friday, which is the new spot date. In today’s sophisticated, computerized world, spot traders at major banks walk in each day and see that their position’s average has already been adjusted for the rollover costs. (In the bad old days before PCs, the professional bank trader had to consult the back office early every morning to calculate the cost or earnings himself.)

A trader who is long the euro at 1.3802 the night before might see his opening position average 1.38025, with 0.00005 as the rollover cost. In the MetaTrader platform, the opening position price remains the same, but the swap is applied directly to the account balance with a respective change of value in the Swap field of the position. Most platforms for retail traders adjust for the rollover, and some disclose the rollover rates, in part because in the early days of retail spot Forex, keeping some of the rollover gains was a profit center for the brokers – until the traders caught on. Trades that are opened before 17:00 EST and held longer will see either a rollover gain or rollover loss, depending on the interest rate differential. Those who trade on futures exchanges do not have to worry about rollover costs, which are, by definition, already built in.

In a low-interest rate environment, the rollover cost/benefit is not usually much of a factor in the majors, but in some of the more exotic currencies, leaving yourself exposed to rollover costs can be dangerous. When currencies are falling sharply, central banks in the past have used short-term interest rates to slow down an exodus out of the currency. A trader might not mind losing a 2% interest rate differential on a day-to-day basis if, in the bigger picture, the currency pair is expected to move 10% in a day or so. However, if the interest rate differential cost becomes 10%, then the cost of holding the currency position may be greater than the profit seen on the Forex move alone.