I've commented before on my particular method of trading the foreign currency markets, describing my technique as "watching the grass grow." And that's true - buying in just once a day, cashing out when there's more profit than interest to be had, it doesn't make for a lot of action. That's fine by me though.

But it gets even slower than this. How? It's because I use just 10% of the balance of my account at any given time, leaving a full 90% just sitting there gaining the base interest rate Oanda pays for USD on deposit.

If I put a larger amount of my account in play, I would boost both my interest received and my capital gains when they occur. The reason I don't do this is the flip side of that last part: it increases the likelihood and occurrence of disaster, otherwise known as the "margin call."

Margin calls are what happens when the Net Asset Value (NAV) of one's account drops below a point where the broker considers the trades active within it to not be supported by the amount of cash on deposit. The trades are automatically cashed out at a loss when this point is reached. This is done to protect the broker and the trader since it prevents an account from going below zero. A margin call will leave a little cash behind, but the vast majority of the account will be wiped out. In short, this sucks.

The NAV of an account is simply the amount on deposit plus or minus the value of the trades that exist in a given moment. The point at which a margin call is triggered depends on the amount of leverage being used. In my case, at 50:1 leverage, the margin call is 2% of the value of the trade itself. For example, if the value of one of my USD/TRY shorts is $1,000, a margin call would be triggered when the NAV of my account reaches $20.

Some might read that as "the account hits a margin call when the value drops by $980." This would be incorrect. One can open very high value trades using a combination of large amounts of leverage and by putting big chunks of their deposit into play. It's possible to have a trade of the sort I used as an example with an account worth $100, $300, $500, etc. The larger the account, the "safer" this trade would be, but less so in a smaller account.

This has to do with the value of a "pip," the name of a unit of value in Forex trading. Basically, the larger the value of a trade, the more each individual pip is worth. This is important to remember because in a large or a small account, the value of the pips in play are the divisor by which one must figure the "space" between the present performance of a trade and a margin call. If your pips, based on the size of your trade, are worth $1 each, and in another trade they are worth $10, you have ten times the amount of "room" for the trade to move against you in the former trade than you do in the latter before a margin call is triggered (and remember, margin calls suck!).

So back to my account. I use just 10% of my balance at a time. The USD/TRY pair, my current pick because of the high amount of interest for holding it short, presently displays a move in its history (using a one-year chart) that would have gone against me by 1,700 pips. That's a big swing in the wrong direction.

But doing things the way I do, I begin nearly 4,600 pips away from a margin call when I divide the difference of my deposit amount minus the margin call amount by the value of the pips I have in play. In addition, carry trades garner interest every single day, which instantly adds to the balance of the account. This slowly increases the number of pips of leeway I have to survive these swings. Finally, since I use a portion of the interest I receive to scale in to losing trades by buying or selling the currency pair I'm using so as to keep the in-play amount at 10% of the balance, I gradually benefit from "dollar cost averaging," which lowers my average cost (the break even price of the trade) over time.

Boring. Boringboringboringboring. That's exactly what this method means in terms of the trading experience, I know. But if you're like me and you a) don't care for the day trading experience all that much (sitting around waiting for trades can be incredibly dull) and b) you don't have time to be sitting there all day, this is the way to go. You could put even more money into play and possibly profit more faster, but after a certain point the wiggle room you give up demands that you call the market direction more and more accurately. I'd rather not, and since my method is delivering nearly 34% interest annually (not including potential capital gains) while still affording me a good deal of safety, I see no benefit in doing it another way.

Yes, this is like watching grass grow. But man, what a nice lawn I've got!