I’m still having trouble calculating and figuring out basic basic things when it comes to profit
and leveraging. For instance lets say I have 20,000USD and use 20:1 leverage how would I find out
how much profit I’ve made with say 20 pips with lot sizes such as
10,000 or 1,000 units?
You’d start by deciding what proportion of your $20,000 capital you want to expose to risk on every individual trade you make.
Let’s say, to keep the numbers simple, that you decide on 1% (that’s realistic and sensible, anyway).
That means you’re risking $200 on each trade you make.
Then you’d look at your stop-loss and how much it represents, per lot traded. Again, to keep the numbers simple, let’s assume for this example that you’re trading with a method that needs a 20-pip stop-loss.
So, for example, let’s say that you’re trading the EUR/USD (either long or short), in which case each pip of movement by the price represents $10 per lot traded. That means that a losing trade would cost you exactly $200 per lot, so you’d want to trade exactly 1 lot.
In this case, you’d be trading $100,000-worth of the EUR/USD (because that’s one lot), but if you’re using 20% leverage, you’d effectively be laying out $5,000 for it, but assuming that your stop-loss is acted on, only $200 of that $5,000 would be your real risk-capital, because if the trade closed out by hitting your 20-pip stop-loss, you’d get back $4,800 of the $5,000 when the trade closes.
If you trade 10,000 units, that’s one tenth of a lot, which is called a mini-lot, and you’d be risking or profiting by $1 per pip, per lot traded. If you trade 1,000 units, that’s one hundredth of a lot, which is called a micro-lot, and you’d be risking or profiting by $0.10 per pip, per lot traded. Neither of these facts is influenced by the amount of capital or have or by the leverage you’re using, though.
Does that make it clearer?
It’s well explained here, if this helps: [B]How to Make Money Trading Forex[/B]
PS: The Babypips Position Size Calculator will also probably help you, if you play with it: [B]Position Size Calculator: Free Online Forex Position Sizing Calculator[/B]
[B]Your question has been answered
by one of the best forum contributors, Lexy, an experienced trader
and a very knowledgeable commentator on here.
Hopefully you will have found all the information that you
were looking for, on here.
Take care
[/B]
I’m confused here
[B]“In this case, you’d be trading $100,000-worth of the EUR/USD (because that’s one lot), but if you’re using 20% leverage, you’d effectively be laying out $5,000 for it, but assuming that your stop-loss is acted on, only $200 of that $5,000 would be your real risk-capital, because if the trade closed out by hitting your 20-pip stop-loss, you’d get back $4,800 of the $5,000 when the trade closes.”
[/B]
Wouldn’t I be laying out 4000? 20 x 200 = 4000 I also don’t understand the part where you say I’d get back 4,800 of the 5000…
I’m sorry theirs something obviously simple i’m overlooking and not getting.
I also don’t understand the part where you say I’d get back 4,800 of the 5000
In this example, the amount required with the data from lexy’s example translated into $5,000 you needed in order to open the 1.0 lot position. You had $20,000 so after opening the trade your broker took $5,000 from those $20,000 so you could open the trade. The selected risk profile had you closing the trade at a loss of $200. $5,000 - $200 = $4,800 which is then added back to your cash balance.
I want to thank you all for your replies, but i’m still confused…
Why is it $5000 ? can you show the calculation or show me why i’m still not getting it
also how do I get $4,800 back if i’m losing money?
For trading calcultions i recommend you to use calculatot for traders from liteforex you can find it following this link Calculate profit, margin, pip, leverage and lot size in Forex trading
Because you specified 1:20 leverage. Did you follow the figures as far as seeing that you were trading 1 lot? 1 lot of EUR/USD costs $100,000 (that’s just factual and universal - it has nothing to do with your own trading capital or leverage or position-sizing). If you have 1:20 leverage, then you’re [I]effectively[/I] paying 5%, and $5,000 is 1/20th of $100,000.
It’s just $100,000 divided by 20 = $5,000.
Your own risk-money was only $200. That was 20 pips at $10 per pip on one lot. So $200 is all you lost on the losing trade (because you’d decided to risk only 1% of your initial capital of $20,000, and 1% of $20,000 is $200). So you bought something for $5,000, and while you owned it, it lost $200 of its value, which leaves you with $4,800 of the $5,000 “un-lost”, i.e. still yours, when you sold it again (closed the trade).
I appreciate that it would be easier to understand if the broker removed only the $200 from your account in the first place, because you wanted to limit your risk on the trade to $200, but I’m afraid it doesn’t work that way (they remove more than that - though admittedly not necessarily $5,000 - to allow for the fact that in a disastrously fast-moving market, they may not be able to execute your intended stop-loss. This almost never happens, though, if you avoid “trading the news”).
Lexy,
with your patience,
you OUGHT to be a teacher
(take it from a teacher)
