Only trading one lot at a time with high leverage
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  1. #1

    Lightbulb Only trading one lot at a time with high leverage

    I don't recall if it was touched on in the school section, but what if you only trade one lot at a time? I understand the ramifications of high leverage and trading a large number of lots per position since it's multiplicative, but if you only trade one lot on a mini account with a 0.25% or 0.5% margin requirement, do you still think you need a large bankroll to start out with? Couldn't you just build up your balance slowly before taking more than one lot per position?

    I remember reading Reminiscences of a Stock Operator and he would always buy on the way up and sell on the way down...it makes sense. Obviously you don't HAVE to operate like this, but when you first start out with real money after you're profitable with a demo account, why not start small to see how the psychological aspect of trading with real money affects you?

    Long story short: I want to only start up my mini account (which will have a 0.25% or 0.5% margin requirement) with $750 and only trade one lot at a time until I'm comfortable risking more money and have more to risk. Am I still underfunding myself and doomed to fail?

  2. #2
    Join Date
    Dec 2006
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    you seem to be at a risky place you know.its recommended that you have at least 10000 bucks in no more then 200:1 leverage. i started with around 2000 bucks with a 200:1 leverage and lost quite alot of money. i was able to bounce back to 4000 bucks with only 600 dollars in my account but again i quickly lost that too. who knows, its not impossible to trade $750 to start but its very risky. read the baby pips lessons about the biggest killer to new traders. if you have then im surprised that this is a seriouse question. if the professional traders wouldnt bite on an idea like this then why would you and think that you can do it? you are definately playing a risky came but its doable.

    im also pretty new to understanding leverage.so i may get this a bit messed up. but wouldm't a .25% and .5% margin be equivilant to just buying 2 to 4 lots with a 100:1 leverage? if this is so, then i dont see why anyone would risk turning 1 lot to represent a .25% and .5% margins. also, with on $750 in a mini account your true leverage will increase significanty every time you loss a trade. so not only do you have to worry about the high cost of a higher leverage eating away at your about usuable margin but you also have to worry about even higher leverage (more risks) when you start another trade.start with the micro account with $750(better yet, wait till you get the rest of the $1000 bucks to start)and work your way on up to trading more and more lots. dont be greedy so early in the game.
    Last edited by honeb; 12-23-2006 at 12:20 AM.

  3. #3
    The reason I posted in the first place is because in that section in the lessons, the examples buy multiple lots. With multiple lots, you use up your margin really quick. Take the non-extreme example from the lesson with 1 lot requiring $50 of margin:

    Code:
    Trade #|Start Balance|# Lots|Stop Loss| Result | End Balance |True Leverage
    1           500            2      30      -60         440         40:1
    2           440            4      30      -120        320         90:1
    3           320            2      30      -60         260         63:1
    4           260            3      50       MC         150         115:1
    If the guy had only gone with one lot per trade, it would have looked like this:

    Code:
    Trade #|Start Balance|# Lots|Stop Loss| Result | End Balance |True Leverage
    1          500           1       30       -30          470         20:1
    2          470           1       30       -30          440         21.2:1
    3          440           1       30       -30          410         22.7:1
    4          410           1       50       -50          360         24.3:1
    Still 310 pips until he gets margin called. The leverage stays manageable if you only use one lot. If you use multiple lots and consistently lose, your leverage skyrockets (as the lesson has already shown)!

    In both "Example #1" and "Example #2" of the last chapter in the school of pipsology, the trader gets "fed up" and goes for the gusto, which ultimately leads to his demise. Obviously these are generic examples of what not to do -- trade with high leverage, multiple lots, and small initial capital.

    But if you only trade one lot at a time, you're decreasing your true leverage just like you would with trading multiple lots but having more equity in your account to start off with. What's wrong with that?

  4. #4
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    Quote Originally Posted by cosgrove View Post
    Long story short: I want to only start up my mini account (which will have a 0.25% or 0.5% margin requirement) with $750 and only trade one lot at a time until I'm comfortable risking more money and have more to risk. Am I still underfunding myself and doomed to fail?
    YES! Starting with $750 on a mini account is suicidal. We discuss that in our Leverage lesson.

  5. #5
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    Default ok

    Quote Originally Posted by pipdiddy View Post
    YES! Starting with $750 on a mini account is suicidal. We discuss that in our Leverage lesson.
    And to reinforce this idea lets talk about some money management. Personally I only want to risk 1% or less per trade. So 1% of $750 is $7.50. So being a good trader like you are your stop loss would have to be $7.50 away from your entry. Now figure in the spread! It is even shorter! So on a XXXvsUSD pair with a 2 spread you are looking at a 5 pip move before your stop should be hit, if you are being smart. When can a 5 pip buffer be good enough for an individual? Maybe if you are scalping, but when are newbies good at scalping? Also, scalping requires a ton of initial capital to make it worth your while. So yes $750 on a mini just won't work.

    However, what about a micro? I think you can manage it on a micro more so than a mini. In the babypips articles they say $1,000 for a micro, but I think you could get by on less. So perhaps consider a micro? Or just save that $750 up for that $10,000 for the mini.

  6. #6
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    Nov 2006
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    I realize I'll probably be blasted quite a bit for saying this but, when I started all I HAD was $400. Remember, the idea is trading with monies you can afford to loose??? I didn't have the thousands recommended to start with. So, I started where I could.

    BUT!!!! Trading 1 lot each trade? NOPE! Started with ONLY .1 per trade and took quite a bit of time before I got to .2. Then, another eternity before reaching .3. I HAD to force myself to remain conservative in my trading. Wasn't easy but, has paid off.

    I do believe people can start with smaller amounts. But, when doing so, you MUST be willing to be conservative and be realistic in your expectations.

    But, that's just me...

  7. #7
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    Dec 2006
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    Correct me if I'm wrong, but trading a 0.1 lot on a mini account equals to trading 1 lot on a micro account. starting a MICRO account with 750$ is more reasonable.

  8. #8
    Join Date
    Dec 2006
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    Quote Originally Posted by mtdavs View Post
    I realize I'll probably be blasted quite a bit for saying this but, when I started all I HAD was $400. Remember, the idea is trading with monies you can afford to loose??? I didn't have the thousands recommended to start with. So, I started where I could.

    BUT!!!! Trading 1 lot each trade? NOPE! Started with ONLY .1 per trade and took quite a bit of time before I got to .2. Then, another eternity before reaching .3. I HAD to force myself to remain conservative in my trading. Wasn't easy but, has paid off.

    I do believe people can start with smaller amounts. But, when doing so, you MUST be willing to be conservative and be realistic in your expectations.

    But, that's just me...
    No, you won't get blasted at all. Because even with 400$ you can still open up a trade with less than 3% risk using MICRO lots, provided your stops are not that wide. You're bang on about realistic expectations though, that's for sure. On that kind of balance you're not really making any money. It sounds like you did a great job focusing on trading properly rather than focusing on the money alone. KUDOS!

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