Confused about margins

[edacsac]

I'm trying to correlate margin and the 2% money management rule into real numbers from my perspective. Maybe I'm just tired, but I can't put it together right now.

Say I have a brand new account funded with $1000 at 50:1 margin. I'm going to buy 750 EUR/USD at 1.57992

From the oanda market order window:

1pip = $0.08
Trade value = $1184.94
Margin used = $23.70
Take profit = $0.75 / 10pips
Stop loss = -$1.12 / -15pips

So if I execute this buy order, I'm using $23.70 of my margin, which is roughly 2%, yes/no? Am I correctly interpreting the 2% MM recommendation?

If I hit my stop loss, I lose $1.12 from my $1000, or would it only be $0.37 from where I entered my trade? Or am I totally beyond my capacity since the total trade value is $1184.94?

In the trade window, I set my take profit at 10pips and my stop loss at 5 pips. Why does the summary show -15 pips?

I'm reading the leverage section of pip school again, but I'm just not realizing my total risk responsibility. I probably shouldn't have used the 50:1 ratio becuase I plan to only use a 10:1 ratio for practice and live.

Thanks!

[daydreamer65]

Margin used = your deposit to open the trade, this is
refundable at the end of the trade.

Your 2% risk is on drawdown or stop loss, so on your figures,
$1000 - $23.70 (margin) = $976.30/0.02 (2%) = $19.52.

$19.52/0.08 = 244 pips.

Now work it out on 7 500 units, 10 000 units, 100 000 units, etc.

If you untick the stop loss & take profit in your Oanda market
order window then tick them both again the figures will change
to your S/L & T/P, but the longer you spend waiting to place the
order the price will be moving up or down so the S/L & T/P will
not be valid.

You can set these figures in your user preference window.

This is the reason for demo, get to know your platform, change all
the leverage, make mistakes, correct them, then when you are
ready go live.

[trader123]

Don't over trade. Calculate how much movement you can go wrong.

Recently one of my reader sent an email to me, asking me why is his oil trade stopped out by the platform. After calculating his trade, then I know that his capital only allows him to go on the wrong direction by $2.

He shorted oil, so when oil rises from $138 to $143, the platform closed his position. He lost almost 90% of his capital.

[edacsac]

Thanks Daydreamer65. I think I'm understanding better. The $23.70 is locked up as used margin, so the 2% MM theory comes off the top of my remainder of margin available, totaling $19.52.

244 pips seems like a lot of drawdown room. Am I mistaken? 244 pips is equal to about $0.025 in movement? Would it be useful to work it out on larger lots? Would it be wise to trade larger lots with a $1000 account? I know my scenerio is at best profiting in pennies, but even when I go live I want to have good MM in place before I go beyond a $1000 account.

Thanks trader 123. I'm hoping the demo will show me exactly what your talking about! I wish I could practice on the weekends!

[daydreamer65]

Originally Posted by edacsac

Thanks Daydreamer65. I think I'm understanding better. The $23.70 is locked up as used margin, so the 2% MM theory comes off the top of my remainder of margin available, totaling $19.52.

244 pips seems like a lot of drawdown room. Am I mistaken? 244 pips is equal to about $0.025 in movement? Would it be useful to work it out on larger lots? Would it be wise to trade larger lots with a $1000 account? I know my scenerio is at best profiting in pennies, but even when I go live I want to have good MM in place before I go beyond a $1000 account.

While in demo mode try all of the different combinations, all variations
are possible, this will also give you practice on your platform. If you can
be profitable with pennies then moving up to dollars will not be such
a huge deal.

In fact do not look at your profit in real dollars at all but in pips. If I
made 200 pips last week it doesn't matter whether it is 1 cent/pip or
$10/pip the system should still be the same.

Make the mistakes, then when you are ready live trading will not
be such a big deal.

[trader123]

Originally Posted by edacsac

Thanks Daydreamer65. I think I'm understanding better. The $23.70 is locked up as used margin, so the 2% MM theory comes off the top of my remainder of margin available, totaling $19.52.

244 pips seems like a lot of drawdown room. Am I mistaken? 244 pips is equal to about $0.025 in movement? Would it be useful to work it out on larger lots? Would it be wise to trade larger lots with a $1000 account? I know my scenerio is at best profiting in pennies, but even when I go live I want to have good MM in place before I go beyond a $1000 account.

Thanks trader 123. I'm hoping the demo will show me exactly what your talking about! I wish I could practice on the weekends!

Start your demo trading account based on a setup capital that you will be using in your real life.

[rhodytrader]

Originally Posted by edacsac

Thanks Daydreamer65. I think I'm understanding better. The $23.70 is locked up as used margin, so the 2% MM theory comes off the top of my remainder of margin available, totaling $19.52.

Most people figure the 2% off their pre-trade account balance. In your case that would be off the $1000, so you would risk $20. This risk is not the same as your margin requirement.