Help me understand Margin and Leverage please

[think]

Hi,

I am not sure I fully understand Margin and Leverage yet and I am not prepared to even open a demo account until I know exactly what's going on...

The BabyPips school recommends the following minimum balances for opening these different account types:

$1000 - Micro
$10000 - Mini
$100000 - Standard

Based on my calculations, I can't see why it is a bad idea to open a Mini lot with $2000. For example,

- I plan to have a rule that says I will never risk any more than %3 of my equity in a trade..
- %3 of $2000 = $60
- If I were trading GBPUSD, each pip would be worth about $1

If I only open 1 mini lot, I can sustain a 60 pip move against me.

If I am confident about a trade, I could apply my rules and open 2 mini lots, reducing my S/L to 30 pips. Risk is still 3%.

I can't see anything wrong with this. Am I missing something? What's wrong with using this set of rules with a .25% margin requirement?

[daydreamer65]

Originally Posted by think

Hi,

I am not sure I fully understand Margin and Leverage yet and I am not prepared to even open a demo account until I know exactly what's going on...

The BabyPips school recommends the following minimum balances for opening these different account types:

$1000 - Micro
$10000 - Mini
$100000 - Standard

Based on my calculations, I can't see why it is a bad idea to open a Mini lot with $2000. For example,

- I plan to have a rule that says I will never risk any more than %3 of my equity in a trade..
- %3 of $2000 = $60
- If I were trading GBPUSD, each pip would be worth about $1

If I only open 1 mini lot, I can sustain a 60 pip move against me.

If I am confident about a trade, I could apply my rules and open 2 mini lots, reducing my S/L to 30 pips. Risk is still 3%.

I can't see anything wrong with this. Am I missing something? What's wrong with using this set of rules with a .25% margin requirement?

The babypips school generally looks at worst case scenarios to try to
get newbies to understand the risks involved. The school is advocating account level conservation.

Now if you feel that you are disciplined enough to trade $1/pip &
use a stoploss & do not vary away from this plan, then go for it.

But when the market is telling you your technical analysis is wrong
& you are down $25 do you think you will remove the stoploss &
argue with the market?

Also how many $30 losses do you feel your account will take before you
really start to panic?

Open up that demo account & put these arguments to the test, do not
take babypips, mine or anybody elses word for it, prove it to yourself.

Learn to walk before you run, in fact learn to crawl before you walk.