I was messing around with the settings on my oanda demo account and noticed that that the margin settings only went down as low as 10:1
Do you have to trade using margin? Are small accounts 100-1000 required to trade using margin?
If not is there a way I can set it to a 1:1 ratio?
I think all brokers/market makers require margin, but you don’t have to trade with more than you have in your account. If you have $1000 in your account then trading a 1k lot (micro lot) of USDJPY is trading at a 1:1 leveraged.
ThePhoenix,
Why wouldn’t you want to trade on margin, I found that I can lose my money A LOT faster using a 200/1 margin. Ha Ha
hi,
I think you are confusing leverage and margin,
Margin in its most basic terms is what the broker requires you to put up for your trade.
Leverage … lets say you have 1000 and you are trading 10,000 units?
you are trading 10:1 real term leverage.
Dirk du Toit (Dr Forex) explains the truth about Leverage
See the above link, its about a good as an explanation as any.
happy trading
N
Ya, I meant leverage. So, I see that lowest setting on the oanda demo account for leverage is 10:1. Does that mean I have to trade using leverage?
I’m reading through leverage section of babypips and trying to figure how much to trade and only risk 1% of my account.
P.S. thanks for the link
If you had $1,000 in your account:
$1,000 @ 10% Risk = .1 Lots
$1,000 @ 5% Risk = .05 Lots
$1,000 @ 1% Risk = .01 Lots
-Riggs
What would be a formula I could apply to any amount. Say I have a $1,000 dollar account and then it increases because of postive pips or decreases by 1% because I hit my stop loss. So, now I want to only risk 1% based on my new balance? What is the forumla for that?
Ok, so let me see if I have this straight. If I want to trade using 1:1 leverage, I just make sure the lot size does not exceed my current account size and in fact matches it?
No. 1 standard lot is $100,000. If you have $100,000 in your account, you could trade 1 lot at 1:1 leverage. If you have $10,000 you could trade 1 lot at 10:1. Mini lots are $10000, so if you have a mini account of $10,000 you can trade 1 lot at 1:1 leverage.
So, can’t I just open a micro account with $1k, trade 1k lots and then that would be 1:1, as long as I didn’t trade more than one lot at a time, right?
Does the type of account really matter? It doesn’t effect the math right?
account size / position size = real leverage right?
So, can’t I just open a micro account with $1k, trade 1k lots and then that would be 1:1, as long as I didn’t trade more than one lot at a time, right?
Does the type of account really matter? It doesn’t effect the math right?
That’s correct. The whole point of leverage is to be able to trade more money than you have, so if you never trade more than your account balance you are using 1:1 leverage or less.
May I ask why you’re wanting to use 1:1 leverage with a $1000 account? That comes out to trading something like a nickel per pip, which isn’t really going to get you anywhere…
Well, I’m not planning on going live any time soon. I’d do the 1:1 maybe 2:1 to limit my losses, so whatever account I had would last a while so I might learn a thing or three. If I happen to be profitable I’m just going to build up the account slowly and increase lot sizes as my account grows and decrease after losses, so I don’t fall into one of the many trader traps described here on babypips. The bit about leverage being not only a proft, but also a loss amplifier really hit home.
Not that it matters, but putting 1k units in EUR/USD in my oanda demo says 1 pip= .10 cents. Were you accounting for the spread and slippage?
Not that it matters, but putting 1k units in EUR/USD in my oanda demo says 1 pip= .10 cents. Were you accounting for the spread and slippage?
I just pulled the nickel per pip number out of my head, I didn’t do the math. I worked it out and it actually comes to 8 cents/pip. 1000 units does equal 10 cents/pip, but 1000 units is not the same as trading $1000. 1k units has a trade value of $1286, which is over the 1:1 leverage you asked about. In order to keep your leverage at or below 1:1 you need your dollar amount traded, not your unit amount traded, to be less than your account balance The dollar amount traded can be seem on the Oanda market order window under “Trade Value.”
Also, the way to limit losses is not with a low leverage alone. Leverage does not take your stop loss into account, so it really doesn’t help you limit your risk. Risking a set percent of your account balance on every trade is the standard way of limiting losses.
Ok, I understand, for it to be 1:1 leverage and a thousand units, both currencies would have to of equal value. So, if I just arbitrarily put in 1k units I will be either somewhere above or below 1:1 real leverage.
So, whats the math to figure what is 1:1 leverage? I’m starting to confuse myself.
Ok, looking in my oanda demo, when I put in a thousand units, it tells me the trade value in U.S. dollars. So, at this point if I had $1k account and wanted 1:1 leverage I would try to figure how many units of the current currency I want to long or short is worth 1K. Whats the math at this point?
Also, looking at the leverage settings for my account it is 10:1. This setting isn’t really the leverage I am using? (I choose that by the unit size I trade in relation to my account size?) This setting is really the margin requirement? So, for every 10 dollars I trade they require 1 dollar in my account?
Sorry for all the noob questions, just want to make sure my head gets wrapped around the concept of leverage and margin correctly.
This is just my opinion, but I think you’re getting way off track here. While it’s true that high leverage is dangerous if you abuse it, you need some leverage or you’ll never make it in the forex world (unless you have millions of dollars).
Let’s look at some numbers. Let’s say you started with $1000 and gained 100 pips per week at a 1:1 risk/reward ratio. Say you set your trading amount to always be at 1:1 leverage. In two years you would have $1945. Not much payoff for all your hard work!
If you ignored your leverage and did the same trades using a 2% risk per trade money management rule you would have $60,288.
What I’m trying to say is that you should not be hung up on your leverage. Get a good money management plan and the leverage is irrelevant. The danger of high leverage only exists without money management.
Does that figure include if I add my winning pips to my 1:1 ratio? Which brings up another question. Are fractional pips rounded up? I noticed when I put in odd lot amounts to figure what equaled 1k or 100 USD, the trade value went up, but the pip amount did not become a fraction.
Whats the math for the 60k figure. Not that I think that’s possible, just curious how you arrived at that figure. What do you mean ignore my leverage? I’d have to be highly levered to turn 1k into 60k in one year, right?
At this stage I’m not worried about making money, I just want to have a very solid understanding of leverage and margin.
I do understand though that in order to make any decent amounts of money you have to trade full lot sizes. I just figured I’d practice 1:1 with smaller acount and then when I understand what I’m doing and have actual skill I’d simply deposit enough to trade 10k lots on 1:1-3:1 leverage range.
Does that figure include if I add my winning pips to my 1:1 ratio? Are fractional pips rounded up? I noticed when I put in odd lot amounts to figure what equaled 1k or 100 USD, the trade value went up, but the pip amount did not become a fraction.
Yes, that includes adding your winnings to your 1:1 ratio.
Oanda does take fractions of a pip into account, but you can set your platform to not show that extra decimal place. I bet that’s what happening. You don’t see the extra decimal but it is still factored in.
Whats the math for the 60k figure. Not that I think that’s possible, just curious how you arrived at that figure. What do you mean ignore my leverage? I’d have to be highly levered to turn 1k into 60k in one year, right?
By ignore your leverage I mean don’t think about it. My leverage is 50:1, but it has no bearing on how I trade, it could be 1000:1 or one million to one, but I would still trade the same amount of money per trade. Higher leverage just changes the maximum you [I]can[/I] trade, it doesn’t mean you have to trade more.
I got the 60k figure like this. Start with $1000 and assume you make one trade per week with a stoploss of 50 and a take profit of 100 (I’m just using one trade per week with nice even numbers to make the math easier). If you risk 2% of your account on every trade after the first week you’ll have $1020. Then the next week you risk 2% of $1020 and it grows it $1040.40. Continue on for 2 years and you have 60k.
Notice I didn’t worry about my leverage all! Your risk is controlled because you’re risking a small, set percentage of your account per trade. You would need 35 losing trades in a row to cut your account in half, and 114 losers in a row to get a $1000 account to less than $100. This is the safe way to trade!
Please explain further. Keep in mind I’m a noob. Are you talking real leverage or the leverage your broker allows you/ AKA margin requirment?
Because what you said isn’t jiving with what I’m reading in the babypips school as far as leverage and margin. When you up your real leverage you amplify wins/losses/fees. So, if I go with somehting like 50;1, I’ll most likely blow through my account very quickly on losses, especially if the account is only $1k.
Are you saying that you figure in your, “real leveraged,” potential losses, and figure where 50:1 would cause you a 2% loss on your full account balance? And then set that up as your stop loss?
It’s in my limited understanding that highly leveraged smaller accounts have less breathing room in the trade and thus stops get hit easily?
Have you gotten to the section of the Babypips school about money management yet? Your error is that you’re trying to use leverage as a money management system to manage your risk/reward, and that just won’t work.
When you up your real leverage you amplify wins/losses/fees.
Not true. What you mean is that you CAN choose to up your wins and losses. If I changed my leverage it would not change the amount of money I trade, because I trade a set percentage of my account per trade.
Leverage only amplifies things because it lets you trade a higher percentage of your account. If you don’t fall for this trick then you’re fine.
Are you saying that you figure in your, “real leveraged,” potential losses, and figure where 50:1 would cause you a 2% loss on your full account balance? And then set that up as your stop loss?
Sort of, but my leverage never enters the calculation. My brokers software uses it when I enter a lot/unit size, of course, but it makes no difference to me. When I enter a trade the most I’m willing to lose is 2% of my account. So if I have $1000 I want to lose a max of $20. I then divide my max loss by my stop loss, which is 20/50=.40. So I know I need to trade $.40 per pip. I then enter whatever amount of units equals 40 cents per pip and I enter the trade. I have no clue what the real leverage is for this trade because I don’t need to know.
So, if I go with somehting like 50;1, I’ll most likely blow through my account very quickly on losses, especially if the account is only $1k.
That’s incorrect. If you risk $20 on a trade at 1:1 leverage it’s the same as risking $20 on 400:1 leverage. The only difference is that you’d need to enter a different unit size to make that $20 trade, but 20 is 20 no matter the leverage.
Doesn’t high leverage + low risk (2%) = having to have tight stop losses? Wouldn’t this approach simply cause me to simply lose money by getting stopped out sooner the higher my leverage is?
where 1:1 would allow my trades room to breath right?
Also, I understand the above math as far as figuring your risk. It begs the question though how do you choose your stop loss? The 50# in the equation.
P.S. thank you for sharing information with me as I learn, I appreciate it.