Hi all,
I hope someone more experienced than I (which is not all that hard to be)
checks out this forum sometimes.
OK - I just was looking at a potential brokers website. They let people trade
in micro lot sizes, which should be entered as .01 - .09. They also let
people open accounts with as little as $500.00. This doesn’t make alot of
sense to me, because a lot size of .01 should be 1/100-th of a standard lot
or 1/100-th of 100,000 dollars or $1,000. So, if I open an account with $500.00, I won’t even be able to trade if the minimum size I can trade is
twice my account balance. I’m sure I’m missing something, but can’t
figure out what. Can someone clear up my confusion?
You are missing the leverage factor.
Leverage is what determine the amount of real money you have to put up to make a trade and there are alot of different choices 400:1 (.25% of lot value), 200:1(.5% of lot value), 100:1(1% of lot value), 50:1 (2% of lot value)… and on and on
So when you open your account, you select your leverage. for an example say your account is 100:1 and assuming USD based pairs, then roughly
1 standard lot = 100,000 units = 100,000.00 USD so your required margin to place the trade is $1,000.00 USD
So if you you have a 500$ account you probably want to trade a microlot. So to trade 1 micro your broker will take and hold $10.00 (at 100:1) and let you trade $1,000.00. When your trade is complete, your broker then gives you back your 10$
So if I use a micro lot with 10 dollars and the price moves up one pip how much money do I make. Can someone clear this up for me. Placing orders and determining how much money I am using when i place a trade and what my profit could be if the price moves up so many pips is probably the hardest thing to learn for me about forex trading. I’m just starting in forex and I can’t understand the placing orders yet in the demo account. I know it’s not as easy has if I put one dollar in and it moves up 1 pip I would now have 2 dollars. It seems more complicated then this. Also lot sizes, contracts, etc. is very hard for me to get also. I would much appreciate if someone could explain this to me or send me to the correct location to learn this. I’ve read through the school but still don’t get this.
At the common 100:1 leverage, you gain or lose one percent of YOUR total contract size per pip.
So, if you had one $10.00 micro lot on the line, you would be gaining or losing $0.10 a pip. Two lots for a $20.00 investment on your part would gain/lose $0.10, and so on.
If you had one mini at $100.00 it would be $1.00 a pip, or multiple thereof.
If you had one standard lot, you would have to put $!,000.00 up, and your per pip gain/loss would be $10.00, or multiple thereof.
Keep in mind, if you step away from most pairs involving the dollar, the rates do change a bit. So don’t be alarmed if you trade $105.00 mini lot on the GBP/JPY, and see numbers like $1.05 a pip.
It’s the way the exchange rates work that determine those values at the time.
OP I was struggling with this area but I’ve moved on to other stuff and will come back to it.
I just use a position size calculator (google it) and input my balance, risk eg. 2%, and how many pips to my stop loss and it tells me what lot options I can use,my risk in dollars and pip value and leverage size.
since i assume it is not this morning, your chances arent that bad.
be aware of the “beginner’s luck” though, both on demo, and when going live too…
will never forget, went live with my 100$ account, and for 3 weeks i did make 2-3$ a day, and wow, i was up 50%…and all the sudden in a day i was back to square zero…did i know anything about NFP friday?! LOL
learning is a progress, if the willingness is there, your will eventually succeed.
