Basic Risk Question

Beginner Questions
1

Hey all, I’m new to Forex trading and I have a question regarding risk and loss that I can’t seem to find anywhere, though it’s probably a simple question to answer for most of you on here.

It will take a little explanation, so here it goes…

Let’s say I’m trading AUD/USD, with a starting amount of $100 at leverage of 100:1. So using these numbers, each 1% increase or decrease in this currency pair will result in a real profit/loss of $100, or 100% of my investment.

Now let’s say that I open a sell trade, thinking that the AUD will fall against the USD. But instead of falling, it rises 1%, meaning I’ve effectively lost my initial investment.

Now my question is, [U]until I actually close that trade[/U], have I lost my investment? For example, if the AUD rises against the USD more than the 1% my investment would allow, will that trade remain open until I close it? Or will it automatically be closed when that threshold of 1% in the ‘wrong direction’ is reached?

I hope I’ve explained this correctly, but if not please ask for more clarification and I can see what I can do.

Thanks in advance for your help.

2

First off, instead of all the leverage/account percentage gobbledigook, start thinking in terms of pip value with regard to lot size.

The $100 lot size you quoted would be a mini lot. ($100 would not exactly be the used margin but it’s close enough for the purposes here)
The pip value on the A/U would be $1 a pip.

So, therefore, if you had a $100 account, you couldn’t even open a trade with a mini lot. You would be using a micro lot.

Let’s put this into practice.

Say you opened a $200 account, and opened a short trade at .9700 on the A/U. You’ve used your $200 as follows.

$100 to secure the position, now considered “used margin”.

You now have $100 left as “free margin”.

Then price then climbs. If it went up a full penny, or 100 pips to .9800, your broker would AUTOMATICALLY close your trade, leaving you only the amount you initially opened the trade with.

In this case, it was $100 bucks.

There is one exception.

Say, you had a trade open on Friday, and it was moving against you. Not enough to get a margin call, but close.

You left it open over the weekend, and on Sunday open, it gapped a large amount against you.

In this case the broker would STILL close your trade, but the possibility exists that it may have gapped enough to wipe out not only your all of your free margin, but your used margin as well. It can actually wind up that you would owe your broker money just to close the account in such a situation.

In any case, you’ve failed as a trader by not using stops, and using an impractical lot size.

3

If I were you, I’d do the whole school thing.

But here’s the lot/leverage breakdown class.

Lots, Leverage, and Profit and Loss | How Do You Trade Forex? | Learn Forex Trading

4

Can’t agree more to Mr. Tangs words.

Unforunately, the term mini or micro is not eval with all brokers. Looking at the trade size in real mumbers clears every fog.

So, look at what smallest lot size means in real money at forex. Usually a mini is 10k of dollars. A micro is 1k of dollars. But sometimes a broker calls 1k a mini. Anyways, 10k of dollars is at every broker 1$ per pip.

In your case I would not go with a broker which does not allow 1k per trade. This would be 0.1 dollar per trade and that is the maximum I’d risk with your small account on any one trade.

Cheers.

5

I couldnt agree more either thats the way I’ve always done it.