I’ve read everything I can find on this subject but I think I maybe be misunderstanding one part of it…
Basically I think it’s all fun and games to mess around on the demo accounts, but they all have default leverage of 100:1 usually, and default bank balance of a couple thousand. So I want to set up a demo account like I would trade with a real account…
When I go live I will only have around £2000 to invest.
I don’t want to risk more than 1% on each trade, as is suggested by most people online.
So: I’ll probably trade EUR/USD microlots, so each pip is worth 10cents (I believe)
Then use leverage of 10:1, which should essentially make each pip worth 1dollar? Is that right?
This way each pip gained is a dollar, I can have a stop loss of 20 pips and I only risk 1% a trade.
I tried setting this up on a demo account though and this is what happened:
buy 0.01 lots at 1.41131, sold at 1.41172. so thats a pip increase of 4.1, I thought I’d gain 4.1 dollars, but instead I got £0.25 (which is around 40cents)
So I’m off a decimal point somewhere, as if my leverage is 1:1 maybe, but I cant figure out what I’ve done wrong. Can someone see if I’ve miscalculated?
Thanks for any help, I know this is a lame question I’m asking you guys but I’ve been looking at it for ages and I think I’m just getting frustrated now :56:
You traded a micro lot and made 4.1 pips, which is $0.41. Divide that by the going GBP/USD rate and you get £0.25. Nothing wrong on that end. If you’d traded a mini lot (0.1) you’d have made $4.10.
First off… Its nice to see a new trader thinking first of MM or risk to their account uppermost. Your lot/ lots sizing and SL in relation to your account balance will determine how much you risk on the trade. So as you point out, your currently risking 10c a pip ($0.10) Which incidently with £2000 ($3200) account is way below my risk and I consider that low at 0.1% of bal lot size. i.e. 100 pips = 1% of balance… you could run to 320! :35:
Remember that leverage is a gift. Take whatever your account is and risk, say 1% on each trade.
$2,000 x 1% = $20
If you are taking a 30 pip trade, for 1:1 RR (Risk 30 pips to gain 30 pips) Then if you gain 30 pips, how much does each pip need to be worth to make your $20? $20 divided by 30 pips is roughly $0.66 cents per pip.
Don’t even worry about leverage, it’s a gift. If you risk more than 3% on each trade you are destined for failure.
The reason is simple, if you have a couple of losing trades, your account size will draw dawn and you won’t be able to make the pips worth as much as you would want. You will enter in an order and say “What! How come I can’t make the pip worth $1 anymore?!” - And it’s because you didn’t realize how much buying power you were given on the leverage.
Just keep it simple and always think about 1-2% risk on YOUR OWN account balance and you should be alright in the beginning stages.
That all makes sense to me, apart from the leverage part which must be what I’m confused about.
I assumed that if I set up my trades to risk 1% at most, then if I was using leverage of say, 1:100, then I was essentially risking 100% of my account?
So say I set up a trade where every pip was worth a dollar, but then with 10:1 leverage then each pip would essentially earn or cost me 10 dollars? Have I got that wrong?
No whatever trade size you set up in relation to your account balance will determine the dollar (or fraction of) value per pip. The risk to the trade will always be the size of the stop loss in relation to the lot size. Leverage just allows you to ‘borrow’ a much larger sum than you have in your account to trade with. Without it you would need to front end the entire position size i.e. $10k to profit by $1 a pip. Consider it a ‘gift’ from your broker! .Position Size Calculator: Free Online Forex Position Sizing Calculator
As long as your planning on never exceeding your 1% as a SL rule, leverage will not be an issue.
I get it now, I always assumed every trade was multiplied when you used leverage. Thanks for your help, I think this might actually be one of the most helpful forums I’ve ever been on
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