I’m on a 20:1 leverage setting, (yes, I’ve been a good boy - it’s a demo account):
My account balance says 10,000.
The units available for EUR/GBP is somewhere in the range of 125,000 which works out to $200,000 so the 20:1 leverage is correct. But why does the margin available read 10,000 as well? Shouldn’t it read 200,000? Shouldn’t margin refer to my total ‘credit’?
Using the position size calculator, I am recommended 20108 units/2 mini lots/20 micro lots for a 2% risk, 50 pip stop.
However when I click sell I see only options in pips or price. How do I translate the readings off the calculator into purchase?
[B]Margin[/B] always refers to a portion of your real (cash) money, used (or usable) as a deposit against a currency position.
Here’s a review of the terms [B]balance, equity, used margin[/B] and [B]available margin.[/B]
Let’s pretend that the funny-money in your demo account is real money, and let’s say that , right now, you have no open positions.
Your trading platform is going to show that your account has:
• Balance = $10,000
• Equity = $10,000 (Note that whenever you have no open position, your equity = your balance.)
• Used margin = $0
• Available margin = $10,000 (Note that available margin is also called usable margin.)
Let’s say you decide to open a $50,000 position in USD/CHF. How can you do that — you have only $10,000 in your account? You can do that because you are permitted to use leverage (up to 20:1, in your case).
That leverage limit is associated with a margin requirement, as follows: 20:1 leverage corresponds to 5% margin. This means that any position you open requires a deposit from you (from your cash money) equal to 5% of the notional value of your position. In this example, the notional value of your position is $50,000, and the required margin is $2,500.
Let’s say that you open this $50,000 trade. What would your balance, equity, used margin and available margin be?
We know 2 of those 4 things, right off the bat: balance and used margin.
• Your balance was $10,000 before you opened this trade, and it will remain $10,000 until your trade is closed and P/L is booked.
• Used margin = $2,500, as we determined above.
What about equity? Unlike “balance”, “equity” reflects debits and credits to your balance which have not yet been booked. Credits are profits on open positions, and debits are losses (including spreads) on open positions. Initially, let’s say that you open this position, and you are charged a 2-pip spread. And let’s say that your trade moves 10 pips in your favor. How does this affect your equity?
On your $50,000 USD/CHF position, let’s say that 1 pip is worth $5.50 (that’s $1.10 per pip per mini-lot x 5 mini-lots). So, your equity will reflect a debit of $11 (2 pips) for the spread, and a credit of $55 (10 pips) for your open profit, which means…
• Equity = $10,044. This figure will fluctuate as the value of your trade fluctuates due to price changes.
Finally, we come to available margin. Equity - used margin = available margin. Therefore…
• Available margin = $7,544 (that is, $10,044 equity - $2,500 used margin).
Available margin is the portion of your (cash) money that you can: B[/B] use to cover any losses which might occur in your open positions, B[/B] use to cover additional spreads and additional required margin on additional positions which you might choose to open, or B[/B] withdraw in cash from your account.
Suppose you were to close your position at this point (when your open profit is 10 pips). Then your equity at that moment would become your new balance, your used margin would become zero, and your available margin would be equal to your balance…
• Balance = $10,044
• Equity = $10,044
• Used margin = $0
• Available margin = $10,044
You are missing something, somewhere. It is not possible to open a position (either buy or sell) without specifying the size of the position.
I’m a newbie and find all these info confusing. It’s like reading a story without knowing any abcs. I should start reading materials from the school of pips before I read the newbie forums, right?
The box labeled “units” is where “size” is specified.
I have never used the Oanda platform, but as I understand it, you can trade any number of units from 1 unit, on up.
One unit of AUD/USD means exactly that: one Aussie dollar traded against the U.S. dollar.
You have probably heard of lots — standard lots, mini-lots, micro-lots, etc. — used by other brokers.
• 1 standard lot = 100,000 units (that’s the position size shown in the “units” box in your right-hand image).
Your Oanda Market Order window indicates that your account currency is Singapore dollars (SGD). If you were to trade 100,000 units of AUD in your 10,000 SGD account, you would be using actual leverage of 12.8:1 (based on the current price of AUD/SGD = 1.28173). That is probably too much leverage for you to use.
• 1 mini-lot = 10,000 units (= 1/10 of a standard lot)
If you were to trade 10,000 units of AUD in your SGD-denominated account, you would be using actual leverage of 1.28:1 (again based on current prices). This position size is probably too conservative for you.
As you mentioned in post #1, your 2% risk percentage, and your 50-pip stop loss, implies a position size of a little more than 20,000 units. Obviously, 20,000 units would represent twice as much leverage used as 10,000 units — that is, a 20,000-unit position size would correspond to actual leverage of 2.56:1.
• 1 micro-lot = 1,000 units, and
• 1 nano-lot = 100 units
Those 4 lot sizes are just for your information. I don’t think Oanda uses lots of any size. With Oanda, you will always be specifying your position size in units. However, if you ever go with a different broker, you will probably find that position sizes must be specified in lots of one size or another.
Units are the most flexible way to specify position size, if you want to adhere exactly to your chosen risk percentage. If the Position Size Calculator tells you that you can trade 25,500 units, you can do precisely that in your Oanda account. But, you wouldn’t be able to trade 25½ lots in a micro-account, or 2.55 lots in a mini-account, because generally platforms which are configured for lots [B]accept only whole numbers of lots.[/B]
Anyway, practice placing market orders and limit orders in your Oanda demo account, [B]including position size, entry price, stop-loss, trailing stop and take-profit.[/B]
And practice specifying your stop-loss, trailing stop and take-profit [B]by price and by pips.[/B]
Learning to navigate your broker’s trading platform [B]without making careless errors[/B] is one of the main purposes of demo accounts. Before you ever open a live account, you should practice in your demo account until you are able to place orders, change orders, and cancel orders effortlessly, and without mistakes.
