Hi there, I’m a new trader. I found out about baby pips about a week ago and since then I have learned more about forex here than anywhere else in the last 5 months.
I have been reading the school of pipsology and it’s been very helpful.
But I think there might be a typo on the examples given about leverage and margin.
In the “what is a lot” lesson it states that a lot is 100,000 units and that the pip value of EUR/USD is approx. $10 per pip…OK got it.
You can use 100/1 leverage to control 100,000 units with 1000 margin (1%)…ok.
However, in the lesson ”Margin Call Explained” the example states:
you buy 1 lot of EUR/USD
Your margin requirement is 1%
Your account size is 10,000
Your used margin is $100
$1/pip…huh? Does babypips mean 1 mini lot? Or am I daft?
I’m assuming that if your margin is $100 your position size would be 1 mini lot.
(It does say mini lot later).
I’ve been demoing for a few months and plan on opening a micro account of £1000-1500. I just want to be sure that I have the money/risk management down cold.
Thanks for any help and Kind regards
-M
Yes, that example is based on a position-size of 1 mini-lot (10,000 units, and $1/pip for XXX/USD pairs).
Many traders, teachers, and writers are careless in the use of the word [I]lot.[/I]
To be perfectly clear, [I]lot[/I] should always mean [I]standard lot[/I] (100,000 units of base currency). Smaller position-sizes should be referred to as [I]mini-lot[/I] (0.1 lot), [I]micro-lot[/I] (0.01 lot), or [I]nano-lot[/I] (0.001 lot).
Suggestion: Open your micro-account with £500 instead, and hold the other £500-£1000 in reserve (in your bank account). You can always add some, or all, of it to your trading account at a later date.
A £500 balance will allow you to trade 1-micro-lot positions, using only 2:1 actual leverage, which is perfectly appropriate for a beginner. If you blow a portion of your account — let’s say it gets drawn down to £300 — you’re more likely to do a [U]necessary[/U] re-think of your trading approach, than if you have “plenty” of money left to work with in the account.
In my opinion, the rule of thumb for beginners should be:
[B]In your first account, begin with a tiny balance, and trade tiny positions.[/B]
Cheers Clint. That’s good advice I’m still in the Demoing stage. I was planning on only trading micro lots so I was trying to use the example using a micro account trading micro -lots.
thanks
-M