When I placed my very first micro lot order for 0.05 lot of euro/usd at a certain price using MT4, these questions befuddled me even though I had read earlier all material I could find on margin and leverage:
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What is the dollar value of this 0.05 lot order - is it the $130 I see in there and if so, how is it calculated? it seems like I bought 5 micro lots, and since each micro lot is 1,000 currency units, it would be 1,000 units X 5 micro lots = 5,000 units. Then 5,000 units x the market price of 1.10839 = $5,541.95. So how do I get from $5,541.95 down to the $130 used margin?
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It says my balance is $447.64, having made an initial deposit of $500. If I had chosen an initial leverage of 5 to 1, shouldn’t my actual balance be $500 X 5 = $2,500? That’s because I had $500, then the broker loaned me 2,000 as a margin loan, so shouldn’t my spending limit be $2,500? And if this is my limit, shouldn’t the value of my losses be deducted from $2,500 instead of from $500 to give me my remaining margin?
I would really like to see a step by step calculation, even at the kindergarten level, on how to actually calculate exposure, used margin, remaining margin, order value, etc. There is a world of difference between talking about margin and leverage in hypothetical terms versus actually seeing a live trade being dissected dollar by dollar from beginning to end.
Thanks for any help,
Fil