Leverage ratio and lot sizes help!

Beginner Questions
1

Hi, recently I opened a 1,000$ live account for my start up and I have this confusion with my leverage ratio and my lot size. My broker told me i have basic 1:100 leverage ratio in my 1,000$ account.

I have read few threads about leverage here saying: (revised example)

“1:100
With $1, you can control 100 times the amount of $1
This means that $1x100 = $100
Similarly, if you have $1000, you are controlling 100 times its worth
This means, $1000 x 100 = $100,000
This whole idea of 1:100, 1:500 is called LEVERAGE”

So, for my 1,000$ account and with a 1:100 leverage ratio, what is my lot size here?

As per the above example, it says I can control 100,000$ in a 1:100 leverage ratio ($1000 x 100 = $100,000). does that mean I have a standard lot of 100,000?

And what is the calculation of my pip value for my 1,000$ account in a 1:100 leverage?

I’m a super newbie. and if anyone can help me with this it would be a great help.
I wanna get this straight this time coz the last time I tried my luck in trading I blew it all away coz of my lack of knowledge. Help please. Thank you

2

All is explained in the “school” pages, here: [B]School of Pipsology | Learn Forex Trading[/B]

Pip value is a constant factor - [U][I]it doesn’t depend on how much leverage you’re using[/I][/U].

This should help you: [B]301 Moved Permanently

If you have $1,000 in your account, and are wanting to risk no more than 1% of your account in any individual trade (which I’d recommend), that means you’d want your risk to be limited to $10 per trade. So, you need to work out your position-size in such a way that the gap between your entry-level and your stop-loss level represents no more than $10. For example, if trading EUR/USD (whose pip movements are $10 on one lot) with a 20-pip stop-loss, you’d need the 20-pip gap to represent $10, which would mean $0.50 per pip. That would mean a position-size of one 20th (5%) of one lot, because $0.50 is one 20th of $10. So you would trade 5 microlots of that currency-pair, because 5 microlots are one 20th of a full lot. It’s explained in more detail in the thread linked to above.

And there’s a free position-size calculator you can use, here: [B]Position Size Calculator: Free Online Forex Position Sizing Calculator[/B]

That sounds like a good reason to use a [I][U]demo account[/U][/I], until you’re thoroughly familiar with it, perhaps? :wink:

3

Thank you so much lexys.

If you have $1,000 in your account, and are wanting to risk no more than 1% of your account in any individual trade (which I’d recommend), that means you’d want your risk to be limited to $10 per trade. So, you need to work out your position-size in such a way that the gap between your entry-level and your stop-loss level represents no more than $10. For example, if trading EUR/USD (whose pip movements are $10 on one lot) with a 20-pip stop-loss, you’d need the 20-pip gap to represent $10, which would mean $0.50 per pip. That would mean a position-size of one 20th (5%) of one lot, because $0.50 is one 20th of $10. So you would trade 5 microlots of that currency-pair, because 5 microlots are one 20th of a full lot.

I guess I get the idea of this example, I hope so… It’s more of a risk management for me.
Here’s my understanding:

Micro lot is $1,000 and it is equivalent to $0.10 per pip right?

Now what I need is a $0.50 per pip value for my 20 pip gap between my entry-level and my stop-loss level to make it a 10$ limit risk. That is $0.50 x 20pips = $10 right? If that so, I’m following the 1% risk in this single trade right? coz 1% of my $1,000 account is $10 correct?

Now here’s the tricky part and I hope I got it right:

That would mean a position-size of one 20th (5%) of one lot, because $0.50 is one 20th of $10. So you would trade 5 microlots of that currency-pair, because 5 microlots are one 20th of a full lot.

A micro lot is $0.10, that is 10c right? and in volume options that is 0.01 (MT4 platform), correct?

If that so, to get $0.50 per pip, I have to change the volume settings to 0.05 in my MT4 coz 0.05 is equivalent to $0.50 (50c), and that would make my pip value changed to $0.50. So a 20 pip movement in that single trade is now 10$ right?

You said I would need to trade 5 microlots in that particular currency-pair, because 5 microlots is equivalent to 0.05 volume (0.10 x 5 = 0.50) right? So by that simple change in my volume setting (0.05), I am now trading $0.50 (50c) per pip, correct?

I really do hope I got that right.

I’m using MT4 as my platform for trading and as far as I know, the ‘volume’ option is my lot size setting. But I’m still not sure of that I’m sorry.

Can you confirm this matter first if I got this right?
I have a follow up question regarding leverage below:

If I’m correct with the above explanation, question is, where does my leverage 1:100 applies in this transaction/trade?

I guess I’m having a hard time begging for questions with my broker. Their answers got me in a lot more confusion. Thank God for babypips community and to you especially.

4

Hi Museifu.
You still haven’t quite got it right.
If you don’t want to go thru the whole Pipschool like Lexys suggests, you might find this thread useful
http://forums.babypips.com/newbie-island/80849-newbies-guide-becoming-forex-trader-post771029.html#post771029

Drop the dollar sign off microlots, they are 1000 units of whatever pair you are trading not a monetary value.
I would advise against trading with real money for now, just open a demo account until you understand more or it could be a costly exercise.
Good luck

5

Hi carlos ray. thanks for your reply.

I got the dollar equivalent somewhere in this forum. Here it says:

Standard Lot ($100,000) = $10 per pip
Mini Lot ($10,000) = $1 per pip
Micro Lot ($1,000) = $0.10 per pip

is this information correct? I understand the lots are all equivalent to units and not monetary value, I still need confirmation for the value of pips in dollars. and as I already know, the change in currency value relative to another is measured in pips, which is a small percentage of a unit of currency’s value.

I know the volume decimals in my MT4 doesn’t represent a monetary value but it has an equivalent to a monetary value right? (0.01 means 0.10c)

I’m actually pointing out pip value in my decimals on response to lexys reply. so if I’m pointing out pip value, therefore, it should have the $ sign. and that is for me to calculate my risk which lexys is pointing out as $10 for 20pips in a single trade.

I hope you get this clear as I sound ridiculous, but I’m so willing to learn more.

I am actually taking the pipschool and I understand pips and lots but what gets me into confusion is when I apply the calculation in actual trading (live or demo accnt). I always get lost in the middle of my calculations. sorry and thank you so much for giving time helping me.

6

Hi.
The monetary value varies depending what you are trading. The figure of $10 per pip on full lots (100, 000 units) is fine if you’re trading dollar based pairs.
Take a peek at this What is a Pip in Forex?

7

It will be talking about a specific example, presumably, and will be correct for that example.

That would be correct for EUR/USD (for example). As Carlos mentions above, the pip-value depends on the pair being traded.

You obviously understood my post above, anyway. But regarding the details of MT4, I’m afraid I can’t help you at all. I hate it, and haven’t used it apart from [I]very[/I] briefly, many years ago - sorry: I’m not the right person to comment on the intricacies and practicalities of MT4 at all. :8: