Hello everybody, this is my first post.
I’ve been reading the forum for 1 month now and I think I have understood the main concepts of the forex.
I have read very carefully the chapter about the high leverage danger and I have understood how you can’t trade standard lots with small accounts because the cost of 1 pip is too high (10 dollars, for example, trading EURUSD).
What is not clear to me is the relation between leverage and risk.
Isn’t the risk more related to the quantity of money you are trading instead the leverage you are using?
I mean, should I trade minilots, so that the pip prize is 1 dollar and not 10, how can the leverage I’m using be dangerous?
In short, if I have a 2000$ account and I trade 1 minilot, which is the difference if the margin used is 100$ (100:1 leverage) or 1000$ (10:1 leverage) except the fact that I can’t make many trades at the same time? The prize of 1 pip is always 1 dollar, so if I lose 10 pips I’m losing 10 dollars with both the leverage. I feel I miss something here and I would be very grateful if you could enlighten me.
I hope that I wrote my question in a clear way, English is not my native language :o
Thanks in advance for the answer and for this great forum:D
The full leverage ratio, allowed by the broker, is only dangerous if you use all of it. (overleverage)
You are right in assuming if you decide to risk only 1% of your account on a trade, it doesn’t matter if the broker allows you 100:1 leverage or 400:1 leverage. It would still be 1% risked. (A higher broker given leverage would just mean you would need less in your account to cover the trade.)
With that in mind sometimes people are talking about two different things and not realizing it. True leverage = what you are actually trading. Leverage ratio allowed= what is the full leverage ratio your broker allows you.
Ah yes, true leverage and leverage ratio allowed.
Many many thanks, I got it now :=)