Hello my friends! I am a beginner in the field of forex and i am a little confused with the matter of lot and account size. Let’s say i want to open an account with 300 euros and i don’t want to use any leverage. I want to buy tne EUR/USD pair and the exchange rate is 1.2576. How much currency can i buy? And if the position goes up 30 pips how much is my actual profit? Thanks for your help. I am looking forward for an enlightment!
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There is [B]no buying or selling[/B] of currency, or currency pairs, in retail spot forex.
Instead, you place what amounts to a bet on future price movement. If you go LONG x-number of units of EUR/USD, you will not “buy” those units. You will speculate on the anticipated rise in the price of the EUR/USD pair.
Your broker will require MARGIN — a small percentage of your account set aside as something like a performance bond (earnest money, if you will) — but, this is [B]not[/B] a partial payment on a purchase. There is no purchase; and there is no partial payment.
So, the answer to your question is simple: With an account balance of €300…
[B]…you can enter a position (either LONG or SHORT) for 300 units of EUR/USD, without using any leverage.[/B]
Let’s double-check that statement. 300 units of EUR/USD = 300 units of EUR = €300. That’s your position size.
Actual leverage used = position size ÷ account balance.
Obviously, your position size divided by your account balance is 1 — in other words, no leverage is being used.
If you enter your LONG position at 1.2576 (ASK price), and you exit your position at 1.2606 (BID price), then your net profit will be 30 pips, and this will be worth [B]€0.90[/B] in your euro-denominated account.
thanks guys!you have enlightened me.In the end is it really worth it to invest in forex with no leverage and with as small amount as 300 or 500 euros? Another choice is to be patient until you have obtained enough capital to go for something bigger than just a few cents.True or false?
Let’s talk about two kinds of trader: (1) forex traders who know how to trade, and (2) trader-wannabees (newbies) who don’t know how to trade, but want to learn. The answers to your questions will depend on which type of trader we’re talking about.
B Forex traders.[/B] Knowing how to trade means having an approach (a strategy, a method or a tactic) which gives you an edge in the market. An edge is nothing more than the long-term probability that your approach will win more often than it loses. Knowing how to trade does not mean knowing the [I][B]one[/B][/I] strategy, method or tactic which works for everyone; there are successful traders using a wide variety of different approaches to the market. What they have in common is not their approach — it’s the fact that each successful trader has learned to use his/her particular approach to produce an edge, a winning probability.
Knowing how to trade also means having specific rules for applying your approach in the market, and it means never violating your rules. It means preparation and planning before every trade; it means diligent money management; and it means automatic, emotionless trading, with complete confidence in the win-ratio provided by your edge.
If you are a successful forex trader — a trader who knows how to trade — trading without leverage makes no sense. Trading without leverage simply slashes your proven profit potential, by slashing the rate of return you can reasonably expect every month, and every year. If you can consistently earn a 1%-per-month rate of return without leverage, then you can consistently earn 5% per month doing exactly the same thing with 5:1 leverage.
Somewhere between zero leverage on the one hand, and the mathematically optimum leverage suggested by the Kelly Criterion on the other hand, there is a level of leverage which is comfortable for each individual trader. Successful traders do not tell each other how much leverage to use. Successful traders [B]do[/B] tell newbies to strictly limit the leverage they use, in an effort to help those newbies avoid wipe-outs.
If you are a successful forex trader — one who has a proven edge in the forex market — you can make money starting with any size account. You can start with a €10 account, build your balance to €100, and then continue to build it from there. Or, you can start with €100, and skip the time it would have taken to go from €10 to €100. Or, you can start with €10,000 and get off to a much faster start toward real wealth.
But, all this hypothetical success depends on [B]knowing how to trade.[/B]
B Trader-wannabees (newbies).[/B] By definition, these traders don’t know what they are doing, but want to learn. If you’re in this group, then clearly you want to learn as quickly and efficiently as possible, without spending money on forex education (which is essentially free), and without losing money making avoidable trading mistakes.
The best place to start your free forex education is right here, on the Babypips website.
The best way to avoid making costly trading mistakes is to follow these two steps:
B demo trade[/B] until (a) you have mastered the mechanics of trading spot forex through an electronic trading platform, and (b) you have developed your ability to trade to the point that you are consistently [B]break-even.[/B]
If you can’t consistently place a series of demo trades, cover the spreads, avoid losses (overall, on average), and achieve break-even (or better) — then, you have no business trying to trade real money.
B train yourself to trade real money,[/B] by starting small. That means starting with a [B]tiny initial balance,[/B] and trading [B]tiny position sizes.[/B]
If you can’t consistently earn pennies every week trading a €10 account, or €1 every week trading a €100 account, then you have no business putting a larger account balance at risk.
This market will eat your lunch every day of the week, if you don’t know what you are doing.
Depending on the broker you choose to trade with, you might have to accept a demo account with a huge initial balance. If you can adjust the initial balance on your demo account to the (modest) amount you intend to start live trading with, do it. If you can’t make this adjustment, then [B]pretend[/B] that your demo account has the tiny initial balance that your future live account will have, and trade that imaginary tiny balance exactly as you would if the money were real.
Also depending on the broker you choose, you may have to fund your [B]live[/B] account with an initial deposit which is larger than you would like. If you are able to fund this required initial balance, and if you are determined to go with this broker — then do it, [B]provided you can trade the tiny positions which would be appropriate for a tiny balance.[/B]
If a particular live account has a required initial deposit of €1,000, but allows you to trade in units, or in nano-lots, you can trade that €1,000 balance with [B]less than zero leverage.[/B] A position size less than 10 nano-lots in a €1,000 account represents actual leverage of less than zero. A position size of 1 nano-lot (100 units of base currency) in a €1,000 account is [B]equivalent to trading 1 nano-lot in a €100 account with zero leverage.[/B]
Initially, your objective in your first live account is to replicate what you did successfully (i.e., not taking losses) in your demo account. Your second objective is to refine your approach so that you are doing better than break-even. In the beginning, your objective is [B]not[/B] to make money; your objective is to prove to yourself that you [B]can[/B] make money.
If you can earn €1 every week (on average) trading your €100 account [B]without leverage,[/B] what’s important is not the €1 per week — [B]what’s important is 1% per week,[/B] because if you can earn 1% per week consistently in a €100 account, you can continue to earn 1% [B]on an increasing balance,[/B] as you grow your account to €200, or €500, or €10,000.
And, if you can earn 1% per week without leverage, then [B]with leverage[/B] you can earn several times as much, just by continuing to do what you’ve been doing.
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you couldn’t be more persuasive and clear about this matter and i am grateful for your answer!!I am actually a trader wannabee and i am willing to learn. I agree that the first thing i need to do is structuring a mind-set in order to avoid emotional trading. I have to built my discipline first.How much time do you think i need to learn all the necessary stuff( technical or fundamental anlysis, indicators etc) in order to identify an edge. By saying “edge” you mean a trading strategy?
Well, I don’t think I said that — so, I don’t know who you are agreeing with.
Your questions lead me to believe that you are at the beginning of the learning curve. And that’s a pretty good place to begin. I certainly do [B]not[/B] want to discourage you — but, you have a ton of learning to do. And tackling “emotional trading” is probably not your top priority.
I suggest the following:
Study the entire School of Pipsology curriculum, start to finish, in order to get a broad overview of the forex market and forex trading. When you finish the School, you will not be an expert in any of the topics covered, but you will have learned the basic concepts and the terminology of this business.
While you are studying the lessons in the School, get yourself a [B]demo account[/B] from the broker of your choice. Try to find a demo account which lets you set the initial account balance, and lets you trade in tiny position sizes (nano-lots, or individual units of currency). Set the initial account balance to the amount of real money that you intend to deposit, when the time comes to begin live trading. Master the workings of your demo account — how to enter and exit positions, set stop-loss and take-profit orders, etc.
A demo account comes with a [B]charting package.[/B] Learn to be a chart-reader. As you are studying chart-reading, chart analysis, price action, indicators, etc., in the School lessons, practice those things on your demo account charts. Charts can be embellished and manipulated in many ways; so, there is a lot to be learned just by playing around with your charts. Master your charts.
After you have done all of the above, there are several different directions that you might go. You might pursue Michael Huddleston’s teaching here on the Babypips Forum — and this is the direction that I highly recommend. But, there are other great teachers here who might appeal to you, as well. However, don’t pursue those avenues just yet — not until you have completed the School and become proficient with your demo account.
When will trading with real money be on the agenda? That will come later. Don’t be in a rush. If you are serious about this business, you have a lot of study and hard work ahead of you. Actually, you are just beginning a life-long program of individual learning.
I can’t answer that question. It depends on your background, your ability to learn quickly, your determination, and a dozen other factors. As I indicated above, you have a long road ahead of you, if you want to learn how to trade.
[B]If it were easy[/B] to go head-to-head with the most powerful financial interests on the planet — and take some of their money away from them — [B]then every little girl would be doing this already.[/B]
No, a successful strategy produces an edge. “Edge” means “advantage”.
A good card-counter in the game of blackjack has an “edge” (advantage) over the dealer. That’s why the casino will ban the card-counter, as soon as they identify what he’s doing.
In this analogy, the player’s [B]strategy[/B] is card-counting, and the [B]edge[/B] (which his strategy creates) is the mathematical probability of beating the house (the casino).
But, we’re wasting your time. You need to dig into the School of Pipsology.
Can you suggest a demo account using the Metatrader 4 or Metatrader 5 software?
I don’t use MT4, so I’m not an expert on that platform.
However, as I understand it, all MT4 platforms let you trade in lots (100,000 units), mini-lots (10,000 units), and micro-lots (1,000 units). They do not accommodate trades in nano-lots (100 units), or individual units (1 unit). This is true of MT4 platforms from any and all brokers.
So, if you are committed to the MT4 platform, you will have to do your practice trading using much larger position sizes than I have recommended to you.
If you are not committed to MT4, you might look into Oanda’s proprietary trading platform, called fxTrade (available in both live and demo versions). With the fxTrade Demo Account, you can trade any size position from 1 unit on up. You can re-set the play-money balance (initially $100K, I believe) to whatever suits you. And the demo account never expires.
I’m not necessarily recommending this demo platform — I’m just repeating some things that I’ve read.
There are many traders who use two platforms, not necessarily from the same broker — one for charting and analysis work, and one for actually executing trades. For example, one very experienced trader I know uses an MT4 platform for charting and for running custom indicators, and the standard GFT platform for trading.
But, I think two completely different platforms would be too much for you to try to juggle, at this stage in your development. Find one demo platform that you can get comfortable with, and then master all its bells and whistles.
That’s all I have for you. You’ll have to take it from here, and do your own research and due diligence.
most brokers offer a demo MT4 or MT5 these days.
any one will do. the only issue is some demo MT4s are offered for a limited time, while some are available for unlimited use.
Wow… I have long escalator to climb… Thanks yo… That was short and pact!
Thanks fringfx. That’s help a lots.
Outstanding information here in this post for all newbies like the OP and others like myself. Very, very thorough and informative, thank you Clint!
I for one, will not be trying to run before I can walk; hence, I see a very long journey ahead of me, which is good - it’s worth doing and worth spending the time on (many many months for the basics as I see it) and many years’ of continued learning throughout ahead…
Clint,
Thank you for this information. It is very helpful! I am a newbie and your words of wisdom have helped me to understand things more clearly and to be more cautious.
Thanks again!
Jesse
[B]Jessey[/B] and [B]jesse,[/B] you’re welcome. I’m pleased to help.
Two “jessie’s” on one little thread. What are the odds of that?
well firstly im not sure you can get a broker which wont leverage your account. you can choose not to exceed the account balance in lot buying.
now as for lot sizes, each 0.01 lot is worth 1000 currency. so 300 euros is smaller then that, some brokers will offer a Nano-Account. this is an account that trades 0.001 if you have such an account the pip movement prices are 0.01c per pip
My advise though is not to be concerned with the leverage part, really your focus should be on not exceeding a certain Risk per trade. so when you enter a trade ensure that you have a STOPLOSS that means you only lose a tiny percentage of your capital (as a rough idea not more then 2%).
using the babypips calculator is a great way to track your lot sizes required
posting at the same time period , as well.
mind blowing odds
Thank for these tons of information, This saves me time in reading forex materials,
I like how you differentiate the two kinds of traders.
Recommended thread for all traders out there!