Regardless of the confusion over leverage, you are approaching this the right way. To be honest, leverage is not (or should not be) normally a very relevant issue. The correct end of the “stick” to grasp is to define the actual monetary value of the risk you are prepared to take, as you are doing, and keep your position size/stop distance combination within that limit. If your risk level is suitably modest then the leverage has no other relevance than the amount of margin “earmarked”
But, yes, the new ESMA leverage limits are going to have a big impact and limitation on the size of positions possible with small accounts. If people do not realise this then there is a real risk of insufficient funds remaining to cover the cost of positions in a minus condition and result in forced closures………
@Mordengaard - Yes @anon46773462 is absolutely right - the “leverage” is not really relevant until it “forces a closure” - and that will not be a real issue trading on small bets - until the “Regs” come into force. Apologies if my post appeared critical - it wasn’t meant to be critical of YOU - but perhaps of the “broker”,.
At the end of the day - the bottom line is ALL - and you are doing really good !
And of course… thanks for the explanation! It’s a bit clearer now.
Actually I’m not trading with IQ Option. I have tried them back then in January but I felt like I should trade with a reputable broker who uses the Metatrader platform, since that’s the one everybody uses.
Since February I’m using the MT5. It was a little overwhelming first, to understand stuff like margin etc, but then again, Metatrader is the one people use and should use, so I’ve been using that since the beginning, since February.
IQ Option has a wonderful trading platform but then again the trader won’t understand crucial terms like free margin, leverage and so on… You only set the multiplier and amount to bet. It sounds user-friendly. But in the long run, this is not what you should get used to. A real Forex trader uses the Metatrader platform…
I might update this post later. To show what’s going on with my balance…
The total initial margin requirement is always calculated from the total nominal value of all your open positions depending on the leverage level for each class/type of position. If you open one microlot on EU then the new margin regulations will require roughly 40$ margin. If you then open another two microlots then your total initial margin requirement will be approx 120$. If you then close one position you initial rmargin requirement will drop to approx 80.
However since the pip value does not change, the additional margin required to cover losses will accrue in the same manner as before.
It is worth mentioning that various asset classes have differing initial margin requirements and it will be worth checking this before entering other classes of trades like indices, and commodities. I see you have opened a new thread concerning ESMA changes ( I corrected my spelling mistakes in the above posts - it is a Finnish habit to end words with a letter “i”! )
thanks for sharing your point of views with us. This forex forum is all about sharing experience, suggestions and taking advice to solve problems. Yes, it is true that a high leverage posses greater risk of trading. Thereby I also favor with my own capital.
A question if I may ask. What leverage is standard for beginners to use?
Let’s say you start with €500,-
I know you only risk 1 or 2% per trade.
Any help would be appreciated.
Hey Manxx just an interesting thing to point out. There is a point where overleveraging is deleterious to performance. If your position sizes are too big you can actually reach a point where strategy performance is decreased after your optimal F point.
Leverage isn’t really the issue since it just allows an account flexibility to enter more positions while using a smaller margin of their account. Regardless of leverage your trade should factor in the amount of units your trading against in a pair. In risking 1-2% per trade on an account of $500 euro your talking (5-10 euros) per trade.
Well 1,000 units is a .10 pip a move if you have a 50 pip move that is $5 dollars. Obviously if you’re trading a more volatile pair maybe you might want to scale down in units to widen your SL.
Hopefully that clears it up a bit for you.
If you have 100:1 leverage it just means you have the ability to hold more positions while jeopardizing less of your account margin vs leverage like 50:1, 30:1, 20:1 & etc. More importantly it’s how many units you’ll be risking per trade. Though obviously it’s also a double edge sword if you hold a bunch of positions and they start to turn on you. Which is why risk management is always one of the more important things to incorporate when your trading.
I’d say use the least amount of leverage but again it all depends on how many units you’ll be trading and if your style is one that consist of holding multiple positions.
Just use the least amount & stick to how much percentage you’re willing to risk per trade.
For example if you are risking 1% on $900 your risking $9 per trade. (Let’s say you have 100:1 leverage)
Let’s say your strategy incorporates the volatility of a market lets pick a pair like USD/CAD for sake of explaining.
You see amongst this pair it swings 40-80 pips in a day and your looking to get to get at least 10 pip profit.
Well you have options here. You can either reduce the amount of units so you can have a widened SL/TP or you can choose to use more units and have a tighter SL/TP gap (since we are only willing to lose 1% per trade). Now the most important thing is to factor a pairs volatility if you are going to use a tight SL/TP lets say maybe 10,000 units it’s about 0.73/per pip (at 10 pips it’s worth $7.33 but again that SL is just as tight because of the amount of units 10TP/10SL), but for example at 2500 units it’s about 0.18/per pip (at 40 pips it’s worth $7.33 and vice versa with the SL but as you can see you have way more space incase the pair reverses (40TP/40SL).
