I am newbie and after graduating to elementary school in the school of pipsology, I decided to try out my hands on trading with a demo account. But my broker offers several leverages like 1000:1 and 500:1 being the highest I saw. I don’t know what leverage to use for an account that has $200 and I am willing to risk $50 of equity for a start. As time goes on, if I make profit, I will be willing to risk higher amounts of equity.
The higher leverage you have, the more chances of ruining your account completely. 100:1 is the maximum. Do not try to trade all possible movements. Do not try to make a big deal for every trade. Move to your profitability steadily step by step with reasonable risk (hence leverage).
Why brokers offer such big levels for leverage? 5 pips and your account is gone. Where? To a broker’s pocket.
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With my 600$ capital,
Im only willing risking 12 dollar pertrade,
With average 40 pip SL,
Does the pipsology course have an article on how to calculate the risk of opening any position? I have not seen it. I would like to be calculating the risks I will encounter in opening any position.
I can’t say as we are not connected with the pipsology course. If you have 20 pips SL and you want to risk 2% for each trade, then you need $1000 on your deposit if you trade EURUSD pair for example 100/2 (50) * 20 => 1000.
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Bro if you had completed the whole course then you wouldnt ask basic questions of what it teaches. It teaches you it. That’s why theres a course. You need to complete it then open a trading account. Not the other way around. Once you understand risk you’ll also then understand what leverage you need. Go back to studying and save your 200 bucks.
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Thanks for the advice. I appreciate it. I will be going back to the course. I am now in Elementary level.
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Why should he be an exception i.e. he needs to feel the pain like the rest of us!!! LOL!!!
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It will be better to start with the lowest leverage available. Of course, some brokers may offer huge leverage to attract traders, but it is important to understand that if you have high margin level you will be more likely stopped out by even relatively small price movement against your position. That is why it will be better to reduce leverage and start with the lowest possible position size. For sure, it is difficult to earn a lot using conservative approach, but it is possible to make profit consistently that in fact is more important in long term perspective rather than making huge profit in a few days and then losing everything in the nex losing trade. So, the best approach will be to trade with small positions and then increase the position size step by step depending on current size of trading capital available. At the same time, it is important to trade in accordance with money management rules to avoid the situations when one wrong trade causes losses exceeding 5% of the entire account.
The main idea is that the lower leverage you will use, the longer you will be able to trade. There is no need to try to earn a lot at the beginning, it is impossible. It will be better to focus on the performance rather than on profits.
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not more than 100 definitely.
Low or NO leverage is the ONLY way to go in this business. Most will ignore this I know. And unfortunately this would preclude most around here from being able to trade at all. But it is what it is. If you don’t have the capital then you should not be trading at all anyway. Period. And until you have tried it: you will never know the discipline and peace of mind it brings to your trading. Among a whole bunch of other things. People always ask what is the main reason for failure. My answer will always be high leverage (and as a consequence not having the need to be adequately capitalized). And you will note that regulated brokers are required to post statistics of their clients and those statistics don’t show the usual 95% losers. That is a direct result of them no longer being allowed to offer ridiculous leverage anymore. It has had the effect of a) keeping the under capitalized away from trading and b) improving the performance of even the worst of traders that were indeed able to continue trading under margin restrictions now being imposed.
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Good point Dale
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I think you should use a trading calculator before you enter a trade. That would give you an idea of how much you would risk. Some brokers have such calculators for traders.
Thanks.
Of course: I’m wiling to bet that 95% of the figures posted on a broker’s website represent retail spot FOREX traders!!! LOL!!! But we’ll not get into that.
But I’m honestly saying that it’s the only way to go. And I know people around here think I only say this because I trade with a UK FCA registered and regulated broker and therefore fall under ESMA margin restrictions. That’s not the case AT ALL. I could EASILY move my account to some offshore bucket shop. But you know what: even somebody like me after ALL these years and with trading systems that actually WORK would STILL blow up an account with high leverage. I can absolutely guarantee it. Now how’s that for a revelation!!! And this in spite of having the most robust of risk management and position sizing calculations on the planet (in my opinion of course). It would happen for no other reason than that instead of HAVING to limit myself to trading only a few instruments I’d take an extra trade, then another, then another, and in spite of only risking 5% per trade I would probably end up in a situation where I’d be risking 100% of the account across all trades and if they all went pear shaped well then that’s that i.e. game over. The reason: I believe it’s a certain type of person and personality type that gravitates toward this business and that type of person and personality type has an inherent flaw and that’s the propensity to take chances and live on the edge. And that is EXACTLY why these bucket shops offer high leverage i.e. to exploit just this type of person or personality type.
And just about EVERYBODY that reads the above will be saying to themselves “oh well I’m not like that so it doesn’t apply”. Stick the ■■■■ around. If you’re lucky and the moment you start making a little bit of money in this business then all reason is lost. And that’s the tipping point. That’s the moment when your bucket shop broker sits back, cigar in hand, and starts booking first class tickets to some exotic island for a six month holiday!!! LOL!!!
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Since the 1st of August 2018 all EU & UK regulated Forex Brokers (under supervision of ESMA) decreased the provided leverage to their Retail non-professional clients. The leverage limits now are the following: 1:30 for major FX pairs, 1:20 for non-major pairs, gold, and major indices, 1:10 for other commodities and non-major indices, 1:5 for stocks and 1:2 for cryptocurrencies. Stop Out level (negative balance protection) is on 50% of margin level. And this is very good for you as a newbie to have such protection by default. To trade with the minimal possible volume (=risk), using the Stop Loss, will be the right way to start your investment activity (to test your strategy, to learn yourself as a trader).
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Mine is 100% (UK).
Even better. Might be a Broker’s initiative as they are obliged to cover the negative balance for retails clients. Original ESMA requirement was to increase it to 50%.
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Levered funds can be used of course. But why are you trying to fall in risks in the initial phase of your trading journey. Why not enjoying the trading with your own money. however it is my opinion that at first every trader must try to recognize all the features of market with his own funds.
Before you risk real capital, no matter how small an amount…
…try trading on the demo account over an extended period, taking note of your trades and your reasons for taking them.
As for leverage, the higher the leverage, the lower your risk tolerance, and the lower your risk tolerance, the more likely your trade is to be stopped out.
If you are a n00b trader, with very little experience or understanding of trading financial assets, then you are almost certainly going to have that money taken off you, fast!
Do the maths.
Don’t rush into this.
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Don’t use leverage. Trade 1:1. That’s the best idea when starting out.
And once you figure out your risk tolerance, you can decide how much you want to risk per trade, even if you are limited in the amount of leverage your platform allows you to use. My demo account’s lowest leverage setting is 10x. But the way I set up my trade, I can lower that down to 1:1. Babypips offers a calculator to do all the math for you. Can’t be easier!
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