I am hoping someone might be able to guess what I am doing wrong.
I use lot size calculator from BabyPips, enter all the figures correctly, but when I enter the lot size from the calculator into MT4 new order, it keeps telling me “Not enough money”, even when I reduce the lot size amount.
For example, current trade I am setting up:
My account has zero leverage (1:1) and I am using MT4 demo account
Balance: 10,000 USD
Free margin: 10,000
I want to go short (sell) EURGBP with stop loss of 30 pips, risk of 2%, current GBPUSD bid price = 1.35319 (as requested by baby-pips calculator).
Once I have entered all this info, calculator tells me results:
Amount at risk: 200 USD
Standard lots: 0.4927
When I enter 0.4927 into my new order in MT4 I get the “Not enough money” text. I have decreased the amount all the way down to 0.1 lot size and I still get the error message of not enough money.
Any pointers as to what I’m doing wrong here?
My past trades I have just lowered the lot size right down, but then my wins/losses are so small - nowhere near my specified risk amount of $200.
I was able to create a new sell order with a 0.08 lot size. Obviously that is smaller than the 0.4927 lot size originally specified on calculator. Just adding this message in case it helps with figuring out what I’m doing wrong. Thank you
You problem is the result of your leverage setting of 1:1. This means your margin requirement is the same amount as the notional value of your position size.
If you select EURGBP in the MT4 Market Watch listings with your right button and select “specifications” you will see that the notional value (contract size) of 1 lot of EUR GBP is 100000 units (EUR).
So a position size of 0.4927 with a leverage of 1:1 will require a margin of 49,270€ (i,e, nearly half the value of the contract size of 1 lot).
Even a position size of 0.1 lots will require a margin of 100000*0,1= 10000€
But your account balance is $10000, and that is only approx just under 9000€ at current rates.
Your position size of 0.08, however, = margin of 100000*0.08= 8000€ so therefore is now less than your account balance euro equivalent.
All you need do is change your leverage to maybe 1:2 and it will resolve this issue.
But, really, your leverage is not so important in terms of risk management. Leverage only determines how much of your account balance is reserved as margin. Your risk factor is the pip size in currency value times the distance to your stop.
You’ve raised a few helpful points here, thank you! This makes much more sense now. I thought the same (if I am understanding you correctly) - that leverage wouldn’t actually affect me negatively if I am strict in setting calculated stop losses.? Of course, I could lose more, but that would be balanced out with standing to gain more when I make winning trades.
You are correct that higher leverage does not affect you negatively at all. It only determines how much of your capital is reserved as a “deposit” against your open positions.
The higher the leverage used the lower the amount that is reserved - and that is where the problems with leverage occur because a lower deposit allows a trader to take bigger positions with the same capital amount and therefore a bigger risk exposure. Perhaps a better use of higher leverage is to enable a trader to take more trades across a diversified range of contracts. Care then has to be taken to manage total overall risk exposure as well as avoiding strong correlation between all open positions.
Whilst bigger positions can make bigger gains, this is a high risk business and they can also make bigger losses. And with a limited amount of capital, damage control is far more important than the gains. Recovering from a major loss, or string of losses is extremely difficult and frustrating when the remaining capital is significantly reduced as a result.
This is one area that is difficult for Newbies with limited funds. One of the biggest attractions of trading is the unlimited potential for high earnings and it is frustrating to see gains in the early days of only 5-50$ and there is a great temptation try and shortcut the “apprentice” period and abuse leverage and take big positions - which at some point inevitably results in a substantial loss and wiping out a significant chunk of equity. This is always psychologically damaging as well as financially.
One of the biggest elements in successful trading is confidence - confidence both in your strategy and in your own ability. And this confidence is extremely fragile. It only takes a few losing trades to implant doubt into your decision-making, which results in hesitancy in entering trades, premature profit-taking, reluctance to close losing trades, reducing your risk exposure, etc - all of which damage your overall trading optimisation and result in inconsistency, or even negative results over time, even if your win rate is still good. But, more to the point, any lack in confidence means a trader will never reach the point where they can trade big enough to actually earn a significant income from their work - which was the original reason for wanting to trade in the first place!
So keep your position size under control, manage your damage risk, grow your account steadily and moderately but also exponentially such that your risk exposure grows in line with your equity growth, your experience and your confidence - and you will be surprised how quickly you will reach a satisfying and rewarding level of income…
BTW, thank you for replying! It is very soul-destroying when one takes time to respond to beginners’ questions and then find that they do not even acknowledge it, even if they disagree! So thanks for your response!
What a site like BP does not need is just a community of beginners telling other beginners how to trade!
Thank you so much! Your two replies contain nuggets of gold, which I will keep referring back as I venture into trading a real account.
The confidence thing - I find I am cool and confident in my demo trades and have been doing quite well. But I do sense that nervousness toward trading on a real account and surely that will affect me negatively when I start trading for real! I have started listening to the audiobook of “Trading in the Zone” by Mark Douglas and he talks about this area quite well, so perhaps I can learn a few things there too.
I do wish I could trade a demo account using leverage so I can make all my mistakes in that field while practicing, and not using my real money. I will contact the broker I’m using and see if there is some way I can access a demo account which uses leverage.
I get what you are saying about growing my account steadily and this all makes sense and is very good advice. I suppose there’ll always be that disappointment when if I make a really good trade (i.e. great R:R ratio) but only come away with, say, $10 from it, it seems like a waste of a really good trade! But, that would be the test as to whether my great trades are due to short term beginner’s luck, or if I can sustain them consistently into the long term and therefore grow my portfolio slowly but surely.
Interesting! I was under the impression that leveraged demo accounts was the norm! If your current broker cannot offer it then open one elsewhere.
Well, there are two ways of thinking about this. A “great R:R ratio” is indeed a rewarding experience but requires a good trend to achieve it. But markets do not tend to trend all that often. Some researchers claim that markets trend only 20% of the time.
This can mean that if your trading strategy is based on long duration trends then you are likely to give back a large chunk of the occasional wins in whipsaws while the market is ranging in between them! It is difficult to know that a trend is long and deep until it has actually existed for a long time!
Long trends with high R:R returns tend to exist on the longer term charts (Daily upwards) rather than intraday and that can mean wider stops and higher risk exposure to allow the trade breathing space - at least until it has progressed sufficiently to allow you to move your SL to breakeven (and even that does not protect against a weekend gap up/down through your SL).
Another approach is to identify the trend on a longer timeframe chart and then trade it on a lower timeframe. In other words taking short-term “chunks” from an ongoing long-term trend. You will not see the high R:R from one trade but the overall result of a number of trades within the trend can produce a similar result and without the weekend risks. It can also help with avoiding the whipsaws during ranging markets and even turn these into another source of profit.
The core issue here is deciding what your strategy is designed to work with. Is it a trend-seeker or a range player or an intraday sniper! Any of these can work provided you know what they are designed for and use them appropriately.
The other core issue here is you, the trader, some people are more comfortable with holding longer term positions and riding over the short term “noise” price action, whereas others find it stressful to carry open positions, especially when they are in profit and vulnerable to a sudden change in fortune at any time…
For example, I personally keep my long term interests in other investments and only trade intraday when I want to, and see something promising with an intraday time horizon. This means any position is open and decided within hours rather than days - and the money is in the bank and not in an open position. And when I am not trading, my mind is free of stress and focused on the many other things in life worth doing! But this is just my way, and an example, every trader has to be aware of their own personal “way” and build their trading strategy around it.
This may seem very logical and obvious, but from what I read on this site it seems a number of newcomers do not even know what kind of trading suits their character, circumstances and opportunities and do not really understand what the TA content on their charts is really designed to do.
These are all issues that can, and should, be clarified during one’s use of a demo account. A demo is not a toy to play with, it is a simulator to be used to learn how to fly without crashing at the first hurdle. Your trading is a business, treat it as such. Use your demo to determine your own niche in the market, how to minimise your overheads (trade losses), how to optimise your sales (trade gains) how to avoid overstocking(excessive trading) and how to manage your emotional reactions to unexpected events and threats.
Any of these can work provided you know what they are designed for and use them appropriately.