New to the Forex but I have been reading about it for months now. I need some clarification on how to figure out overall value from a trade. I was just looking through the school section which lead to these questions. I will use an example from the lesson I was reading
So if i have a currency pair with an exchange rate of 119.9 and the pip size is 0.01, I know the pip value is 0.0000834
Now I multiply in the lot size (since I will be looking at a super micro lot since I only have $500 to start with at the moment) I multiply that by $1000 so I have a value per pip of 0.08. This all makes sense to me it’s getting into the leverage part that messes me up.
Am I correct with this thinking, if you need 1% for $1000 lot which would mean $10 I would be leveraged at 100:1 for 1 lot, if I wanted say 5 lots then I would be leveraged out 500:1 (no this is not in my plan I’m just trying to figure this out)
So if I’m leveraged out say 200:1 so I hold 2 lots of $1000 would my calculation now look something like this
(0.01/119.9)200010 (the 10 is the pip movement) giving me a total of $1.66 for the 10 pip move?
Sorry for the long winded thread, but I’m just trying to get this figured out so I know that I have a full understanding of what I am reading.
No. You’re right on the 1% margin requirement equates to 100:1 leverage. What you failed to take into account, though, is that if you put on five $1000 positions at 1% margin you have multiply the margin requirement through. Your margin on the five micro lots would thus be $50, which is still only 100:1.
That said, your effective leverage would increase five-fold. By that I mean your effective leverage (the actual leverage employed as opposed to allowed) would rise from 1:1 to 5:1. That’s because opening a $1000 position when you have a $1000 account means a 1:1 leverage, while a $5000 position would be 5:1 leverage on your account.
Thank you for all of the help, that website has clarified things somewhat, however I notice that some sites will allow you to go as high as 400:1 does this mean that for the same 1% that I use to get 100:1 I can get 400:1 so the same $10 I can either go with 100:1 or 400:1? I think only the leverage part of all of the maths is confusing me at the moment.
What I am in the process of doing is creating a trading strategy where by march I will be able to make $300 per week now I know this would be quite a streak it I was only to start out with a $500 account that would require me to add 10% to my account every week however I will be able to add in $100 every month once I am comfortable trading live. Does this sound do able?
Feel free to correct me if I’m wrong, as I’m new to this too and only beginning to demo. (So far so good)
I’ve been thinking of leverage in terms of risk:
It doesn’t really matter which leverage you use as long as there is more than enough usable margin left to cover your stop loss.
With my plan I decided on a stop loss of X% of equity. I also made a firm decision on the pips for that stop loss. So those are fixed. The only variable left is how many lots you can trade.
So; (x% of equity in dollars) divided by pips = # of lots (adjusted as account grows or shrinks).
Of course there is the spread or commision to figure into that too, but that’s how I simplified it for myself.
I should note that the fixed amount of pips is well outside the range of support and resistance for the entry point;
and the pair is GBP/USD so 1 pip = $1/k10 lot. With USD first you would need to figure out pip value.