Just started using MT4 demo version, I have gone through babypips tutorial upto Elementary Level. I have a few confusions after using MT4 which i need to clarify.
Volume field shows values like 0.01, 0.1, …8. My account is Micro, so if I select 1 lot for USD/EUR. It means I am going to buy 1000 USD from the broker. Am I right?
After that where does the leverage comes from. My broker tells me that Micro account supports 1:200 leverage. But how can I get/set leverage in MT4.
My broker allows 5 Lots on Open positions for Micro account. What does that mean? Because if i exceed that,it gives error “Trade is disabled”. Can’t understand the limit.
Basically, I would suggest you go through the reading again…the way I see it- you should not rush with that part; it is like the basis for a successful trader, like when you are learning a foreign language, first you have to know the grammar, then you must know by heart present tense, and only after that you go to the next level… You must be able to make a clear difference between a LOT (which is that volume field… it can be 1 lot-100.000 units, 0.1-10.000 units etc…), LEVERAGE (the leverage allowed differs from broker to broker, and if it is preset you can contact the broker and they can change it for you (of course it mustn’t exceed the max.leverage allowed))and so on… But trust me go through the SCHOOL section again, and try some video tutorials if you are “in a hurry”… it’s worth it (you’ll thank me later :18:)
Best of luck!! :60:
Hey, id like to clarify this a little as i know it can be confusing.
1 = 100,000 USD
0.1 = 10,000 USD
0.01 = 1,000 USD
where the margin comes in is if you were 1:1 leveraged you would need to have 1000 usd in your account to buy 0.01 lots.
at 1:200 you only need 5 dollars in your account to buy a 0.01 lot. That is where the leverage comes in.
the thing is with 1:200 lots if you have only 5 dollars in your account you will be margin called when the market moves 50 pips (.5%) against you. If you were less leveraged then you could survive longer moves against you.
being over leveraged is not a good thing as it means if the market randomly moves you can get stopped out purely because you don’t have enough money in the account.
I get your point but how do i select a certain leverage in MT4 software while selling or buying. Like for one trade i go for 1:25, for other trade i go for 1:50 or 1:75 or 1:100 and so on.
Okay, you have a micro account that means your 1.00 lot is 1000 EUR on the EUR/USD remember the base currency is what you are buying in this case the EUR.
Micro lot 1k
Mini 10k
Standard 100k
Leverage ratio that is your 1:200 ratio is similar to that of a bank which is calculated as SE/D which is share equity to debt. Remember you don’t have 1000 EUR to trade so you have to borrow it from a liquidity provider i.e. bank or your broker. Similar to buying a house when the bank asks you for a 20% deposit for the 200k mortgage. This is leverage. So for every 1k you borrow from your broker requires a deposit of 0.5% in hard cash (margin) this is 1:200 leverage ratio calculated 1/200 x 100 = 0.5%.
The broker and liquidity provider considers you a professional client so if you were to make a poor investment decision then they would use your deposit to cover any loss made on the loan you made and will return the initial burrowing to lender (i.e. 1k) plus any loss from your margin so the lender is now good. In the event you profit then you will gain the difference between loan capital and present value while the loan capital (1k lot) is returned to the lender. This is the simple explanation.
The difference between this market and buy a house is the leverage ratio and the ease of liquidating the asset. If the same leverage was available in the property market you could buy a 200k house with 1k deposit. Crazy of course. Which is why leverage is a two edged sword.
Leverage can be adjusted by contacting your broker. In MT4 margin calls only happen if you don’t have enough capital so in effect you can use a stop loss to somewhat redress the excess leverage it terms of quantifying a financial loss you can take and making the capital available this will become your real margin or you can reduce your leverage.
I appreciate all your help but I still can’t clarify the confusion I have. Please just answer my below mentioned question.
I have a demo account with 5,000 USD balance. My broker allows me 1:500 leverage. But, I want to use 1:100 leverage means I want to buy 500,000 units of USD/EUR.
Now, how do i do that in MT4 software ? Because there is no leverage selection option in Trading window while we create an order. Again, please just answer this point. Thanks
I can see your confusion. it just doesn’t work like that.
if you have 5000 USD and you have leverage of 1:500 then you can buy up to 5000*500 = 2,500,000 USD or 25 standard lots.
if you had asked for 1:100 leverage then you could by a maximim of 5000 * 100 = 500,000 or 5 standard lots.
So if you want leverage of only 1:100 then dont trade more than 5 standard lots at a time. Thats pretty much it but its a different way of looking at things which is why you have the confusion.
I think what you might mean is how can you make a certain amount of money from a pip move. This is pretty simple a standard lot is worth $10 a pip. From there its simple mathematics to extrapolate.
No worries. I have come across the brokers where you have to tell them what exposure you want through the leverage number. I think FXCM do it that way. I found it seriously confusing. The lot size is the convention of pretty much every exchange traded asset so I would say its probably the right way of doing it. Anyway have fun smashing the market about.
FXCM’s MT4 platform specifies trade sizes in the same way as all other MT4 platforms.
[ul]
[li]1.00 = standard lot (100k)
[/li][li]0.10 = mini lot (10k)
[/li][li]0.01 = micro lot (1k)
[/li][/ul]
On our Trading Station platform, clients have the choice of specifying trade sizes by the lot size (1k, 10k, 100k, 55k, etc.) or by the amount they want to risk per pip (10 cents, $1, $10, $5.50, etc.).
Pipwhip makes a great point above. The key is to understand the difference between your effective leverage and your maximum available leverage. It’s like the difference between the speed you’re currently driving and the top speed that’s possible for you car. I discuss this in further detail in this thread: 301 Moved Permanently
