Hi all,

I’ve a quick question on how much money you expose of your account when placing a trade. I know we are advised to use no more than 2-2.5% of your total account when placing a trade, so let me ask a question by explaining what I’m doing:

I am demo trading with a �1000 ( I chose this amount, as I’d like to deposit this amount to start off when go LIVE trading). I have recently entered into a trade where I trade on $1 per pip. Now, the margin that I have used is at �200 (20% of account) I have put a stop loss of 10 pips i.e. $10 which is 1% of my account which I could possibly lose. Is the correct way to look at this, because if I were to use a margin of 2.5% of my account, which is �25 and at a leverage of 50:1 you can only buy �1250 of currency which you aren’t going to make a lot of profit on.

Now my question, is it correct where I use 20% of my account as margin, but only risk 1% of my account with my stop loss?

Many thanks guys and happy trading.

I find that looking at the margin is confusing. The margin really only comes into affect if you have more than one trade open at a time. What I like to do is:

  1. Decide how much of my account I am willing to lose on a single trade. For me it is 5% of my account. So if I $1000 to start I am willing to lose $50 per trade.

  2. Decide how many pips I am willing to drop befor getting out. I like to use a 100 pips per trade, for long term trading. If I see something on the hour chart I might go with 50 pips.

  3. Divide the money by the pips to find out how many lots to buy or sell. in this case $50/100pip= 0.05 lots.

In this case I would need a micro account in order to place the trade. If I had $2000 then I could trade on a mini account with 1 lot per trade.

So lets say I buy EUR/USD the pip spread is 2 pips. So off the bat I am down $1.00 if it goes against me by 100 pips I will be down $50 and get out. That is %5 risk. My reward is 150 pips. Or I might add to my position at 100 pip interviels.