If I deposit $500 on my trading account with a leverage of 50:1,my account balance will be 500*50=25000?
If so, by risking 1% of my capital when taking a trade am I risking 1% of 500 or 25000?
And making 2% returns a month is it 2% of 500 or 25000?
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500…Never EVER account your risk based on money you don’t have and can’t afford to lose.
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Sure, thanks
But that’s not what I’m asking
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Your risk is based on your stop loss in pip value against your account equity.
Your gross gain of equity is likewise computer as a percentage of growth against that same account equity.
Baby pips has a good risk calculator in the tools section and some good lessons in Pipsology.
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@Ganja.256, Your account balance, your risk, and the leverage you are using are all totally different things.
You account balance is your real funds and that is not altered at all by leverage.
Leverage is only associated with the nominal value of a unit of the currency pair that you are trading.
All leverage does is determine how much of your account balance is reserved against your open position as a kind of deposit. The higher the leverage the less amount is reserved from your account funds.
Your risk is the pip value of the position you have open.
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That’s 1% of your 500 so you’d be risking $5 and if you made 2% of that 500 in a month you would have gained $10.
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Clint provides a very good answer to this question. Just under this question from M.
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Thank you guy
This is helpful
Can I use retail stop lose in all time frames or there are time frames work with it than others?
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a stop loss is relative to your risk tolerance and the amount of distance in pip value from the potential committed reversal zone.
Thus one size doesn’t fit all.
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@Protais, what do you mean by retail stop loss? A stop loss can be placed based on the current trend, market moves and prices. Here the spread should be taken into consideration as well. The time frames would not have a big matter in this case as the type of order, the traded instrument and potential risk expectation are important here.
I was talking about retailed stop loss, I used to know that is a stop loss that can move as a market price move, this can allow a trader to be profitable trader, I’m not well informed?
Just reading about this at the school 
@Protais, haven’t heard of a retailed stop loss but I think that what you describe must be a trailing stop. And I will explain with a simple example I found here on Babypips (link for the thread with some additional explanations: Question arising from the educational part of the site ): this trailing stop is a type of stop-loss order attached to a trade that moves as price fluctuates. Let’s say that you’ve decided to short USD/JPY at 90.80, with a trailing stop of 20 pips. This means that originally, your stop loss is at 91.00. If price goes down and hits 90.50, your trailing stop would move down to 90.70. Just remember though, that your stop will STAY at this price. It will not widen if price goes against you. Going back to the example, with a trailing stop of 20 pips, if USD/JPY hits 90.50, then your stop would move to 90.70. However, if price suddenly moves up to 90.60, your stop would remain at 90.70. Your trade will remain open as long as price does not move against you by 20 pips. Once price hits your trailing stop, a stop-loss order will be triggered and your position will be closed. Hope this makes sense.
Thank you, for your help
thank you for this question and the answers given i have wondered about this and have never gotten an answer.
Leverage increase purchasing power of your money but it comes with additional risk. It all depends on the lot size of your trade, I mean your profit and your loss. Your max position size as you guessed is 25000 notional amount and pip value will be 2.5 units of base currency. The lower position size the less is potential profit but risks are controlled better.
Very true, your balance, leverage and risk are completely different. Understand all the terms used in the Forex market to ensure you know your way towards making profits and not losses. Pipsiology classes are the best for knowing basic Forex terms and how to do such calculations
I would like to correct here, leverage does not increase your equity or account balance. If you deposited $500 and get 50X leverage your balance will remain $500. Leverage will only reduce the margin required out of your account balance when you will place a trade. For example; if you place a trade of 0.01 lot on EURUSD at a price 1.13342, higher the leverage lower will be the margin required;
- With 50X leverage: the required margin out of your $500 balance will be,
Current PriceTrading volume/leverage= 1.133421000/50= 22.6684
Thus you will need 22.6684 out of your total $500 to place that trade. - With 5X leverage;
Current PriceTrading volume/leverage= 1.133421000/5= 226.684
Thus you will need 226.684 out of your total $500 to place that trade.
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Stop loss is your level of loss tolerance. Considering that you are beginner, it would be advisable to set very low risk tolerance to lose deals. During time, you will understand better where to set your SL order, but remember to use it always when trading
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