Hello folks,pls how much leverage will i require to make 1 pip equal $10 in the Gbp/Usd pair using $10,000 as initial capital.And i believe it should be a standard account-i will not risk more than 2% of my capital.Thanks for your anticipated response.
David
A pip value of $10 is equivalent to 1 full lot (100,000 GBP). At current values, 1 lot is worth about $200,000. That means you would only need 20:1 leverage on your investment to make that trade.
That said, if you are only planning on risking 2% per trade, that means 20 pips on a trade of that size. You need to be sure that 20 pips is outside the reasonable expectation for normal volatility over your expecting trade holding period.
Thanks so much for your reply.From your comment,i guess i should consider increasing my stop loss.Yes, i’ve been thinking of 30pips risking 3%.
What do you think?
Thanks…
David
hi david - correct me if I am wrong but it is my understanding that you will not want to leverage yourself that high. I think you should consider opening a mini (or micro) lot while you are ironing out your trading strategy.
This way you can then trade the cable at leverage a lot lower than 20:1. Real leverage should probably be around 3:1. And you can increase your stop loss without having to risk more capital as you would in the standard account.
Account size = $10,000
Stop = 30 pips
Risk = 2%
Pip value for a Mini lot on GBP/USD = $1
Stop of 30 pips * $1 per pip = $30
Position size = $200 / $30 = 6 mini lots
True Leverage = 60,000 / 10,000 = 6:1 but if you wanted to achieve 3:1 leverage just reduce to position size to 3 mini lots.
Of course, this method will not make you the money nearly as quickly but it may make the money last a little longer.
Hi, Chofman.
thanks so much for your post,you’ve saved me a lot of trouble.But, i was still wondering…what makes it safer to increase lot size other than leverage? Sorry,i’ve been into forex for close to year now & profiting in demo trading but that still confuses me
i dont think it is safer to increase lost size and that is why you want to trade a micro or mini.
assume you have $1000 to invest. a standard lot costs ($100K) and will require leverage of 100:1.
however, by opening a mini account you can reduce that leverage 10:1 or micro account will bring it down to 1:1