Oanda broker uses 50:1 margin. I want to trade with .20 lot sizes. How much capital would I need to trade this sizes without getting margin called or any other kind of disruption.
If avoiding a margin call is your only concern, then you might be able to squeak by with a little over $500 in your account, provided:
(1) Your broker does not raise the initial margin requirement above 2%. Recall that 2% margin (corresponding to 50:1 maximum allowable leverage) is the minimum required by law. Brokers can require more margin than the legal minimum, and they have often done so.
(2) You trade with tight stops, as in scalping.
(3) You have a string of winning trades, before you suffer your first losing trade.
Let’s deconstruct that answer.
You haven’t given much information. I’m assuming that your account will be denominated in USD.
Let’s start with your opening deposit. Where did the $500-figure come from?
The most expensive trades, in terms of notional value, are trades in which GBP is the base currency. If your account can cover the required initial margin on a GBP/XXX position, then it can cover the margin required on any other trade. Let’s say you want to trade 0.2 lot of GBP/USD. At the current price of GBP/USD = 1.2500 (approximately), the notional value of a 0.2 lot position in GBP/USD would be $1.2500 x 20,000 = $25,000. The required initial margin would be 2% x $25,000 = $500. As long as you have AT LEAST $500 in your account, you can open this trade.
Then what?
As soon as your trade is successfully opened, the required margin changes from initial margin to maintenance margin. Maintenance margin is the margin required to stay in your trade, and it is generally 50% of initial margin. In that case, the maintenance margin applicable to your trade will be $250. You could lose half of your account in this trade, and as long as there was at least $250 left in the account, you would not get a margin call.
Which brings us to the question of stops, tight stops, and scalping.
Trading 0.2 lot of GBP/USD (or any pair of the form XXX/USD) makes pips worth $2 each. If you were to attempt a position trade in GBP/USD, with a stop-loss of – say – 150 pips, you would get a margin call, before price hit your stop.
With tighter stops (125 pips, or less), your stop would be triggered before a margin call was triggered. But, your account would suffer an unacceptable percentage loss.
If this hypothetical GBP/USD trade were a scalp, with a stop-loss of – say – 10 pips, or less, then a stopped-out trade would result in the loss of $20, or less. A $20 loss would be 4% of your initial account balance, which doesn’t sound too bad. HOWEVER —
After such a loss, your account would have a balance of $480, which now would not be sufficient to open a new GBP/USD trade, because you no longer would have the required initial margin for such a trade in your account.
The only way around this dilemma would be to build your account with a string of winners, before you take your first loss. Then, you might be able to stay in the game.
A much better plan
• Open that Oanda account. The best feature of an Oanda account is that you can trade any number of individual units. That is, you’re not limited to whole numbers of micro-lots, or whole numbers of mini-lots, as you would be with most other accounts.
• Fund your Oanda account with money that won’t cripple your budget, if you happen to lose it all. Don’t deposit more than $1,000 to start. That’s enough “working capital” to test the waters, and see whether you have what it takes to be a trader.
• Forget that idea of trading 0.2 lot every time. It makes no sense to construct every trade on some arbitrary position size.
Instead, on every trade that you are considering –
(1) let market conditions guide your selection of an appropriate stop-loss, and
(2) stick to a pre-determined maximum risk percentage in the range of 2% of your account balance.
Then, the combination of stop-loss and risk percentage will determine your position size.
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