How to calculate Maximum Margin Stop out Leverage?

Beginner Questions
1

Hi there,
Please read carefully.
I am well aware od the leverage calculators, but they dont allow me to calculate my stop loss point.
I want to be able to calculate the maximum LOT size I can use and not get stopped out of the trade up until it actually hits my SL

Example:
So lets say I want to enter EURUSD Buy/Long position and I have a 300 euro account with 500:1 leverage. My SL position is 50 pips further down from my entry point. What would be the maximum LOT size I can use in order to not get stopped out before the price would drop those 50 pips I set as stop loss?

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2

in practice, that depends on the margin requirements, policies and procedures of your broker: it isn’t something you can just calculate, objectively, without taking that information into account

a very good, general rule-of-thumb for beginners is that you should have a minimum of $250 in the account to trade 1 microlot (0.01 lots) safely, but with a stop-loss as wide as the 50 pips you mention, that clearly isn’t going to be enough

sorry it’s not what you want to hear, but trading a E300 account with 1:500 leverage is a recipe for an inevitable accident (as well as a certain indication that your broker isn’t a properly regulated one)

a Major Rethink, before trading a funded rather than a demo account, can only be helpful, here :open_mouth:

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3

I think what you’re asking is what lot size you need to achieve a margin call at a particular level. You need to know at what point your broker closes your trade. Mine is when margin goes below 50%.

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4

Yea bro, thats not helpful at all. I guess thats what a seasoned trader would respond.
So if I would take my brokers stopout percentage level and policies into account, is there a formula to calculate this?

Thanks in advance

5

Yes, this is exactly what I am asking. My btoker closes at 50% aswell.
So is there a way to calculate this?

6

Yea bro, thats not helpful at all. I guess thats what a seasoned trader would respond.
So if I would take my brokers stopout percentage level and policies into account, is there a formula to calculate this?

Thanks in advance

7

It depends on account currency vs the pair you’re trading.

I’m sure there’s an elegant formula that could calculate this, but I’d use the excel solver if I wanted to know.

You could sort of figure it out through this calculator FX Margin Call | Forex Margin Call Calculator | OANDA

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8

Okay, thats a great tool and I wamt to thank you.
The only issue is that it offere calculations for up to 100:1, but I need 500:1.
How would I calculate this? Noob at maths…

9

Well, you could change your broker account to 100:1 leverage if they are properly regulated and your client access provides it. I would suggest if it is linear arithmetic you could multiply the calculations by 5 times.

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Multiply it by 5 in that case. FYI, if you use ctrader, it tells you how much margin a trade will use before opening it. MT4 is junk. MT5 not much better

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Right, i like 500:1 as I am used to it. Which calculation am I supposed to multiply by 5? The number of units? No?

12

Right, which calculation am I supposed to multiply by 5? Spent two hours trying to figure it out…
I agree MT is crap in general, my current broker doesnt offer c trader.
I used to trade with ICMarkets 500:1 but they changed their policy so I had to change my broker

13

Let’s calculate the maximum lot size you can use to avoid getting stopped out before your stop loss (SL) level, based on your provided information.

Assuming you have a $300 USD account balance with a leverage of 1:500, and your SL position is 50 pips below your entry point, we can determine the maximum lot size by trial and error.

SCENARIO 1:
Let’s try a lot size of 0.6, which is equivalent to 60,000 units.

The margin requirement for 0.6 lot size would be:
Margin requirement = 60,000 / 500 = $120 USD

This means $120 USD would be deducted from your $300 USD account balance and set aside as margin for opening a 0.6 lot size long position on EURUSD.

After deducting the margin requirement, you are left with $180 USD for drawdown. For a 0.6 lot size position, each pip movement has a value of $6 USD. Thus, with $180 USD available, you can withstand a drawdown of up to 30 pips ($180 / $6). However, this falls short of your desired 50-pip stop loss.

SCENARIO 2:
Let’s try a smaller lot size of 0.4.

The margin requirement for 0.4 lot size would be:
Margin requirement = 40,000 / 500 = $80 USD

This time, $80 USD would be deducted from your $300 USD account balance as margin for opening a 0.4 lot size long position on EURUSD.

After deducting the margin requirement, you are left with $220 USD for drawdown. For a 0.4 lot size position, each pip movement has a value of $4 USD.

Calculating the drawdown capacity:
Drawdown capacity = Available balance / Value per pip
Drawdown capacity = $220 USD / $4 USD per pip = 55 pips

Therefore, with an account balance of $220 USD and entering a 0.4 lot size long position on EURUSD, you can tolerate a drawdown of approximately 50 pips. However, keep in mind that opening a position often incurs a commission of roughly 1 pip, which amounts to $4 for a 0.4 lot size position.

In conclusion, I recommend entering a 0.4 lot size long position on EURUSD to ensure your $300 USD account balance can withstand a drawdown of around 50 pips, which is close to maximizing your margin requirement for facilitating a 50-pip drawdown.

I understand that your account is actually 300 Euros instead of 300 USD. Now that you know how to perform the calculation, you may convert your account balance to USD, which is roughly $327 base on current EURUSD exchange rate.

903c24009a1e3cb4a49ce165542fec58

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14

Thabk you so much. This is the first answer I got on about 4 forums that somewhat answers my question

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You are welcome!
:slightly_smiling_face:

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16

Super!
Could you give us an ilustration of how pip values of JPY pairs are calcualted?Thanks

17

This is the answer I got on a different forum:

That’s an interesting question. To answer it, it’s crucial to understand what stop-out level is and how the formula for checking whether it was hit works. For the sake of simplicity let’s consider that your account is in USD, not in EUR.

Stop-out level is the threshold value for the account’s margin level when all trades will be closed. Margin level is calculated as Equity / Used Margin.

For example, if your account’s stop-out level (set by the broker) is 30%, then your trades will get automatically closed when Equity / Used Margin = 0.3.

And what is Equity for the purpose of your task? It is the equity that will be in your account when your trade reaches the stop-loss, so it’s Account Balance - Position Size * Stop-Loss * 10. Or for your example, Equity = 300 - PS * 50 * 10, where PS is the position size, which we are trying to calculate.

Used Margin is (PS * Contract Value) / Leverage. For a EUR/USD trade and USD account, the Contract Value depends on the current EUR/USD price, let’s use 1.09. Then For your example, UM = (PS * 109,000) / 500.

Now, if we combine everything with the margin level formula, we get:

0.3 = ((300 - PS * 50 * 10) * 500) / (PS * 109,000)

0.3 * 109,000 * PS = (300 - PS * 50 * 10) * 500

32,700 * PS = 150,000 - 250,000 * PS

32,700 * PS + 250,000 PS = 150,000

282,700 * PS = 150,000

PS = 0,53 - this is in standard lots.

In general, the formula for quick calculation (which you can create in Excel for example) is the following:

PS = (Balance * Leverage) / (Contract Value * Stop-out Level + SL * Leverage * 10)

Important note #1: “10” is the value of 1 pip for 1 standard lot.

Important note #2: If your account is not in USD, two adjustments have to be done. First, the contract value becomes 100,000 (for EUR/USD). Second, that “10” becomes “10 divided by EUR/USD Bid rate”.

Important note #3: If you are trading some other currency pair, all the necessary conversions have to be done accordingly. For example, if you are trading AUD/NZD, the contract value has to be adjusted (because it’s 100,000 AUD) and the pip value should be adjusted (because it is 10 NZD).

I hope this makes sense.

EDIT: Important note #4: If you have other trades open in your account, this becomes quite complicated and somewhat unsolvable.

So I got no idea what they meant here. How is one supposed to calculated in the Position size without knowing what the position size is beforehand… i was never good at maths

18

For ALL USD denominated currency pair, such as
EURUSD
GBPUSD
AUDUSD
NZDUSD

For a,
1lot position size, it is ALWAYS $10 USD per pip value

0.1lot position size, it is ALWAYS $1 USD per pip value

0.01lot, it is ALWAYS $0.10 USD per pip value

Screenshot_20230706-153653_MetaTrader 4
Screenshot_20230706-153653_MetaTrader 41080Ă—870 99.2 KB

The pip value of any JPY demominated pair such as

EURJPY
GBPJPY
AUDJPY
NZDJPY
USDJPY
CADJPY
CHFJPY

always use the CURRENT USDJPY exchange rate for conversion, as shown in the chart above, current USDJPY exchange rate is 143.749

for easy conversion just take
$10USD /1.43749
=$6.95 USD

Thus, for a 1-lot position in a JPY-denominated pair, the per pip value of ALL JPY-denominated pairs depends on the CURRENT USDJPY exchange rate, which is approximately $6.95 USD at the present moment.

d011fbf6561f12e1dde8e87a1ffa3da11558481287_full

In retrospect, I believe it is always a good idea to open a USD-denominated account balance. The reason for this is that the USD-denominated pair per pip value for a 1 lot position size is consistently $10 USD. Clarity is essential for traders, so it is important to keep our calculations as simple as possible.

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19

Seems generated by chatgpt. Either the person posting has no awareness that his method of instruction are simply BAD. Or i’m too dumb and lazy to comphrehend what he is trying to explain.

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