How to calculate minimum stop-loss according to leverage?

Beginner Questions
1

Hi,

I’m playing around with simplefx.com’s demo account and i can’t understand how leverage affects the minimum price of the instrument that i should set my stop-loss (should be equal to the price when my margin will get to 0 and orders are auto-closed)

Their system let’s me set stop-loss as low as I want regardless of how much money I have deposited and what leverage I have set for my account. So I don’t know when will my order get auto-closed.

So let’s say I deposited 400 Euro, and I buy 0.03 units of ETHUSD at open price of 460$ and my account leverage is 1:100. (and I have just one order open)
How low will it go (price-wise) before I loose all my deposited money and my order will get auto-closed and therefor it is meaningless for me to set the stop loss to a lower value than that.

Same question for leverage of 1:300 just for me to understand.

Also, how do I calculate the USD value of each point loss given a specific leverage?

Cheers.

2

It doesn’t.

The leverage you’re using has nothing to do with where you put your stop loss. It has everything to do with working out your position-sizing AFTER deciding where your stop loss will go.

You should decide from the chart, and from your trading method and trading plan, where the stop loss goes.

Then work out the position-size for your trade, so that the appropriate distance from the entry to the stop loss represents the percentage of risk that you’ve previously determined is the right one for your method (for example 1%, or 1.5% or 2% if you like high risk).

You don’t.

The $ value of each pip has nothing to do with what leverage you’re using.

For example, EUR/USD is $10 per pip per lot (or $1.00 per pip per minilot, or $0.10 per pip per microlot) and that’s fixed: it doesn’t depend on leverage at all.

I recommend that you read the “school” pages here, where all this basic information is covered, and don’t try to trade even on demo until you’ve mastered it.

2 Likes
3

Hi mate

here are a few things i feel you should know

  1. Understand what Margin % Level is (Read up on the School Tab here in Baby pips)
    Keep your Margin % Level above 1,000 % minimum, more is better

  2. Baby pips have calculators for this stuff

  3. you should read the section on Leverage.
    THE MORE LEVERAGE YOU HAVE THE QUICKER YOU WILL BLOW YOUR ACCOUNT if you don’t manage your funds correctly
    if you want to know at what point will you blow your account, the answer is Between Margin % Level 20% - 30%
    , at this point the broker will just close all open positions (or at lest most of them)

a better question would have been , how does Margin % Level get affected by leverage ?

1 Like
4

for the fx pair you are trading you need to have 20% say of your trade size in your account after the trade has been open’d it will not open otherwise ,

then if price goes against you and keeps going to 50% of your account balance then you get margin call telling you your balance is decaying. if it keeps going to 20% you get margin stop out and you trades start getting closed biggest first.

you can set ur stop where you like but if iits below you 20% Margin stop out level it will start closing trades before it gets to you stoploss.

If you haven’t got the grasp of leverage margin yet do not trade multiple trades stick to 1 with a tight stoploss to practice use demo

Adjust Accordingly, Hope that helps.

1 Like
5

I agree with all of the above. The only thing that I would add is this. Stops are placed at technical points where your trade is no longer viable. Although there are many ways to determine this here is one example. If you are long place the stop below the previous swing low. If that distance puts too much money at risk reduce your position size or leverage.

1 Like
6

Different Instruments have different Margin Requirements,

If you want to be precise you need to know the Margin Required to open the trade.
I think the lowest FX pairs are like 2% some 5% others stocks etc. 30% 50%

If you put £250 real money in a broker at 1:500 leverage you get £125000 leveraged Money to play with, to open a 50p Fx spreadbet depending on the pair your trading you would need 2% Margin requirement = £8 approx in my real money balance to open it. This is 50p per PiP trade.

When Real Money Drops to 50% = £125 Margin call

Then at 20% = £50 starts closing trades

This is not taking into account any spread fees etc paid (or the £8 from the trade) + Just 1 contract open

this is rough guide brokers Margin Requirements and stop outs aren’t all the same.

1 Like
7

Thank you all for your answers.

My main issues were due to the fact that I was an Etoro trader, so I had to unlearn a lot of things before I learn the real world.

I’ve also read this article which really explains it well i think.
https://www.luckscout.com/leverage-margin-balance-equity-free-margin-and-margin-level-in-forex-trading/

8

From your question I understand that you are a newbie. Basically leverage doesn’t not affects in the minimum price of the instrument. So, you do not need to worry about how to calculate minimum stop loss according to leverage. Leverage is very risky thing especially for new traders. Because it contains high risk. So what you need is a good trading platform which will provide you proper risk and money management.