Quick question (I hope) that Im struggling to wrap my head around. Apologies if its been asked before, I did search, but as Im recovering from illness I might well have missed it as Im not at my best.
Figures below kept simple to help my maths and understanding, and ignore other costs such as fees.
Say I have $2000 in an account and I can get a 10x leverage.
I dont want to risk running out, so I put $100 on at 10x, giving me $1000 buying power, and leaving me $1900 in my account (so no risk fo margin call as I unerstand it).
If I decide Im hapy to risk $50 of my own funds on this trade, am I correct that the stoploss is set to $50, and so is totally covered by my funds in the event of a loss?
So In my contrived example I am risking $50 of my own $100 against a potential profit calculated on a position size of $1000.
I cant see that it wold work any other way, but havent found a concrete example to reassure me.
How do you know that your stop loss is set at $50? Most brokers will show pips rather than a dollar amount although I know that Oanda will show the dollar amount. If it is really set at $50 then yes, you are risking $50 and you should be fine.
I am trying to understand what you’re trying to ask. In case my answer is not what you’re looking for, you can explain further so that I get what you’re actually mean.
Blockquote If I decide Im hapy to risk $50 of my own funds on this trade, am I correct that the stoploss is set to $50, and so is totally covered by my funds in the event of a loss?
I would say yes. If the trade losses, you have to cover all the losses by your own funds. And it will lose faster than no leverage. Basically, leverage usually means what max lot size that you could open in 1 position depending where you put your stop loss. With the same 50$ you’re risking in a single trade, the further away your stop loss, the smaller lot size you would need. The opposite is also true. Also a side reminder in case you’re not aware of it, the bigger the brokerage fees also. So if you’re trading with a small account, these fees will eat a big chunk of your account. I hope this helps.
You can always use a position size calculator to find it out. There’s tons of websites that is providing that (even Babypips has its own also). For MT4/5 pc, you can even install an indicator/EA that help you manage those things.
I think you have covered it, there is a lot emphasis on how risky leverage can be, so I am just being cautious.
The crux of my question as written I suppose was if I put a stop loss in when using leverage, does that come pre or post leverage (pre obviously), so the stop loss is the final complete loss on the position.
So as long as I keep that stop loss within my funds not ncluding any leverage, then I wont suddenly blow up.
Though what I hadt considered until reading these replies, if I increase my position via leverage, I would hit my stop a lot quicker on a $1000 position than a $100 position, which means I need to rethnk a few bits.
I am slightly confused by your comment. If you increase your position via leverage you won’t trigger your stop loss faster because stop losses are set on a certain price level on the chart, not when your order hits a specific negative floating value. At least I got used to doing it like that. Maybe I am doing it wrong all the time, idk.
My Broker allows a stop loss set at a value or a price level.
So if I (simple numbers) put $100, with a $10 stop loss with no leverage then I need a 10% swing against me to stop out. If I Used 10x Leverage I would only need a 1% swing against me.
The reality is that when I wrote this down and posted it, the answer was obvious, if I use leverage I need to widen my stop (if it is based on a value) or keep to using a price level as you mentioned.