I’ve had a demo and done well on MT5
I’m looking at starting a new account as a tester with just £100. I’m looking to make 10 pence (GBP) per pip, not much but enough to get a feel in the real world.
I used FXpro calculator here to create these 2 scenarios, which is best and why:
1:400 Leverage, EUR/USD, Position size £1500, Margin about £2.7, Pip value 0.101
1:200 Leverage, EUR/USD, Position size £1500, Margin about £5.4, Pip value 0.101
So with less leverage I have to put up more margin but how do I benefit from that, or rather, how am I risking more with a high leverage but equal position size when the pip value stays the same?
Just forget about leverage.
Focus on Risk Management and Position Sizing - “Leverage used” is a byproduct of these calculations.
Typical people who use trading systems with short stops, such as scalpers, will adopt high leverage accounts because they need it.
Scalper risks 3% over a 5 pip Stop Loss, each pip is worth 0.6%
Non-scalper risks 3% over 50 pip Stop Loss, each pip is worth 0.06%
The scalper would need higher leverage, he has to pack TEN TIMES the position size as the non scalper. Yet both traders are still risking only 3% on each trade and lose the same should they be stopped out. So the benefit of leverage is down to the trading ‘method’ used, not the trade its self.
…One could also argue that without leverage, hence 1:1, retail trading would not exist - we would not have deep enough pockets. We would have to open up accounts with hundreds of thousands of dollars each, if not millions to match the benefit of leverage.
+1 on that! I have repeated it countless times. Matt, one thing you should keep in mind is that with higher leverage you can be ‘less wrong’ before you need to act on a trade which moves against you (if that makes sense to you). As Jezz said, it is all about risk management. Let’s say you don’t want to risk more than 2% and that would be £2 in your example than it does not matter which leverage you pick as you will only lose £2. Applied leverage to your account and actually used leverage per trade are also two different things (there is a good explanation somewhere on BP).
Thanks guys, I was just getting confused as every article I’ve read goes on about people over leveraging themselves but actually what is meant is improper money management, as you clarified for me, it’s about risk management and knowing how much I’d lose per pip with the leverage COMBINED with the position size I choose, thanks again.