I am battling a leverage and position sizing problem which i don’t know how to reconcile .
My broker offers a leverage of 1:1000, that means for every 1$ i have 1000 unit of bargain.
With this it affects the risk on each position size i use,
Lets say i want to use 1 mini lot with the leverage of 1:1000 that means am risking just $10 since 10 * 1000 is 10000. That’s 10000 units which is 1 mini lot or am i missing something.
So my risk management is 1% of 5000 USD account which gives me $50, and i want to use a tight stop loss of 40 pips max per each trade as of start.
So my risk should be using position size formula: Position size = Amount you’re risking / (stop loss * value per pip)
which gives me, p = $10 * (40 * 1)
= 0.25. 0.25 standard lot which is 2.5 mini lots.
But my loss if the trade is wrong will be a margin killer,
Lets say am risking 40 pips per trade and dollar value per pip on a 2.5 mini lots is $2.5 so i will be losing $100 (40 * 2.5 = 100) which is above 1% of my trading capital.
How do i calculate my position size considering a fat leverage of 1:1000 and still risk 40 pips and have 0.1 lot of position size?
[quote=“Michaeldawn123, post:1, topic:272971”]
Lets say i want to use 1 mini lot with the leverage of 1:1000 that means am risking just $10 since 10 * 1000 is 10
You are not risking $10. Think of that $10 as a deposit on your mini lot. That deposit will be returned when you close your trade whether you have profited or lost money.
Your risk is how much you are willing to lose. 1% = $50. So this amount your are willing to lose divided by per pip value is expressed as 50/2.5 = 20 pips.
So, based on your trade size of 2.5 mini lots your stop loss is 20 pips before you lose your 1%. The chances of a 20pip SL getting hit is very good!!
I would suggest reducing your lot size which will increase your SL without increasing your risk.
hey, if i may suggest, in my humble opinion u can make leverage work for you. just use the risk in % per trade,(% of ur acct balance in money ofc). so let s say u have 1 to 5k leverage, as long as per trade u risk a % of ur account balance u don t care about leverage. to make it easier, just find an EA(u can find them free here or on forex factory) that calculates that for u and the stop automatic, meaning no matter if u choose a 20 pip or 100 pip stop the % risk per trade will still be the same.
cheers