Hello all,
Started trading a practice account a few days ago after going to “Pips School” ran by the awesome BabyPips management team.
I set my trading account leverage to 100:1 by it seems like when it opened it actually ignored my settings and opened the account at 500:1 . How do I know? My 100,000 balance is reduced by $208.72 when I went long on EURUSD at 1.04358 for 1 standard lot.
While going to school I learnt that over leverage is a really bad thing and money management is a really good thing.
Looking at my trades I noticed that I hadn’t paid attention to my leverage until just a few minutes ago but had been practicing good money management skills and none of my trades lost more than 1% of my balance ( this I high I know but it’s what I’m set at for the time being, it will be reduced to 0.5%per trade soon.
Here comes the issue that I’m facing, if I reduce my leverage to 100:1, and I scalp (my trading style) for 3 Pips I’d use up a lot of my margin.
Example.
Balance $100,000 * 1%= $1,000 Risk.
$1,000 Risk/(3 pips*$10 pip value)=33.33 lots.
33.33 lots * 100,000* (1/100 leverage) = $33,333
I just used up 1/3 off my margin. This means that if I scalp 3 or more trades at the same time I’m instantly facing a margin call!!!
If I stick with my 500:1 leverage I’m still risking $1,000 per trade but it allows me to have more positions option. Using the above example and replacing the last line with:
33.33 lots * 100,000* (1/500 leverage) = $8,333
So I only use $8,333 per trade, allowing me to safely scalp 5 currencies at the same time without facing a margin call and still risking within my money management allowance.
What I’ve written above makes sense logically, but after having drilled in over leverage is a killer it seems like I might be missing something major that makes the above completely void.
Advice from the pros greatly appreciated.