Before you say it, I know its the stupid thing to do, starting on a budget but I just want to do see if I’ve understood all of the leverage risks and calculations so if anyone could confirm?
So, open a micro account, leverage 200:1 and with �300
This means I can effectively trade with �60,000 and if I were to go long �20K on GBP/CHF at 1.80000, each pip has a value of �1.1111
Because I’ve used 1/3 of my own money, I can afford to lose 2/3 before I get a margin call so as long as I don’t have a floating P/L of �200, I shouldn’t be margin called?
�200 / 1.1111 = 180 so the price could drop 180 pips before the margin call?
Once again, this is hypothetical before I get told not to do it!
MikeTye, you’ll need to confirm this with your broker of choice as they may have a different policy, but most likely you wouldn’t get margin called until you’d lost �250. Your initial margin requirement on the �20k position would be�100. Common practice is that you’ll get margin called when your account drops below 50% of that initial margin. Thus, you could lose about 225 pips before getting the margin call.
Again, different brokers have different policies where margin calls are concerned, but I don’t know of any that are going to call you if your account value just fell below your initial margin requirement.
Fair point but I should have said, its FXCM I’ve been using which is why I used the �300 and 200:1 options, they also say:
“FXCM will liquidate your trades only when your usable margin/free equity falls to zero”
Glad to hear I’m making sense and is nice to know I have actually ‘graduated’ by understanding things rather than just getting the questions right if that makes sense!
Edit: Sorry, just re-read your post and I read it wrong the first time, I thought you meant I’d got it wrong as they would margin call me when, for instance, I had lost 75% of my equity or something.
I just took a look at the FXCM documentation (I think). They do indeed seem to say that if your equity ever dropped to/below your margin requirement you’d be margin called. That is strange. It means that in theory you would get margin called as soon as you put on a maximum position because of the spread. Not that going all in (so to speak) is suggested, but it does seem rather silly.
Right, I think I’ve confused myself here (Or its just my brain not working after a long day!)
Long at 0.84156 and current price is 0.84079
Software says I’m 7.7 pips down
0.84156 - 0.84079 = 0.00077
So does this mean that each pip is 0.0001? So the price could drop to 0.82656 and this would be the 150 pip loss resulting in a margin call?
I think its just the lack of brainpower at the moment thats letting me down but its bugging me now!