Hi.
I just cant seem to properly understand the idea about lot sizes and leveraging.
If I open a trading account with $1000 and I then want to open a trade.
Do I trade with a micro lot or can I trade with mini and standard lots?
Thanks
Donovan
The answer is a micro account if you are going to trade conservatively.
Experts state that you should only trade between 1 to 2% of your account
balance at any time to limit risk. That means, at 1%, you are prepared to lose
$10 on each trade.
So with a 10 pip stop loss that makes a pip value of $1, (& a 10 pip S/L is
nothing on certain pairs) therefore your pip value would be well below $1.
So set your input volume level at it’s lowest for your account & see what pip
value that is. If it’s higher than $1 then you need a different account.
Of course the answer presumes that you need to trade conservatively.
Available leverage (your broker’s limit, like 50:1) determines how big a position you can take. You can thus trade any lot size up to that amount.
thanks for the responses.
So what will it mean if I get a 100:1 leverage and I have $1000 in my account?
Will I be in control of : $100 000?
Also, if I make a profit of 20pips and risked 1%, how much would that translate to in actual cash?
It will mean you’ll be [I]able[/I] to control [I]up to[/I] $100,000.
Also, if I make a profit of 20pips and risked 1%, how much would that translate to in actual cash?
We don’t have enough information to say. It depends on the pair traded and the size of the position (the latter being determined based on the pips of risk that 1% translates into).
sorry to keep on about this.
Example:
If I open a trading account and deposit $1000 into it.
I am willing to risk 1% on a trade and would use a leverage of 100:1.
I find a good looking trade setup with the EUR/USD and I want to go long.
I go in at a price of 1.41759 and would like to get 20 pips off the move.
Questions:
1.If I risk 1%, that should be $10, so my stop loss would be set at -10pips. Is this correct?
2.If I end up making a 20pip gain and take profit, how much in dollars (on average) will that come up to with taking the above specs into account?
I’m sure it is very simple once understood properly.
You can’t actually trade a full lot of EUR/USD with $1000, even at 100:1 leverage because the value of a full EUR/USD lot is currently about $140,000. You’d need $1400+.
That aside, the pip value of a full lot of EUR/USD is $10 ($1 for mini, $0.10 for micro), so a $100 risk is indeed 10 pips and a 20 pip gain would be $200.
But you’re thinking about it backwards. Never set your size first and figure out your pip risk from there. First, figure out your pip risk, and then use that to work out your position size.
You are risking $10 @ $1 per pip, so if your trade makes 20 pips the
profit will be $20. (same $1 per pip)
To illustrate the point I have taken this trade from today to give a real life situation (ish).
On seeing the pipbar you calculate that at the top of the pinbar to the swing low (your stop loss (S/L) is 40 pips, you are willing to risk 1% of your account which is $10.
$10 divided by 40 pips equals 25 cents/pip.
So from Rhodys post this would require a micro account & you would trade 2.5 lots.
Take Profit (T/P) @ 2 times S/L equals 80 times $0.25 equals $20
Obviously if you were willing to gamble more you could use 2% of your account balance which is $20/trade, divide by 40 = 50 cents/pip, 80 x 0.5 = $40.
Hope this helps.