Don’t confuse the [B]maximum allowable leverage[/B] which your broker offers you, with the [B]actual leverage[/B] which you choose to use.

Maximum allowable leverage is part of the Terms and Conditions of your forex account, and simply represents an [I]upper limit[/I] to the amount of leverage you may use. Maximum allowable leverage determines the [B]margin percentage[/B] required on each of your open positions, according to the formula

[B]Required margin percentage = 1 ÷ Maximum allowable leverage[/B]

Most brokers offer maximum allowable leverages varying from 50:1 (in the U.S.) to 1000:1 (or even more) in some other countries. In general, [I]high maximum allowable leverage[/I] is a good thing, because it corresponds to [I]low required margin[/I] (which obviously is a good thing).

To put some numbers on this, if your broker offers you 50:1 maximum allowable leverage, then the margin required on a one-micro-lot trade in, say, GBP/USD (in a £-denominated account) will be 2% of £1,000, or £20. On the other hand, if your broker offfers you 500:1 maximum allowable leverage, then the margin required on this same trade will be 0.2% of £1,000, or £2.

The actual leverage which you choose to use should never be anywhere near the maximum leverage which your broker allows you to use. The actual leverage used by you in most of your trades should be in the range of 10:1 or less.

But, [B]position size[/B] should not be determined by some preconceived notion of actual leverage. Instead, position size should be determined by absolute control of the risk involved in your trade.

You will find that, if you manage risk properly, you will never have to calculate the actual leverage you are using. Actual leverage will take care of itself. Furthermore, if you have high maximum allowable leverage (and therefore low required margin), AND if you manage risk properly, you will never have to worry about [B]margin-calls.[/B]

Let’s put some numbers on these aspects of trade management.

Let’s say that you have £100 in your account, and you choose to go long GBP/USD. You evaluate the potential downside of this trade, and determine that you need to allow price to go 35 pips against you, just to give your trade “breathing room”; but, if it goes beyond 35 pips negative, you want to be out of the trade. So, you plan for a 35-pip stop-loss. Also, if you get stopped out, you want your loss to be no more than 3% of your account balance (in this case, that would be £3).

Next, you use a Position Size Calculator with these inputs: Account currency GBP, Account balance 100, Risk percentage 3, Stop-loss in pips 35, Currency pair GBP/USD, and Price for GBP/USD 1.6697 (or whatever the current price happens to be).

The Calculator returns these values: Amount at risk 3 GBP, Position size 1,431 units (if you can trade in individual units) or 1 micro-lot (if you can trade only in whole numbers of micro-lots).

Let’s say that you can trade only in whole numbers of micro-lots. For this trade, your position size will be 1 micro-lot. The [B]risk percentage[/B] (3%) and the [B]risk amount[/B] (£3) which you assumed initially have been scaled back, because you have scaled back your position size from 1,431 units (calculated above) to 1,000 units (1 micro-lot).

You can calculate your actual risk percentage and your actual risk amount, using a simple proportion: your actual risk percentage = 3% x (1,000 / 1,431) = 2.1%, and your actual risk amount is £3 x (1,000 / 1,431) = £2.10.

You have now strictly managed the risk in this trade, without considering how much actual leverage you will be using, and without any worry about a margin-call. But, let’s go ahead and calculate those things, anyway.

The actual leverage to be used in this trade will be 10:1 according to the formula

[B]Actual leverage used = Position size ÷ Account size[/B]

In this trade, Actual leverage used = £1,000 ÷ £100 = 10, which means 10:1 actual leverage.

As for a potential margin-call, let’s say that your broker offers you maximum allowable leverage of 100:1. This means that required margin will be 1% of the notional value (position size) of each trade. In the case of your GBP/USD trade, required margin will be £10 (that is, 1% of your £1,000 position size).

This £10 required margin amount will be “escrowed”, so to speak, for the duration of your trade (after which it will be released back to you). During the time that it is “escrowed”, it will not be available to you for covering losses (or for any other purpose).

But, the remaining £90 in your account will be available for those purposes. The stop-loss you intend to use will limit your potential drawdown (loss) to £2.10 (the risk amount calculated above). So, in the worst case, your “unused margin” will be drawn down (by £12.10) to £87.90 — which is nowhere near the level at which a margin-call would occur.

Notice that we did not have to calculate the pip-value associated with this trade, because that calculation was done by the Position Size Calculator, when we entered the required inputs.

If you want to know the pip-value associated with this trade, use a Pip-Value Calculator, and enter the appropriate inputs. In the case of the trade in this example, you should get this result: 1 pip = £0.0599 (which you can round off to 1 pip = £0.06).

In your post, you stated that a pip-value of £0.10 per pip corresponds to a position size of 1 micro-lot. This is true ONLY when GBP is the cross-currency in the pair being traded. And that occurs only with the EUR/GBP pair. In every other pair, GBP is the base currency (or it’s not part of the pair, at all).