• Account Balance 1500 USD
• Risk per trade 1%
An EA working with 50 pips SL
15 USD / 50 x 10.000 = 3000 UNITS
• Max lots 100 USD per 1000 UNITS
1500 USD / 100 USD = Max 15 Microlots = 15.000 UNITS
True Leverage = 10:1
With the 100 USD per 1000 UNITS approach gives me an Max true leverage of 10:1 so it doesen’t matter if I have an 1% margin account? In one way it would be better with a 100:1 account becuse there is less margin needed so theres more usable margin to cover potential loss?
You haven’t specified the currency pair you are trading, but obviously it is a pair of the form [B]XXX/USD.[/B]
So, if your currency pair is EUR/USD, GBP/USD, AUD/USD, or any other pair having the USD as the cross-currency, [B]position size[/B] will work out the same, but [B]actual leverage used[/B] will vary.
Your math is correct down to, and including, the point where you show your position size as 3,000 units.
[B]3,000 units = 3 micro-lots = your position size[/B]
After that point in your math, you got all tangled up.
Here are the correct numbers:
• If your currency pair is EUR/USD, then 3,000 units is worth 3,000 x $1.2608* = $3,782.40
And your actual leverage used is 3,782.40 ÷ 1,500 = [B]2.52:1[/B]
• If your currency pair is GBP/USD, then 3,000 units is worth 3,000 x $1.5904* = $4,771.20
And your actual leverage used is 4,771.20 ÷ 1,500 = [B]3.18:1[/B]
• I’ll leave it to you to figure the correct value for actual leverage used if your currency pair is AUD/USD or any other pair of the form XXX/USD.
I don’t understand your question. A 1% margin account [B][I]is[/I][/B] a 100:1 (leverage) account.
Margin does not figure into the calculation of position size, or of actual leverage used.
As for your general question regarding the advantage of higher MAXIMUM ALLOWABLE LEVERAGE, you are correct:
With every broker that I am aware of (except one), maximum allowable leverage and margin are inversely related.
That is, [B]required margin = 1 ÷ maximum allowable leverage.[/B]
So, 50:1 corresponds to 2% margin, 100:1 corresponds to 1% margin, etc.
[B]Higher maximum allowable leverage[/B] is generally advantageous, because it makes [B]required margin lower.[/B]
As long as you use a [B][I]prudent[/I][/B] pre-determined risk limit (1% in the case of your example) to determine your position size, then actual leverage used will take care of itself, and you won’t have to be concerned with exceeding your maximum allowable leverage, or with facing margin-calls.
Edit — I’m don’t know how your post ended up here in the “Trading Psychology” sub-forum; money management really isn’t a psychological issue.
Thanks very much for your long response, Clint.
Good, so I was right about margin! The higher the leverge is, the better as long as your actual/true leverge doesn’t exceeds your personal risk-level (eg 10:1 or 20:1) due to the usable margin is higher and margin required is lower.
The calculation was missleading and incomplete. See, if I can explain how I mean…
The calculation was based on any currency pair (counter currency USD) with a value of 1.
And therefore the True leverge was based on maximum allowed position size with my MM-rules (100 USD per 1000 UNITS).
[B]With a value of 1 ?[/B] — So, you are assuming XXX/USD = 1.0000 ?
That assumption might make certain calculations easier to do, but it will give you misleading results. The price you are assuming is called “parity” (meaning that the two currencies in the pair are equal), but this occurs only rarely in reality. Historically, real-world prices have varied from less than 0.8000 to more than 2.0000, and are almost never exactly 1.0000.
In my answers to your questions, I will use real-world prices.
Are you aware that you have contradicted yourself in the conditions you have specified?
In your first post, you specified “Risk per trade 1%”. Based on your 1% rule, I showed that you had mis-calculated your actual leverage. It was not 10:1, but rather 2.52:1 for EUR/USD, and 3.18:1 for GBP/USD.
Now, you are saying that 10:1 actual leverage is one of the conditions specified in your money management.
You can’t have it both ways. [B]1% risk and 10:1 actual leverage are contradictory conditions.[/B]
Let me show you what your real risk per trade would be if you base your position size on 10:1 actual leverage.
Let’s do this calculation for the same two pairs which I used as examples previously (EUR/USD, and GBP/USD), and let’s use the same prices as before.
[B]EUR/USD = 1.2608[/B]
Given account balance = $1,500, and actual leverage = 10:1, we calculate position size this way:
Position size = (account balance x 10) ÷ (price of EUR/USD) = $1,500 x 10 ÷ 1.2608 = 11,897 units of EUR/USD.
With this position size, the value of 1 pip will be $1.19, and the value of 50 pips (your SL = your risk) will be $1.19 x 50 = $59.50 (not $15.00, as you specified).
Your risk percentage in this trade will be $59.50 ÷ $1,500 = [B]3.97% (not 1%, as you specified).[/B]
[B]GBP/USD = 1.5904[/B]
Position size = (account balance x 10) ÷ (price of GBP/USD) = $1,500 x 10 ÷ 1.5904 = 9,431 units of GBP/USD.
With this position size, the value of 1 pip will be 94.3¢, and the value of 50 pips (your risk) will be $47.15 (not $15.00).
Your risk percentage in this trade will be $47.15 ÷ $1,500 = [B]3.14% (not 1%).[/B]
So, how would these risk calculations work out if you use the assumption that XXX/USD = 1.0000 ? Let’s find out.
[B]XXX/USD = 1.0000[/B]
Position size = (account balance x 10) ÷ (price of XXX/USD) = $1,500 x 10 ÷ 1 = 15,000 units of XXX/USD.
With this position size, the value of 1 pip will be $1.50, and the value of 50 pips (your risk) will be $75.00 (not $15.00).
Your risk percentage in this trade will be $75.00 ÷ $1,500 = [B]5% (not 1%).[/B]
Good stuff Clint… :57:
Very Good Job Clint!
Fantastic
[B]ICT[/B] and [B]angelnish,[/B]
Thanks for the pat on the back. That makes it all worthwhile.