I have a noob question regarding some risk management. I have traded on a demo with a £1000 account for a while and I am ready to go live with £200 to get some skin in the game. However, I have a question:
I like to risk 1% of my account each trade. I experienced on a long term position trade with the £1000 demo account that I could not place my stop where I wanted. The thing is, one microlot (£1000) is the smallest amount possible to take on a trade. And with a wide stop loss, the risk becomes more than 1%.
So my question is: with a £200 account, can somebody help me find out how many pips away from my entry I can place my Stop Loss without risking more than 1% (£2).
–
This deposit is mainly to see if I manage to be profitable on the live account too, so if need be I guess I will have to adjust my risk per trade to 0,5%. The most important thing is to get a sample size that shows the percentage-gain/loss so that I can see when I want to deposit a larger sum of money.
–
I hope my question is understandable and that somebody can help a brother out. I should be able to do the math my self, and might have, but I’m not 100% sure…
THANKS!
Edit: and I ask before I deposit money so that I won’t have to deposit money twice, if for example I can’t place my stop more than 20 pips away that will be a problem on many setups.
If the smallest position size possible with your account is one micro-lot (1,000 units), and you intend to do position trades risking only 1% in a £200 account – you have a problem.
Using a EUR/GBP trade as an example (because the numbers are easier when the quote currency matches your account currency), the largest SL you can use is 20 pips. That’s nowhere near adequate for position trading. For position trading, you need stop-losses which are at least 5 times that size
(100 pips, or more, in other words).
So, to make this work, you will have to do one of the following:
(1) increase your deposit by a factor of 5 – to £1,000 (or more)
(2) increase your designated risk percentage by a factor of 5 – to 5% (or more)
(3) choose an account with a broker who offers trading in nano-lots (100 units of currency), or individual units of currency (such as the type of account offered by Oanda).
You can also use a pip value calculator to determine the value of a pip for the currency pair you are trading and your accounts base currency.
There are many available online as well as in the tools section of this website.
If you divide £2 by the value of the pip, you will get the distance in pips that your stop loss has to be to not risk more than that.
A 20 pip stop loss in FX is not a lot and the probability of getting stopped out are quite high because your SL will be close to the current market price and you also have to take in to account the spread which brings it that little bit closer.
I hope you and anyone else reading this understand the limitations of starting with such a small amount.
Essentially, you are reducing your probability of success.
At least, consider risking 2% or double your investment to £400. You dont have to deposit it all in one go. Start with £200, risk £4 per trade and if you blow your account, then consider that as a 50% draw down. Then deposit the remaining £200 to continue.
Take a look in your platform, in both Oanda and cTrader when you place the order, enter the SL and you can adjust the lot size to match your risk. - Personally I would just keep the risk amount static - enough to care, not enough to lose sleep over.
Also this : -> (3) choose an account with a broker who offers trading in nano-lots (100 units of currency), or individual units of currency (such as the type of account offered by Oanda).
Hi again and thank you all three for great answers.
I am currently trading with a Pepperstone Razor account on the cTrader platform. I decided to up my deposit to £300 and use 2% risk per trade. I am primarily a day- and swingtrader, so that will give me enough working room I think with the stop loss.
Thank you all again, this is an amazing community.
