Oanda and my math ( margin / leverage ?)

Beginner Questions
1

My leverage/margin (eg math) question (now with 44% less sodium, and 33% more sarcasim!)

Lets assume you started with $1,000 with 50:1 leverage…
(every time my losses are substantial this is where I restart (typically happened at least once a week, not so much anymore!)

Money management has got to be one of the biggest things I would like to have double checked, to make sure I don’t have a fundamental flaw when it comes to this very very very important topic…

Now with this assumption my ‘pure’ spending power (sanity asside ) is 50*$1,000 for $50,000 correct?
5 Mini lots, where 1 pip is $1 with eur/usd?

if this is correct then its my understanding of oanda that needs to be clarified…

If I have the above, Oanda (to keep my stupid self in line most of the time) seems to only allow me to throw a sane portion of my funds in at one time, is this what it is (they don’t let you get a margin call when you start your trade, by having all of your funds (and theirs) in the market? seems to be around 3/4 of the above formula (as your max amount)…

Is this correct?

While profits are fairly easy to consider, let me clarify my understanding of losses…

lets make it smaller numbers, after all 2 of my last 2.5 trades have worked out, so I’m going to get lucky when I trade with real money right (warning: hair loss may be a symptom, batteries not included, sarcasm required where still legal)
assuming I wanted to really risk it and open an account with only $250 with 50:1 maximum leverage that means I can control about $12500, or 1.2 mini lots?

since one lot is 10,000, which is $200 * 50, that leaves me with $50 in pips I can loose is this correct? (assuming they let me get right up to the edge, I don’t think Oanda lets you let yourself go completely broke, they make it take awhile!)

Now I love Oanda, their philosophy, and as such I’ll trade with them, besides you can’t beat the fact that they really want you to succeeded! They show it in their tools, and the general way the accounts are set up (as far as I’m concerned) but for the life of me I cannot figure out how this margin call works, and I cannot just punch in the numbers everytime to figure out – I’m usually way to busy debating if I really do see anything or if my boredom is getting to me… (I’ve really need to find a solution to that – hey I see games! ;))

-Simy

ps: Some sarcasm included, which may or may not improve your/my/her/his/??? pip’ing. =)

2

I’ll try to answer all of your questions but you didn’t number them so I don’t know how many you asked.

First the best way to learn about leverage is to open an account that has a 400:1 leverage and open 2 accounts 1 at 400:1 and the other at 100:1 then trade them both the same way. That should give you all the information you need. But in the end you will realize that it really doesn’t mean anything.

You are the first newbie on this site I have seen that realizes that money management is more important then the system. Keep it that way! Check out my post “lets do an experiment” if you want some good info on money management.

The next part about 50*1000 for $50,000 is right, but the other part about 5 Mini lots, where 1 pip is $1 with eur/usd is wrong. If you have 5 mini lots then 1 pip is worth $5.

If you want to trade with only $250 then you want to trade a micro lot.

As far as oanda and margin. When you place a trade if you look at the window where you place your trade it will tell you how much of your margin you are using on that trade.

Hope this helps!

3

It does help, thank you!

Sorry I was a little scatter-brained last night… I stayed up late watching pretty candles form in my favor! (too bad today they hate me)

I’ve also just realized when trading oanda (and from another post) I finally put 2 and 2 together to get 3! When I trade, let say usd/jpy It works out the way I expect, when I trade eur/usd It ends up with some odd numbers, Those odd numbers correlate to the number I’m buying, like right now its 1.4790 so instead of buying 10,000 units with oanda I’m buying 14790? which uses almost $300 margin instead of $200 with usd/jpy… It took me awhile but I think I’ve finally got it!

I’ve come to the conclusion that before I put real money in I need to understand the margin and money management first and foremost. Second I need to understand me and how I handle it (I was so excited that I picked 2 really good trades last night (reaffirmed when I woke up) That I prematurely traded eur/usd this morning. Not that I am saying I was wrong (I may still be right!) But It wasn’t thought out as good as my last 3 trades (of which 2 did good, and 1 just hit my stop loss then took off! I hate that, lol)

I’m still forming my system, still reading and still trading, I’ve put my account at $1000 and if it was real, I would be 2% profit, after having been 10% below what I started! (this isn’t counting the 15 account and p&l resets … I cant afford that in RL)

Thanks for putting up with me, my excitement, and my perfect trading system that only fails me… even thought it isn’t even completely formed yet :wink:

Yours piply
-Simy
ps: :slight_smile: a sense of humor is required for this I think, and I’m doing my best to uphold the obligations and responsibilities of throwing a few smart @#$ comments in occasionally as our forefathers have done… wait, that is not the line…

4

Assuming your account is in USD, yes and no.

Your spending power is $50,000, but the $1/pip doesn’t apply when opening a position. It’s the current price that will cost you.

Currently the EUR/USD is 1.4795. So, the value of one mini lot would be $14,795 (1.4795 x 10,000). At 50:1 leverage, it would cost you $295.90.

So, technically, you could buy 168 mini lots.

However, you also have to take into consideration that most brokers require you to have more than the value that you’re purchasing to avoid a margin call.

I always assume 50% more, so in the example above you would need $443.85 per mini lot ($295.90 initial margin + $147.95 as 50% maintenance margin).

That means that you’d really be able to buy 112 mini lots.

Yes and no. See answer above.

The $1/pip on a mini lot is correct. However, remember the margin and maintenance margin requirements as I outlined above.

Your actual risk is the number of pips you lose (your Stop Loss). If your SL is set to 50 pips, then your risk is $50 @ $1/pip. If it’s set to 100 pips, then your risk is $100 @ $1/pip.

Hope this helps.

You may want to read through Babypips’ free school, as the first lesson explains some of this.

Terry

5

I actually keep reading through the lessons, and making it a point to learn all about a few technical indicators. I figured if I just go all out to learn one at a time I’m more likely to be able to use it correctly if I decide to (I actually have made it a point to try one or more technical toys, right now I’m getting used to moving averages and I’m quite happy how it smoothes out the jitters of my poor chart.)

Thank you for the help on this board though! I hope not to have to ask many questions though :slight_smile:

This website has given me a valuable insight, hopefully they will do me good!

Thanks again!
-Simy

6

Glad to help, Simy.

Good idea to concentrate on one indicator at a time. That way, you don’t get too confused with it all.

Terry

7

It is also good to know that Oanda requires a 2% margin when using 50:1 leverage.

In the previous example:

Currently the EUR/USD is 1.4795. So, one mini lot will cost you $14,795 (1.4795 x 10,000). You would have to put up $295.90 ($14795 x .02). This just doesn’t appear in your account but you get it all back when your trade is closed. It is like your downpayment on the trade :slight_smile:

Oanda has different margin requirements depending on what leverage you choose (see link). I never calculate anything because like someone said the pop up windows tell you all you need to know before you execute any trade.

OANDA FXTrade - Margin Rules

8

Thanks for catching that Topgun. I edited my post.

That’s what happens when I try to multitask. :slight_smile:

Terry

9

I know that oanda shows me, and I understand when its getting close to a margin call, but I needed to know for myself in advance before a trade, what if I only had enough for 1 trade and I saw 2? I could technically trade 2, but what kind of saftey margin does that leave? Generally I try to keep my total trades small related to my account size. With $1k demo balance I typically only do 2 at a time max (one long term and one short term, and the long term is usually started with a short term that I’m gona try and ride!)

Ive only had 1 last past 3 days though, the euro hates me!

Anways Thanks for the help!

I did reread the first part of school, I dont remember it being there when I went through it the first time (I typically go with indicators, chart patterns etc…)

TTYL
-Simy
ps: Nice sig topgun I love it!