I’ve been doing some working out tonight and have basically confused myself so need a definitive answer :rolleyes:
If I want to live trade for next to nothing, so a pip would be worth 10p or whatever, I would be wanting to use a smaller leverage, ie 1:50 rather than 1:200? I would rather decrease my lot size but my broker, FXCM, has 10K as its minimum limit, is this normal?
Sorry for the basic question but I really do think I’ve overcomplicated and confused this for myself, I’ve got an excel spreadsheet with what seems like a million calculations on it for different lot sizes and leverages etc!
Leverage doesn’t define your lot size or what a pip is worth. When I say this I mean the leverage ratio given by your broker, not the amount of it you use.
You can 1000:1 leverage. Or 1:1 leverage and still only risk 1% of your account. You can still trade within the limits of the lots sizes your broker allows.
My mini account allows me to trade 1cent - 50 dollars per pip.
All leverage says is that for every 1 you trade you need that many in your account to cover it.
For instance if you have 100:1 leverage. For every 100 you trade you need one to cover it.
If you know how to figure risk to your account properly you actually want as much actual leverage ratio that the broker will give, because the larger the leverage ratio the less taken out of your account to hold the trade before it is settled as a win or a loss.
Here is a little formula for you.
Assume you have 1K account. On any one trade you want to only risk 1% of your account on a loss. With your method you have a 50 pip SL, that says the trade has been invalidated.
$1000 x 1% = $10
$10 / 50 pip Sl = .20 cents. (your lot size is .20 cents per pip) Be careful about this. Depending on your broker and type of account .20 isn’t automatically .20 cents.
At 50 pips either way you will either win or lose $10.