hello all I have been meaning to ask since what 38.4 standard lot size mean in forex. Is lot size the same as leverage. any difference between leverage and lot size? Other standard lot include 9.6, 2.4 etc
One standard lot is 100,000 “units” of the particular currency pair you are trading.
So if you go long on 38.4 standard lots of the Euro/Dollar means that you bought and “control” 3.84 MILLION euros in relation to the dollar…for better or for worse once you cash out.
9.6 standard lots of E/U would 960,000 euros.
2.4 standard lots of E/U would be 240,000 euros.
Leverage is only related to your lot size in that with greater leverage you can “buy and control” or “sell and control” (if going short) more units in relation to the size of your investment account.
There are good and bad sides to this. Most people focus on the bad side. Namely that undisciplined traders will take on position sizes too large (50% of their account or more on a single trade) and when price goes against them, it eats up their account very quickly. They feel that limiting leverage allows people to “stay in the game” long enough to learn some hard lessons. I personally believe that based on the behavior patters we see displayed here over and over again, this doesn’t actually work this way. Instead, they tend to think the same and display the same wreckless behavior patterns.
Limiting leverage in an attempt to create an “idiot proof stop loss” is a bad idea because the LOSING traders will typically NOT transform themselves into winners but since such limits apply to all, it hamstrings the WINNING traders, who actually have taken the time and put in the effort to instill good thought patterns and related trading habits. Personally, I feel we should cater to the winners and not the losers in trading…be it FX, Binary Options, Stocks, Futures…or whatever. Of course there are a lot of voices out there that feel that it’s best for the government to “protect the stupid people from themselves” by instilling greater and greater amounts of regulation. Those who think this way will never admit the truth that losers will always lose regardless of trying to protect them from their own bad habits.
So the good side is that those who limit their risk by properly placing their stop loss and not moving it, can use higher lot sizes relative to their account. For example, if you have a $2,000 account and want to put on a trade that risks ONLY $100 of your account (that’s just 5%) and you want to do it with a 10 pip Stop Loss with a 2R Take Profit target of 20 pips…then you’d need to use a 1.00 lot size. Seems simple enough, right? Anyone should be able to risk $100 our of a $2,000 account, right? But in the US you couldn’t actually DO this! Why because with 50:1 leverage you’d need to have an account size of $2579!
IF, however, you have the same $2,000 account and want to risk the SAME $100 but want to do it with a 100 pip stop loss and a 200 pip Take Profit target, you’d need only $257 in margin because you’d only need to grab 0.10 lots instead of 1 full standard lot needed to execute the same strategy with just a 10-pip stop loss.
Do you see what happened there? You risked the SAME dollar amount in both situations and if you hit your Take Profit in both situations you’d make the same money…but the way the leverage plays out it’s not possible to actually execute the first strategy while it IS possible to execute the second.
In essence, the 50:1 leverage requirements restrict the investors ability to choose Strategy A while allowing Strategy B when BOTH strategies really only risk the same ammount. Why do they do this? To protect the IDIOTS! They KNOW that there are people using BOTH strategies who will BREAK the cardinal rule of not moving your stop loss. If you “just move it 10 more pips” in Strategy A and it continues to go against you…well you just blew through a full 10% of your account…while if you did the same “I’ll just move it 10 more pips” on Strategy B you’d only have realized a SLIGHTLY larger loss. The regulators want the traders to live “long enough” to learn some lessons (they think) and so regulate to prevent you and I from using Strategy A regardless of the fact that we might actually be disciplined enough NOT to move our stop loss in favor of saving those who choose to do things that are not in their own best interests when they trade on emotion instead of reason.
Thank you for this exposure. 0.1 lot is the best for every $1000 equity. Little or no emotion. My SL do not exceed 30 pips
No problem. It’s probably best if you use the Forex Risk Calculator tool. I’ll provide the link below. When you open it up, just click on the “Amount” radio button and fill out the form. So if you want to risk $100 on 30 pips, just plug all that into the form, make sure that you’ve got the right currency type for your account balance (whether your account is in dollars, euros, or whatever) and the right currency pair and it will spit out for you what position size you should use so that you only risk that exact dollar amount if your stop loss is hit.
Remember as well that this is very “flexible” in the real market because of slippage. That is, once your stop loss is hit you gotta wait for your order is filled. If price is falling fast against your position, and you’ve got a 30 pip stop loss, you might not get closed out until you’re out 33 pips or something. The larger your stop loss, the less of an issue this is.
Here’s the link to the tool: Risk Calculator | Winners Edge Trading
why 38.4, 9.6, 2.4? is 38.4 a “standard lot size” in your broker? if yes, which one?
it seems odd, I have never encountered one like that before.
[QUOTE=FXAssassin;396163] “Binary Options… by instilling greater and greater amounts of regulation”
Excellent point FXAssassin however Binary Option trading is under going new legal regulations which will further boost the reputation and transparency of the industry. I think if it is the right type of regulation i can only be a good thing.
Binary Option trading is under going new legal regulations which will further boost the reputation and transparency of the industry. I think if it is the right type of regulation i can only be a good thing to increase the total amount of traders.