Hallo. Greetings from Berlin.
As this is my first post, wanted to say a huge biggup to the creators of the School of Pipsology. I have read a couple of “entry-level” FX books previously, and found them challenging. Having gone through the school and had the concepts explained in layperson terms, I am now able to understand the previously mentioned books, and actually start the process of mastering (I hope) trading. So thanks.
Following my initial read-through, I am now going back through key areas of the course with a paper and pen to really drill down into concepts and cement my understanding before I start demo-trading.
In the lesson “Low Leverage Allows New Forex Traders To Survive” there is an example I have a query with:
Example #1
You open a mini account with $500 which trades 10k mini lots and only requires .5% margin.
You buy 2 mini lots of EUR/USD.
Your true leverage is 40:1 ($20,000 / $500).
You place a 30-pip stop loss and it gets triggered. Your loss is $60 ($1/pip x 2 lots).
You’ve just lost 12% of your account ($60 loss / $500 account).
Your account balance is now $440 .
5% required margin on two mini lots is $1000, no? (10,000 mini lots x 2 = 20,000. 5% of 20,000 is 1,000)
So in this example, you could not even open this trade, as your account balance is only $500.
If i am correct, sorry for being pedantic. If i am incorrect, what am I missing?
Thanks