why is everyone telling me that I should not use more than 1% on a single trade?
I mean -when I have a $5,000 account and risk 10%, that would be like $500…
so when I have a $50,000 account and I risk 1%, that would be like $500, too…
so what’s the deal? do you want me to use the 99% as usable margin when something goes wrong?
regards
PS:
might be that I got something completely wrong - I’m quite a noob
I am a complete Newbie too, but I think I can answer this, as I understood it from the babypips school (which I need to do again, because I have forgotten a lot).
They say that one of the major reasons for failure is undercapitalisation.
You should only risk 1% because even if you have are the best trader in the world the market may turn sour, then you a few bad trades in a row, maybe even six or seven, heaven forbid.
If you are risking 10% (doesn’t matter whether you have a $5000 or $50000 account) if you lose a trade , you have lost 10% , then another and another, and then you have lost 30%, or more compounded.
Now to get back up is a real struggle , to get back to where you were, you have to make spectaclar percentage gains, on what you have left.
but i think in the end percentages are not important… 1% could be $0.01, $100, or $1,000,000,000… so when I have a $40,000 and a $4,000 account, why am I “allowed” to risk $400 at my $40,000 account but “disallowed” to risk $400 at my $4,000 account?
(I don’t have such accounts, and I won’t have such accounts, this is just a stupid example)
anyway, yes , the percentages are very important, if you lose $400 out of $40000, then you still have a lot left to play with, if you lose $400 out of $4000 it is relatively a lot more significant. the percentage is the key.
If you have $40,000,000 the you lose 10% of that a few times, it has the same relative impact on your wealth, as if it was 10% of your $4000!