Understanding leverage

Beginner Questions
1

Hello to all,
I wanted to open this topic and discuss what I learned about leverage as well as margin calls in order to validate my understanding of these crucial concepts. Let’s say I am trying to pass a 1k funded account. I notice a setup build up, and decide to enter. Now I already know where my SL will be (let’s say 250pips), as well as my TP. I am using a 100:1 leverage. My position size is defined by how much I am willing to risk, which is 1% (10 USD). In order for that 10 USD to span across my SL’s 250 pips, my position size needs to be 400 units, as my pip value must be 0.04 USD. This means I need to trade 4 micro lots. Is my thinking right ? and is it correct to assume that I need larger accounts to be able to trade mini lots comfortably with my leverage and risk % ? Thank you + how do you deal with commodities like crude oil which require trades to be at minimum 50 units (too large of a position for small accounts )

2
  • Position Sizing and Leverage:
  • If you have a $1,000 account and you’re risking 1% per trade ($10), with a 250-pip stop loss, your position size calculation is correct. To risk $10 with a 250-pip stop loss and a pip value of $0.04, you would need to trade 400 units (which is equivalent to 4 micro lots, as each micro lot is 1,000 units).
  • Account Size and Lot Sizes:
  • Yes, you’re right that with higher leverage (like 100:1), trading mini lots comfortably would require a larger account size. Mini lots are 10,000 units, so trading them effectively with a $1,000 account might not be feasible due to the risk management constraints.
  • Commodities Trading (e.g., Crude Oil):
  • Commodities like crude oil often have minimum trade sizes (e.g., 50 units), which can be large for small accounts. For small accounts, trading commodities might not be practical due to the required position size relative to account size. It’s important to consider not just the minimum trade size but also how it fits into your risk management strategy.
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3

Thank you so much for addressing each and every point extensively.

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