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Inquiry of 400:1 leverage method

  • Post #1
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  • First Post: Mar 13, 2005 8:45am Mar 13, 2005 8:45am
Ask for advice.

In the case that I open a mini account with $500 at 400:1 leverage, and 10K USD for one lot. If I open a position of 4 lots, and set stop within 30 pips. Is it reasonable? Comparing with anthother case, that is, if I have 100:1 leverage, and also open a position of 4 lots. Which one is better method?

waiting for your kind instruction.
I think you should consider trading fewer lots or add more to your trading account, because If you're trading 4 mini lots and a 30 pip stop, with only $500 dollars in your account, you're gonna wipe out your account pretty soon. In that case you will risking almost 25 percent of your total equity on one single trade, which is way to much.

Bjorn
Quoting arthurlord
Ask for advice.

In the case that I open a mini account with $500 at 400:1 leverage, and 10K USD for one lot. If I open a position of 4 lots, and set stop within 30 pips. Is it reasonable? Comparing with anthother case, that is, if I have 100:1 leverage, and also open a position of 4 lots. Which one is better method?

waiting for your kind instruction.
Good way to go broke fast!

You should limit your risk per trade to no more than 2% of your equity. 2% of $500 is $10. The dollar value of just one lot (forget 4) is $1.00 per pip on a minie times 30 pip stop equals $30. $10/$30 = .3333 lots you can trade. Can't be done with a mini account. You should either add more money to your account, or go with a broker that allows you to trade $1000 lots. FX Solutions lets you do this. $1000 lots are called mini-minis (I like to call them micro lots) which would have a pip value of $0.10 per pip. On a 30 pip stop, that would be equal to $3. then you would have $10/$3 = 3.333 micro lots which you would round down to 3 micro lots. Now you have reasonable money management.

The alternative, if you want to trade mini lots is to add more money to your account. If you have $2000 then 2% of that is $40. $40/$30 = 1.333 mini lots which would round down to 1 mini lot.

Never forget the absolute number one rule in trading. PPC! Protect Precious Capital! You want to survive to play the game another day.

Oh yes, the only difference between 400:1 and 100:1 is how much margin you have to put up for each mini lot. $10,000/400 = $25 margin per lot. $10,000/100 = $100 per lot. To find out what your TRUE leverage is, divide the lot value by the dollars in your account. $10,000/$500 = 20:1 which is waaay too high. You should strive to keep your true leverage under 5:1 and preferably 3:1. For example, with $2000 in your mini account, $10,000/$2000 would give you 5:1 true leverage.

Cheers
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  • Post #4
  • Quote
  • Edited Mar 16, 2005 5:58am Mar 13, 2005 11:06pm | Edited Mar 16, 2005 5:58am
Quoting arthurlord
Ask for advice.

In the case that I open a mini account with $500 at 400:1 leverage, and 10K USD for one lot. If I open a position of 4 lots, and set stop within 30 pips. Is it reasonable? Comparing with anthother case, that is, if I have 100:1 leverage, and also open a position of 4 lots. Which one is better method?

waiting for your kind instruction.
You have the wrong type of account for a 500.00 account. You should open an account that permits 1k minimum trade sizes or even smaller.

Right now the trade size you specify with 400:1 causes you to lose or gain 4.00 per pip. Multiply that with 30 pips and you have a loss of 120.00 with one trade that goes the wrong way.

Therefore you have only 4 trades that lose before you are history. At that rate you cannot survive. Even if you trade 1 lot with 30 pips stop you can only survive 18 -- 30 pip losses before complete wipout. That is still not good odds.

What company is your mm?

Also you need a system. What is your system?

FT
Quoting fijitrader
Right now the trade size you specify with 400:1 causes you to lose or gain 16.00 per pip.
FT
Fiji,

I'm confused by your reply. I thought on a mini account the pip value was $1.00 or slightly less depending on pair. I don't understand how the leverage would affect pip value. I thought it only affected how much margin was required for each mini-lot. The original poster specified four mini-lots so I thought that would be $4 per pip. How did you arrive at $16.00?

You are far more knowledgeable and experienced than I. If I have a misunderstanding of a basic concept then I am very concerned. Please correct me.

Thanks

Dial
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Thank all reply.

In that case, one lot loss $30x4 lots=Total Amount $120, right?

If I long EURUSD at price 1.3311, 1 lot consumes $33.2775 right? And $33.2775 x 4 lots = $133.11 in total used margin. If $500-$133.11-$120=246.89 still available margin, right? In the case, would I receive a margin call and forced to close all my position?
Quoting diallist
Fiji,

I'm confused by your reply. I thought on a mini account the pip value was $1.00 or slightly less depending on pair. I don't understand how the leverage would affect pip value. I thought it only affected how much margin was required for each mini-lot. The original poster specified four mini-lots so I thought that would be $4 per pip. How did you arrive at $16.00?

You are far more knowledgeable and experienced than I. If I have a misunderstanding of a basic concept then I am very concerned. Please correct me.

Thanks

Dial
You are correct. Trade size determines the amount per pip. Leverage determines margin. I appreciate your vote of confidence but I goofed this time. Thanks for catching me up on that.

However I still stand by the comment that they guy has the wrong type of account for the size of his equity. He can't last long enough with 10k trade sizes.

FT
Quoting fijitrader
You are correct. Trade size determines the amount per pip. Leverage determines margin. I appreciate your vote of confidence but I goofed this time. Thanks for catching me up on that.
Thanks Fiji! I was worried there for a bit!

Quoting fijitrader
However I still stand by the comment that they guy has the wrong type of account for the size of his equity. He can't last long enough with 10k trade sizes.FT
I agree. Because of your posts on asymmetrical leverage, I'm thinking hard about opening an account with FX Solutions. I still don't quite understand asymmetrical leverage, so this evening I'll be re-reading your posts on the subject.

Fiji, thanks for being who you are, and for sharing and helping the way you do.
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Quoting diallist
I agree. Because of your posts on asymmetrical leverage, I'm thinking hard about opening an account with FX Solutions. I still don't quite understand asymmetrical leverage, so this evening I'll be re-reading your posts on the subject.

Fiji, thanks for being who you are, and for sharing and helping the way you do.
Take this spreadsheet and change the $ per pip from .1 to 1 to 10 and try adjusting the account balance to various dollar amounts and look at what happens to the account growth over time.

FT
Attached File
File Type: zip compounding percent risk 1k.zip   37 KB | 864 downloads
If I add funds up to $1000-1500, would be good in the case?
Quoting fijitrader
Take this spreadsheet and change the $ per pip from .1 to 1 to 10 and try adjusting the account balance to various dollar amounts and look at what happens to the account growth over time.

FT
Thank you Fiji for putting that together. I've played with it and am starting to get a feel for how the different factors interact. Thanks again!
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  • Post #12
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  • Last Post: Sep 26, 2006 10:20pm Sep 26, 2006 10:20pm
Thanks Fiji,
I just wanted to say thanks for the spreadsheet and give this useful thread a bump. Hope it can help someone else as well.

Labrat407
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