Leverage Equity....Bigger Bets, More Reward, Less Risk?!?!

Im not sure if I have understood how the drawdowns work. Let me try and explain in Numbers

Leverage: 100
Account Balance: $10000
1 Lot Size: $100,000


Lets assume EUR/USD.
Trade 1 Lot. Take Profit at 10 Pips.
Now lets say you didnt place a stop loss. And your trade went the other way and now all of a sudden the broker stops you, and returns your initial $1000 draw down.

If you won your trade, you would have made $100.

With a Win: $10,100
With a Loss: $1000 (Lost Pips: 900)

Not lets say this.
You Trade 5 Lots. Again, assume no stop loss. If your trade lost, your broker would stop you out. Returned into your account would be $5000. If your trade won, $500 Profit.

With a Win: $10,500
With a Loss: $5000 (Lost Pips: 500)

....Am I making any sense here?!?!

I'm not sure if you are asking about DD or Initial Margin. If it's DD then...

First; "With a Win: $10,100
With a Loss: $1000 (Lost Pips: 900)" I think the 900 should read 100

Your Borker will allow you to stay in the Trade as long as your acct has sufficient funds to cover it. Most FX Borkers have no Maintenance Margin Rules that I am aware of. {Never been exposed to knowing if they do }

Account Size: $10,000.00
Trade Pair: EURUSD
Pip Value: $10.00/Pip
Maximum "Allowable" Drawdown: 1,000 pips whether that be comprised of 1 Lot down 1,000 Pips or 100 Lots down 10 Pips or 500 Lots down 2 Pips.

This is the basic Math behind the calculation, your Borker may force you out prior to this to ensure they do not lose on Your Trade.

If it's Initial Margin, the amount you "Deposited" [Initial Margin] is included in the above calculation [as part of your acct] and is first to be exausted if and as a position moves against you.

no when is allowing a 500 loss a possible idea?

Faboualfa,

What you are talking about is using a margin call as your stop loss. You are seeing it the right way. In order to limit your risk to only a few percentage points, you must use high leverage. The advantage here is that if the trade moves in your favor, the necessarily high leverage will yield a high return for the trade. The disadavantage is that the spread costs will be enormous and will eat into your profits.

I've considered trying the mm method out on demo, but just thinking about the math needed to balance percent risk with margin requirements and allowing for spread costs makes my head hurt.

Has anyone actually been successful with this mm method?

Dial