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Newbie question -- lots and leverage

  • Post #1
  • Quote
  • First Post: Jul 21, 2006 5:19pm Jul 21, 2006 5:19pm
Hello all,

Please don't flame me, I'm a newbie I tried to read the sticky but it went over my head.

So I've demo-ed for a couple of months and want to open a live account to start 'feeling' trading with real money.

But I still can't get my head around leverages, lot sizes and the like. My aim is to trade EURUSD with $1000 at $1/pip (Is this the wrong way of thinking?).

So I look at Onada and they offer leverages from 50:1 and below and I didn't see any mention of mini accounts -- so I guess it's standard lot size? To get the $1/pip I'm looking for -- say I open a account, deposit $1000 with the leverage 50:1, then I enter a trade with 0.1 lot, then I'm trading with $1/pip, is this right?

Finally, which is the most recommended MT4 broker for beginners? I've tried to search but there are so many threads pointing in so many directions that I get lost.

Thanks,
Divya
Quoting suzuki
Hello all,

Please don't flame me, I'm a newbie I tried to read the sticky but it went over my head.

So I've demo-ed for a couple of months and want to open a live account to start 'feeling' trading with real money.

But I still can't get my head around leverages, lot sizes and the like. My aim is to trade EURUSD with $1000 at $1/pip (Is this the wrong way of thinking?).

So I look at Onada and they offer leverages from 50:1 and below and I didn't see any mention of mini accounts -- so I guess it's standard lot size? To get the $1/pip I'm looking for -- say I open a account, deposit $1000 with the leverage 50:1, then I enter a trade with 0.1 lot, then I'm trading with $1/pip, is this right?

Finally, which is the most recommended MT4 broker for beginners? I've tried to search but there are so many threads pointing in so many directions that I get lost.

Thanks,
Divya
Hi,
yes, thats right
01. lots, which is 10.000 is equal to 1$ a pip.

I think 1$ a pip is too much if you start and have only 1000 on account

Bye
here's a newbie answer to your newbie question. I think you need more training and studying before you deposit real money. No offense, but you need to get the basics down packed before trading . Do the demo first.

You also need to figure out what time frame you are going to trade on. And figure out your stop losses, making sure that if you lose the trade, it would take out only 2% of your capital.

but..i'm sure more veteran traders can give you more than this
Working towards CME membership
Quoting suzuki
Hello all,

Please don't flame me, I'm a newbie I tried to read the sticky but it went over my head.

So I've demo-ed for a couple of months and want to open a live account to start 'feeling' trading with real money.

But I still can't get my head around leverages, lot sizes and the like. My aim is to trade EURUSD with $1000 at $1/pip (Is this the wrong way of thinking?).

So I look at Onada and they offer leverages from 50:1 and below and I didn't see any mention of mini accounts -- so I guess it's standard lot size? To get the $1/pip I'm looking for -- say I open a account, deposit $1000 with the leverage 50:1, then I enter a trade with 0.1 lot, then I'm trading with $1/pip, is this right?

Finally, which is the most recommended MT4 broker for beginners? I've tried to search but there are so many threads pointing in so many directions that I get lost.

Thanks,
Divya
Don't worry that it went over your head Divya. Just read through those stickys over and over and play with some numbers on paper. I'm no dummy, but it took me a long time to get my head wrapped around this stuff. Just keep exposing yourself to it and playing with the numbers and your brain will soon put it all together for you where it makes sense.

Trading with real money will definitely accelerate your learning, but you need to do it with very small position sizes. You said you want to get $1 per pip on a $1000 account. Dude, this is 10:1 leverage and is far to large for a beginner to handle. It will hurt you.

What you need, at a maximum, is to open a micro (not mini) account. I recommend FX Solutions as the broker. You can then trade 10 cents per pip which is 1:1 leverage. Even if you lose 100 pips, you've only lost $10 which is only 1% of your $1000.

Another option is an Oanda account, which lets you have pip values even smaller than a micro account. For some folks, this may be appropriate, but my personal opinion is that while your position size should be as small as possible, there is also a point at which if it is too small, it stops feeling like real money, and starts feeling like a demo again. Your position size has got to be just big enough so that you feel a little bit of pain. Just a little mind you. Enough to accelerate your learning, while still affording minimal risk.

Rather than rehash what I've already covered in my other posts, I'd like you to do this for me. Reply with an explanation of how you currently understand the relationship between (1) Account size, (2) Stop size, (3) Percent risk, (4) Lot size, (5) Broker leverage, and (6) True Leverage.

Begin by giving a definition of each and then explaining how they relate to each other.

Don't be afraid of getting it totally wrong. No one here is going to give you a hard time. If you will do this, it will give me an idea of where you are and we can go from there.

As for brokers, I've already mentioned the two I like.

Dial
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stay with you demo account until:
1) you never execute an order wrong. This isn't about when to enter and when to exit, its about being able to use the program. if you can enter 100 trades and not make a mistake then you know your platform. You also need to know what buy stops, sell limit and all the rest of the trades types are and when and where you should use them. This is all about knowing how to use your platform and how to leverage it most effectively. You can easily loose a large percentage of your account by not know how your platform works. You dont want to pay your broker to teach this when you can learn it for free.

2) you have a complete "trading plan" planned out and you are trading it successfully and making profit.
http://www.forexfactory.com/forexfor...light=template

3) you find no more benifit on the demo in the way of emotional training. Some people just cant simulate the emotion of trading without having money at stake. You can trade a demo for 2 years get a micro account and decide to quit trading after the first trade because they are so different. The demo isnt even close.

4) you have $300-$500 you dont want any more. You will most definately loose it all.

Once you are ready to get a MICRO account. $0.10 a pip.

figuring out your risk is simple: lots*pip value*stop loss. say you have 3 micro lots, you are trading gbp/usd (0.10 a pip for micro) and a stop loss of 35. you have 3*.1*35 = $10.50 at risk. How do you know how much you can risk? Most people start with just a percentage of their total account. if you have $500 and you want to risk 1% you can risk $5. There are other ways to do this, i would suggest investing in money management books.

I dont want to give you that patience, dedication and practice speech, its your money, you know what is best for it. but i would say if you dont have a size positioning plan then you havent completed #2 yet.
Thank you all for your informative posts. So far my demo-ing has involved jumping from one system posted in the forum to another. But in this process I've happened to ignore the actual mechanics of the trading.<o></o>

Of course I could wait longer before spending actual money but I'm not enjoying demo-ing anymore. I know in all likelihood I'll wipe out a real account but I want to feel the loss as I think it'll help me accelerate the learning process.<o></o>

Dial,<o> </o>

Thanks for asking me these questions. I didn't actually investigate most of these things until you asked them. But let me know if I understand them correctly now:<o></o>

Definitions:<o> </o>

(1) Account size<o></o>
Money in the account with the broker.<o> </o>

(2) Stop size<o></o>
Number of pips before an open trade is closed -- to prevent any further losses.<o></o>

<o></o>(3) Percent risk<o>
</o>Amount of the account size being risked per trade.<o></o>

(4) Lot size<o>
</o>Size of transaction made by the broker on the customer's behalf, can be Standard (100k), Micro (10k), Mini (1k).<o></o>

<o></o>(5) Broker leverage<o></o>

<o></o>The maximum leverage offered by the broker on the account.<o></o>

(6) True leverage<o>
</o>The leverage utilized per trade.<o></o>

Relationships:<o></o>

<o></o>With the help from witchazel:<o></o>

<o></o>Percent Risk = (stop size*pip value*lots*100)/account size<o></o>
True Leverage = (position size/account size) -- from the sticky<o></o>

So with the principles outlined in this thread:<o></o>

- don't risk more than 2%/trade<o></o>
- use 1:1 true leverage<o></o>
- start with a micro account<o> </o>

I get the following figures:<o></o>

Account size: $1000<o></o>
<st1lace w:st="on">Lot</st1lace> size: micro<o></o>
Percent Risk: 2%<o></o>
True Leverage: 1:1<o></o>

For a given trade with 1 mini lot:

Value per pip (xxx/usd): 10c/pip<o> </o><o>
</o>True Leverage: position size/account size = 1000/1000 = 1:1<o></o>
Stop Loss: (percent risk*account size)/(lots*pip value*100) = (2*1000)/(1*0.10*100) = 200 pips<o>
</o>

Is this right?<o>
</o>

Thanks,<o></o>
Divya
Quoting suzuki
Thank you all for your informative posts. So far my demo-ing has involved jumping from one system posted in the forum to another. But in this process I've happened to ignore the actual mechanics of the trading.<?xml:namespace prefix = o /><o></o>

Of course I could wait longer before spending actual money but I'm not enjoying demo-ing anymore. I know in all likelihood I'll wipe out a real account but I want to feel the loss as I think it'll help me accelerate the learning process.<o></o>

Dial,<o> </o>

Thanks for asking me these questions. I didn't actually investigate most of these things until you asked them. But let me know if I understand them correctly now:<o></o>

Definitions:<o> </o>

(1) Account size<o></o>
Money in the account with the broker.<o> </o>
Yes, or for large accounts, most is kept in an insured bank account, with only enough in the brokerage account to cover margin and a bit more to allow for trade movement.

(2) Stop size<o></o>
Number of pips before an open trade is closed -- to prevent any further losses. Correct.

<o></o>(3) Percent risk<o>
</o>Amount of the account size being risked per trade.<o></o>
Correct.
(4) Lot size<o>
</o>Size of transaction made by the broker on the customer's behalf, can be Standard (100k), Micro (10k), Mini (1k).<o></o>
True, but it is your choice, not the broker's. You decide this when you open the account.
<o></o>(5) Broker leverage<o></o>

<o></o>The maximum leverage offered by the broker on the account.<o></o>
Correct. The maximum leverage offered by a broker should be chosen when you open an account. Not because you'll ever use it, but because is reduces the margin requirements. Having the smallest possible margin requirements is useful in certain types of hedge strategies.
(6) True leverage<o>
</o>The leverage utilized per trade.<o></o>
Correct. Defined as Account Size / Position Size. The smaller the better. Overleveraging is a fast track to the poor house. Keep it below 5:1 until you gain experience, and even then keep it under 10:1. (I'm sure to get some argument on this, but better safe than losing all your money trying to get rich quick.
Relationships:<o></o>

<o></o>With the help from witchazel:<o></o>

<o></o>Percent Risk = (stop size*pip value*lots*100)/account size<o></o>
No formula is needed. You simply decide on a value; 1%, 2%, 3% etc. Using the formula above has the process backwards. It is assuming the number of lots is already known. State your percent risk and from that determine your position size in lots. Do not decide how many lots and then figure out the percent risk.

True Leverage = (position size/account size) -- from the sticky<o></o>
Well, if it's from the sticky, it HAS to be right!
So with the principles outlined in this thread:<o></o>

- don't risk more than 2%/trade correct<o></o>
- use 1:1 true leverage re-read the stickies. leverage is determined from your dollar risk amount, stop size, and account type. You cannot state it in advance if you are already stating the percent risk.
- start with a micro account<o> CORRECT!! Absotutely, posilively! Given the exact same trades, you will actually make more money with a micro account than with a mini account.</o>

I get the following figures:<o></o>

Account size: $1000 a given
<?xml:namespace prefix = st1 /><st1lace w:st="on">Lot</st1lace> size: micro a given
Percent Risk: 2% a given<o></o>
True Leverage: 1:1 not a given. must be calculated.<o></o>

For a given trade with 1 mini lot: I think you meant micro since you're using a pip value of 10c below.

Value per pip (xxx/usd): 10c/pip<o> </o><o>
</o>True Leverage: position size/account size = 1000/1000 = 1:1<o></o>
Stop Loss: (percent risk*account size)/(lots*pip value*100) = (2*1000)/(1*0.10*100) = 200 pips<o>
</o>
Stop Loss is not based on a calculation. You determine it from the technicals and price action on your chart. True Leverage in your example would only be 1:1 if you have chosen to limit yourself to 1 micro lot for safety while you are getting a feel for trading live money, which I think is your intent here. Very good.
Is this right?<o>
</o>

Divya, I really appreciate you're taking the time to answer these questions. It is a refreshing change from some folks who want to be spoon fed without any effort on their part. You're gonna do Okay!!!

Thanks Divya!!
Thanks,<o></o>
Divya
.
sxaxlxvxaxtxixoxnxbxyxgxrxaxcxexdxoxtxoxrxgx
  • Post #8
  • Quote
  • Edited at 11:30am Jul 26, 2006 11:15am | Edited at 11:30am
Hi Dial,

Thanks for your encouraging comments. Since starting this thread I've realized how much work is ahead of me before I can start to become comfortable with trading. I've opened an account with FX Sol -- but I won't make my first live trade till I've:

 

  1. Finished reading the three books you mentioned in Frequently Asked Questions sticky
  2. Developed and tested a trend-following technical system derived from ideas and systems posted in this forum (this is, a system that works for me)
  3. Finish understanding major economic news and their impact on the market

Thanks Dial and everyone else for their help

Regards,
Divya

  • Post #9
  • Quote
  • Last Post: Jan 25, 2007 3:49am Jan 25, 2007 3:49am
Every day i demo is a day longer i have money in the bank...Long livethe demo!!!

Quoting suzuki
Thank you all for your informative posts. So far my demo-ing has involved jumping from one system posted in the forum to another. But in this process I've happened to ignore the actual mechanics of the trading.<o></o>

Of course I could wait longer before spending actual money but I'm not enjoying demo-ing anymore. I know in all likelihood I'll wipe out a real account but I want to feel the loss as I think it'll help me accelerate the learning process.<o></o>

Dial,<o> </o>

Thanks for asking me these questions. I didn't actually investigate most of these things until you asked them. But let me know if I understand them correctly now:<o></o>

Definitions:<o> </o>

(1) Account size<o></o>
Money in the account with the broker.<o> </o>

(2) Stop size<o></o>
Number of pips before an open trade is closed -- to prevent any further losses.<o></o>

<o></o>(3) Percent risk<o>
</o>Amount of the account size being risked per trade.<o></o>

(4) Lot size<o>
</o>Size of transaction made by the broker on the customer's behalf, can be Standard (100k), Micro (10k), Mini (1k).<o></o>

<o></o>(5) Broker leverage<o></o>

<o></o>The maximum leverage offered by the broker on the account.<o></o>

(6) True leverage<o>
</o>The leverage utilized per trade.<o></o>

Relationships:<o></o>

<o></o>With the help from witchazel:<o></o>

<o></o>Percent Risk = (stop size*pip value*lots*100)/account size<o></o>
True Leverage = (position size/account size) -- from the sticky<o></o>

So with the principles outlined in this thread:<o></o>

- don't risk more than 2%/trade<o></o>
- use 1:1 true leverage<o></o>
- start with a micro account<o> </o>

I get the following figures:<o></o>

Account size: $1000<o></o>
<st1lace w:st="on">Lot</st1lace> size: micro<o></o>
Percent Risk: 2%<o></o>
True Leverage: 1:1<o></o>

For a given trade with 1 mini lot:

Value per pip (xxx/usd): 10c/pip<o> </o><o>
</o>True Leverage: position size/account size = 1000/1000 = 1:1<o></o>
Stop Loss: (percent risk*account size)/(lots*pip value*100) = (2*1000)/(1*0.10*100) = 200 pips<o>
</o>

Is this right?<o>
</o>

Thanks,<o></o>
Divya
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