Help on leverage

Hi there,

I am testing some strategies and I have a small account with $1,000 and I would like to risk let's say the famous 2% per trade. However I can't risk more that 0.5% and not sure why...

I have a 20:1 leverage offered by my broker ( I can't change the leverage).

I usually have a stop loss of about 10 pips.

So in theory I would like to risk 2% of $1,000 equal $20 so I can risk $2 per pip.

However the max lot size allowed by my broker is 0.05. Anything above that will have the signal that I don't have enough money in the account.

I understand that my position is larger as I have 20:1 leverage and that the stop loss doesn't influence the exposure and a possible margin call.

But I wonder how other traders can risk 2% or 10% on each trade if they will have the same limitation on the amount in the account.

Can anyone explain what am I missing?

Thank you!

Your available $$ per trade is very low based on your leverage avilable as you know already, you can only do 3 things:

1.- Use a smaller timeframe where the Stop loss can be "smaller" in pips so you dont eat all the leverage in a single trade

2.- Deposit more money so the available $$ you can use in atrade increase (based on your fixed leverage)

3.- Open a new account with higher leverage OR change the broker of you can not do that

No other way around :S

1. Understanding Leverage and Position Sizing

1. Leverage allows you to control a larger position with a smaller amount of your own capital. With 20:1 leverage, every $1 in your account allows you to control $20 in the market.
2. The lot size you're allowed to trade is directly tied to your account balance, the leverage, and the margin requirements set by your broker.

2. Broker's Lot Size Restriction

1. Your broker limits your maximum lot size to 0.05 lots, which equates to $0.50 per pip on most major currency pairs (10 pips would cost $5).
2. Even though you want to risk $20 (2% of $1,000), your broker's lot size restriction caps your risk to a smaller amount due to your account balance and leverage.

3. Why You Can't Risk More

1. Risking 2% ($20) per trade means you need to trade at a size where 1 pip = $2. With your current leverage and broker restrictions, this is not possible because:
   1. Your maximum lot size is 0.05.
   2. 0.05 lots only allows $0.50 per pip.

2. To risk $20, you would need to open a 0.2 lot position (since $2 per pip × 10 pips = $20), but your account size and leverage make this impossible under the broker's rules.

4. How Other Traders Manage It

1. Higher Leverage: Some brokers offer higher leverage (e.g., 50:1, 100:1, or even 500:1). With higher leverage, traders can open larger positions with the same account balance.
2. Larger Account Balances: Traders with bigger accounts can naturally risk more while staying within broker-imposed lot size restrictions.
3. Using Micro or Nano Accounts: These accounts allow for much smaller position sizes and finer control over risk, making it easier to risk a specific percentage of your balance.

5. Your Options

1. Switch to a Higher-Leverage Broker: If you can safely manage higher leverage, consider switching to a broker that offers it. Be cautious—higher leverage also increases your risk of large losses.
2. Build Your Account: As your account grows, the lot size restriction will become less of an issue because your available margin will increase.
3. Adjust Risk Percentage: You may need to reduce your risk per trade to align with the lot size restrictions (e.g., risking 0.5% instead of 2%).

6. Calculation Recap

1. Risk per pip = Total risk ÷ Stop-loss pips.
   1. If you risk $20 with a 10-pip stop, you need $2 per pip.

2. Maximum pip value with 0.05 lots = $0.50.
3. Therefore, you can only risk $5 per trade (0.5% of your account) under your broker's current setup.

This was insightful. I have been working with 500x leverage. Made a lot of mistakes and learned my way through.... I think I shall be moving to 1000x soon

Hi,
Your issue stems from leverage and margin constraints. With 20:1 leverage, a 0.05 lot (5,000exposure)requires 250 margin, leaving little room for stop-loss flexibility. Brokers limit position sizes to prevent margin calls. To risk 2%, either widen your stop loss or use micro lots (0.01). Hope this helps!

That's weird. I've never heard of it before. Even the world's strictest regulators allow brokers to offer 1:30.

Have you asked them why your leverage is restricted to 1:20?

It will be terribly difficult for them to keep customers, surely? Something's very wrong, here.

Brokers are free to set leverage they prefer or that is deemed safe for clients or regulatory body. Allowing for high leverage brokers are risking to attract lots of gambling clients that will spoil their reputation by quick losses

That's so, but there isn't a regulatory body in the world that limits leverage to 1:20. Among the regulators that set limits (some don't) the lowest is 1:30.

what broker is that, i guess brokers can limit leverage depending on region and regulation, AU has it maxed at 1:30, japan to 1:25, cftc or US are limited to 1:50. I think this is in term of max leverage, though off shore brokers such as hfm do offer up to 1:1000 but i do not advice it.

The idea that the leverage offered by a broker is different from the effective leverage a trader actually uses. It seems many beginners get caught up in the high numbers advertised (e.g., 1:500) without realizing their position sizing is what truly dictates their risk.

In the EU for retail clients forex leverage is limited to 30:1 for major currency pairs and 20:1 for non-major pairs.

My broker is offering 500 on leverage
witch i use.

As a risk-first trader, I treat leverage like a power tool - useful, but only with guards on. I size positions so a single stop-out costs less 0.5% of equity; that keeps me in the game whether the leverage is 1:30 or 1:500.

hi, your issue is leverage... If you are like me i trade in Australia and if using a regulated broker we are bounded by ASIC or if your US your bound by the CFTC (not 1:20 leverage tho)... you have two routes, either go offshore and escape regulation which can be dangerous when deploying all equity into one broker due to its unregulation or pass the pro test that many brokers offer to increase your leverage. Considering your situation maybe look into offshore, however, it can be dangerous. For me i use 0.25% 0.50% and 1% a set of three risks which apply to 3 different setups, dont be greedy and go 2%+ this can be dangerous. If you havent traded standard before you will feel sick seeing your floating fall.

for me i have 5000 equity account i am beginner... i trade 0.25% 0.5% and 1% that is }

$12.50 RISKY
$25.00 MODERATE
$50.00 SAFE

if using like something like 1:2 RR or even 1:1.5 you can make decent profits off this and you dont need to risk account much

also it could be like currency issue your using i know for me i use AUD i am limited with leverage with something like EURUSD due to exchange rate differential ect...

hope this helps

-Tomo