Need help on making a new order(volume)

Hello folks, I'm new to forex market but have allready some years of experience with stocks.

I created a demo account in North Finance with 10K initial balance and made an order.
I choose Volume = 1.0 . Does that mean that I purchased an entire lot using my 10k?

Imagine I would like to buy a lot using 2% of my 10K, how should I do it in mt4?

Whats the meaning of the Margin, Free Margin and Margin level on the terminal window.

I searched for this subject in the tutorials on this forum but couldnt find any info

Thanks in advance for the help.
Best Regards

Hi Spet,

I will take a shot at your questions....

Firstly, we need to know your margin ratio, 100:1, 400:1 etc. You picked a good broker, in that they allow YOU to chose your margin, up to 100K usd in your real account. So tell you what. You tell me (us) your margin ratio, and we will go from there.

But, to start with (based on 100:1):

You bought/sold 1.0 lot. With NF, that is what is known as a "full lot", which is 100K in size. With 100:1, you would need $1,000 in your account to trade this. That $1,000 is what is called margin. Then, with your $10,000 account, you would have $9,000 left over to work with, which is know as "free margin". BUT! Now your position goes against you. A full lot is $10 per pip, so say it goes 100 pips against you, (dang news!). (ignoring spread for now...). You have now "lost" $1,000. (100 pips x $10 per pip.) Now it isn't really a loss until you close your position, but the broker counts it as a loss...

Now, what you see on your MT4 is Balance, Equity, Margin, Free Margin, and Margin Level (in %).

Balance is what is actually in your account right now.

Equity is what you have in your account plus/minus your current profit/loss of your open positions. (with the above example, Balance would be $10,000, Equity would be $9,000. Equity will change with the value of your open position(s).)

Margin is what your open trades require. (per your ratio). per above, would be $1,000.

Free Margin is Equity minus your Margin, or what you have left to open other positions. (this example would be $8,000.)

NOTE! Free margin continually changes if you have open positions according to the changing profit/loss of your open positions. You may "think" you have enough margin to trade, only to find that your positions have lost and you now have less free margin with which to trade.

Margin Level is Equity divided by Margin. (here, we would have 900%) This is what the broker watches. I am not sure about NorthernFinance, but I think they use 100% as the limit before margin call, and they may automatically close all open positions at that level, so you should find out... 100% Margin Level mean you have EXACTLY the $$ in your account to cover the margin required for your open positions. It is a function of you account size, your open positions, and the profit/loss of those open positions. Again, this percentage CHANGES with the profit/loss of your open positions.

Now, your margin ratio will drastically affect the actual numbers. 100:1 will require $1000 margin for a full lot, but 400:1 will only require $250. This will affect the above calculations dramatically. But, you can easily exceed your account in losses with 400:1 margin if you are not careful, and trade too many lots. It is NECESSARY to understand how all these numbers work together in order to have successful money management.

Hope this helps....

PS: to trade 2% of your 10K, or $200, I assume you mean RISK 2%. maybe you can clarify. but your risk is based on your stop loss, your position size, and the corresponding $/pip. Your 1 lot (say EuroUsd) is $10 per pip, so to risk $200, your stop loss would be 20 pips. But, say your spread (cost of transaction) is 3 pips, then your ACTUAL stop loss should be 17 pips. This limits your total loss on the trade to $200, if you get filled right on your number....

Really good explanation!

I would just add this (Its the same but) in reverse.
Base you SL on your risk ratio is not a good idea(But its just me)
Define your Risk then your StopLoss, and you find how much you can trade...
40/SL, risk/200$, so you use 5$/pip risk,
if 1 lots==10$ then use 5$==0.5 lots. (if you can split them)

Mrkam and zeuzere, many thanks for enlightening me

You guys were very helpfull and your explanations answered even more than what was asked.
I know more about money management and the power of leverage than I knew before, altough I read other existant topics.

Think that this thread should be moved to the noobs forum

Best Regards