Even though I have been trading live a while now, I still don't fully feel like I get some aspects of leverage and money management. That why this is in the n00b section.
Assume...
I have a $50000 account.
I want to set a hard stop at 2%. I never will lose more than this in any given trade. Usually my stops are a bit away, within 20-40. Usually, depending upon the trade, I aim at a 2%-4% profit.
So on any one trade, I am willing to lose 2%. That's $1000. If I am only willing to lose that much at $25 per pip, so thats a 40 pip stop loss, If $50 it's 20. My comfort level is somewhere in there.
Assuming a guy stuck to these (or similar) rules Why would it matter whether my leverage was 1:5 or 1:400?? I KNOW I'm not using all that leverage, but how could leverage "break my bank" quicker if all I am ever willing to lose is 2%, regardless of leverage or stop loss??
The only way I can see it hurting me is if I got greedy or careless. Or if I constantly was at $100 a pip, Or $200, just because I could afford it.
I think, from reading, that there are two uses of the word: Leverage, and this may be my confusion. I think they are:
1) What my broker will allow me to use per dollar, like 1:100.
2) How much of my actual balance is margined at any one time.
I have read attempts to describe these differences, but have failed. While educating me, please assume I am a retarded monkey.
Who is Drunk.
And asleep.
Thank you!!
Assume...
I have a $50000 account.
I want to set a hard stop at 2%. I never will lose more than this in any given trade. Usually my stops are a bit away, within 20-40. Usually, depending upon the trade, I aim at a 2%-4% profit.
So on any one trade, I am willing to lose 2%. That's $1000. If I am only willing to lose that much at $25 per pip, so thats a 40 pip stop loss, If $50 it's 20. My comfort level is somewhere in there.
Assuming a guy stuck to these (or similar) rules Why would it matter whether my leverage was 1:5 or 1:400?? I KNOW I'm not using all that leverage, but how could leverage "break my bank" quicker if all I am ever willing to lose is 2%, regardless of leverage or stop loss??
The only way I can see it hurting me is if I got greedy or careless. Or if I constantly was at $100 a pip, Or $200, just because I could afford it.
I think, from reading, that there are two uses of the word: Leverage, and this may be my confusion. I think they are:
1) What my broker will allow me to use per dollar, like 1:100.
2) How much of my actual balance is margined at any one time.
I have read attempts to describe these differences, but have failed. While educating me, please assume I am a retarded monkey.
Who is Drunk.
And asleep.
Thank you!!
