What really equates to Risk when trading forex?

Is it Lots involved on a trade or is it the Leverage of the Account?

Many have argued about this for ages with plenty of heated arguments going left and right.

I would like to give some examples to show were the TRUE RISK is. In all examples below,

Trader A opened a 500:1 Leverage Account with NorthFinance. He opened a Position SHORT 1 Lot GBPUSD @ 2.0000 with a 2.0100 StopLoss. GBPUSD eventually reached 2.0100 and he lost 100 pips. He lost $1K

Trader B opened a 100:1 Leverage Account with MBT. But since MBT offeres only 100:1, he thought his trade is 5 times less riskier than the NF Trader. So he opened a Position Short 5 Lots GBPUSD @ 2.0000 with a 2.0100 StopLoss. GBPUSD reached 2.0100 and he lost 100 pips. He lost $5K

Most traders fail to understand the difference between True Leverage vs Account Leverage (or max leverage). In the above examples, Trader A has a 500:1 Account Leverage but was trading only 10:1 True Leverage. While Trader B has 100:1 Account Leverage but was trading with 50:1 True Leverage.

True Leverage is the ratio of your Open Trade and Account Balance. In the above examples:

Trader A has an Open Trade of 100K and a 10K Account Balance or 10:1 True Leverage.

Trader B has an Open Trade of 500K and a 10K Account Balance or 50:1 True Leverage.

This is why Trader B Lost 5 times more money than Trader A.

Do not mistake Account Leverage with True Risk. It is only the Maximum Risk factor and not necessary the actual Risk involved.

As an analogy, if your car has a max speedometer of 200 mph, that does not imply you are always driving at 200mph? And If you stick that 200mph Speedometer to your kiddie trike, does that imply your kid will be driving around the house at 200mph?

Get your Risk Factor Straight. Risk is Lot Size and not Account Leverage.

Is it Lots involved on a trade or is it the Leverage of the Account?

Many have argued about this for ages with plenty of heated arguments going left and right.

I would like to give some examples to show were the TRUE RISK is. In all examples below,

**Trader will have $10K of money to start trading**.Trader A opened a 500:1 Leverage Account with NorthFinance. He opened a Position SHORT 1 Lot GBPUSD @ 2.0000 with a 2.0100 StopLoss. GBPUSD eventually reached 2.0100 and he lost 100 pips. He lost $1K

Trader B opened a 100:1 Leverage Account with MBT. But since MBT offeres only 100:1, he thought his trade is 5 times less riskier than the NF Trader. So he opened a Position Short 5 Lots GBPUSD @ 2.0000 with a 2.0100 StopLoss. GBPUSD reached 2.0100 and he lost 100 pips. He lost $5K

**Q: How did Trader B lost $5K or 5times more than Trader A when all the while, Lower Leverage means Lower Risk?**

Most traders fail to understand the difference between True Leverage vs Account Leverage (or max leverage). In the above examples, Trader A has a 500:1 Account Leverage but was trading only 10:1 True Leverage. While Trader B has 100:1 Account Leverage but was trading with 50:1 True Leverage.

True Leverage is the ratio of your Open Trade and Account Balance. In the above examples:

Trader A has an Open Trade of 100K and a 10K Account Balance or 10:1 True Leverage.

Trader B has an Open Trade of 500K and a 10K Account Balance or 50:1 True Leverage.

This is why Trader B Lost 5 times more money than Trader A.

Do not mistake Account Leverage with True Risk. It is only the Maximum Risk factor and not necessary the actual Risk involved.

As an analogy, if your car has a max speedometer of 200 mph, that does not imply you are always driving at 200mph? And If you stick that 200mph Speedometer to your kiddie trike, does that imply your kid will be driving around the house at 200mph?

Get your Risk Factor Straight. Risk is Lot Size and not Account Leverage.