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Leverage and pip price and other things

  • #1
  • First Post: Mar 8, 2007 8:26am Mar 8, 2007 8:26am
Hi

I am a new forum member and have been doing lots of reading, there is some fantastic information here and thank you to all who have contributed.

Just so this is clear, I have no intention of trading live until I believe I have grasped all the basic concepts and am comfortable trading demo.

One thing that I have found plenty of information about in these forums is leverage and pip price. I am still having problem joining all the dots together to completely get a grip of how this works, so I have several questions in an attempt to bring this all together:

1) Let's assume what seems to be an average starting account between $500 & $5,000. From what I have read the only way to go with an account less than $30,000 is micro lots, could somebody please explain why this is prefential to mini lots please?

2) Following on from above, I have looked at various brokers but the only one that seems to offer micro lots is Oanda, however they have very ugly java based software, is that a problem? or are there other broker options?

3) Staying with the same theme, when opening an account, one is asked what leverage to select, what should a beginner select? and can this be altered later?

4) I have also seen that there are 2 kinds of leverage, one is broker leverage and one is actual leverage? Explain please.

5) I have been playing around with demo trading and it seems I have no control over what leverage I use after the account is set up on a per trade basis, is this correct or just lack of knowledge of the software?

6) The last question is rather more involved: I would like examples of how various traders approach a trade, not signals for a good entry or whatever, that is seperate - let's assume that you have found your perfect entry point, now how do you calculate how many lots to buy/sell, where to set stop loss, how much trade will cost, potential profit and potential loss based on where you place your TP and SL, now it seems to me that this calculation is going to involve leverage, account value, which pair etc. How doesone figure all that stuff out quick enough to make a timely entry and set SL and TP correctly?

I know I am new and am asking a lot and will no doubt ask more and also that this information is probably all available here already, I am just having a hard time bring it together and would appreciate all the help you are willing to give.

Thank you in advance
  • #2
  • Mar 8, 2007 8:52am Mar 8, 2007 8:52am
Welcome to the forums, dude,

Allow me to offer my opinion:

1) This is really a matter of risk aversion. If you have a high risk aversion, then you can use mini's if you'd like. You may not last very long because minis are 10x larger than micro. The only reason it is "preferrable" on smaller account sizes is it gives you enough time to "pay your dues" to the market while you learn. You could be lucky (or have an inate talent and win a lot, but that isn't the common case)...many players lose substantially more than they win. Micros allow you to get into the market with less to lose, so you can stay in longer while you learn...but don't listen to everyone here...with $30K in the bank, you can trade whatever you want...it's just a matter of your risk aversion.

2) Micro lots are offered by quite a few brokers, try InterbankFX, 1WorldFX, MBTrading/EFX Group, and FXSol...all of these offer micro lots for you.

3) Leverage is leverage...it doesn't really matter, if you're really intelligent an in control. If you trade a plan that calls for 1-micro lot per trade, then it will be the same regardless of leverage, right? just because you have 400:1 leverage doesn't mean you'll all of a sudden trade 4-micro lots if your trades call for 1-micro lot. Leverage is a tool, but if you choose not to use it, then it won't matter...choose whatever you feel will enhance your trading plan.

4) I've never really heard of this...ask your broker (or ask your broker-to-be)

5) You normally have to change leverage with the broker directly. Some platforms (FX Sol) allow you to change leverage on the fly...but most require you to fax in a sheet asking for a leverage adjustment.

6) All I can offer you is just to have a plan and stick to it. Unplanned deviations in your normal trade plan will probably kill you.

I hope this helps.

Quoting newfxdude
Hi

I am a new forum member and have been doing lots of reading, there is some fantastic information here and thank you to all who have contributed.

Just so this is clear, I have no intention of trading live until I believe I have grasped all the basic concepts and am comfortable trading demo.

One thing that I have found plenty of information about in these forums is leverage and pip price. I am still having problem joining all the dots together to completely get a grip of how this works, so I have several questions in an attempt to bring this all together:

1) Let's assume what seems to be an average starting account between $500 & $5,000. From what I have read the only way to go with an account less than $30,000 is micro lots, could somebody please explain why this is prefential to mini lots please?

2) Following on from above, I have looked at various brokers but the only one that seems to offer micro lots is Oanda, however they have very ugly java based software, is that a problem? or are there other broker options?

3) Staying with the same theme, when opening an account, one is asked what leverage to select, what should a beginner select? and can this be altered later?

4) I have also seen that there are 2 kinds of leverage, one is broker leverage and one is actual leverage? Explain please.

5) I have been playing around with demo trading and it seems I have no control over what leverage I use after the account is set up on a per trade basis, is this correct or just lack of knowledge of the software?

6) The last question is rather more involved: I would like examples of how various traders approach a trade, not signals for a good entry or whatever, that is seperate - let's assume that you have found your perfect entry point, now how do you calculate how many lots to buy/sell, where to set stop loss, how much trade will cost, potential profit and potential loss based on where you place your TP and SL, now it seems to me that this calculation is going to involve leverage, account value, which pair etc. How doesone figure all that stuff out quick enough to make a timely entry and set SL and TP correctly?

I know I am new and am asking a lot and will no doubt ask more and also that this information is probably all available here already, I am just having a hard time bring it together and would appreciate all the help you are willing to give.

Thank you in advance
  • #3
  • Last Post: Mar 8, 2007 6:53pm Mar 8, 2007 6:53pm
Quoting newfxdude
4) I have also seen that there are 2 kinds of leverage, one is broker leverage and one is actual leverage? Explain please.
There are different names which makes it confusing.

Actual leverage is also called true leverage here and I have also seen it called trading leverage which is the term I use. I know diallist has posted about this here. If you search for the term "true leverage" you will probably find it. I think it might be in a sticky in this section.

Broker leverage is also referred to as account leverage. This is the leverage on your broker account.

I don't know if there are official terms for the definitions of them in the Forex world. My guess is the terms have developed out of the confusion of just saying "leverage" on its own.
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