Leverage, Risk, Lots...Its getting all very confusing

Hey everyone,
Im a new trader and with the course im taking, the charts analyzing, its getting very overwhelming and confusing.

Lets say I have 10,000 that I want to start out with. What leverage should I use. Why should I use that leverage. What is a 1 lot size on a standard account and 1 lot size on a mini account. If im making 10pips on average a day, what will my equity be at the end of the year.

Its so confusing!

F,

I know this is overwhelming...but you have to stick with it.

1 Standard lot is 100,000 currency units and 1 mini lot is 10,000 currency units. The difference between them is obviously the per-pip value. If you were to buy 1 standard lot of the EUR/USD, you'd be gaining/losing $10 a pip. If you were to buy 1 mini lot of the EUR/USD, you'd be gaining/losing $1 a pip. Now, mind you that the per pip is value is constant only on USD crosses (AUD/USD, EUR/USD, GBP/USD, or the NZDUSD...there may be others)...but you'll have to learn to calculate your Profit and loss based on other currencies if you choose to trade other pairs...but for now, you know the difference between the standard and mini lot.

Leverage is a tool...but it doesn't necessarily help to manage risk. Let me explain. If you were to buy 1 standard lot of the EUR/USD at 1000:1 leverage, your per pip value would be the SAME as if you were to buy 1 standard lot of the EUR/USD at 1:1 leverage. The difference is your margin requirement. At 1000:1 leverage, 1 standard lot would require that you have about $133 for margin...while obviously, at 1:1 your margin maintenance would be about $133,000. Standard retail leverage rates are about 100:1 (requiring $1330 for margin). Most mini accounts allow up to 200:1, and some even 400:1 leverage...but all that affects is your margin maintenance requirements. You RISK will be determined on how you trade...and that is what planning will take...you need to calculate your max loss as your risk, thus if you're willing to lose $1000 on a trade in the EUR/USD, then trading 1 standard lot would allow you a 100 pip draw-down (100 * $10 a pip = $1000 loss). This would occur whether or not you had 1000:1 leverage or 1:1 leverage.

You should choose your broker less on the amount you're able to leverage and more for the services they would provide to help enhance your trading. Leverage will only come into play if you plan on making larger bets which means you'd be taking higher risks...but taking larger bets means that you have to be more confident in your broker's ability to cut you a good price on both sides of the trade. Otherwise, leverage is meaningless because your trades will suffer.

I'd rather go with a company that allows me to get in and out quickly without risk of slippage and charge me 20:1 leverage than I would having a broker that allowed me to have 1000:1 leverage and slipped me 5 pips on every trade...that would be deterimental to my particular trading style, and thus I'd go with the better broker (not necessarily the higher leverage). With that said, if I were trading long-term carry trades on a 100% hedge, then higher leverage may be what I'm looking for especially if that was coupled with a good swap rate...so it's a very personal decision based on how you plan to trade. If you want to be quick...then you want brokers that can get you in and out quickly (and those may not necessarily be the higher leveraged brokers)...so do some due diligence...don't just take our recommendations.

Good luck.

I believe that answered my question very clearly. Thankyou very much mrmikal.