Trying to understand lots and buying on margin

I'm still trying to understand the lot system and buying on margin. Can someone suggest some online resources where can I find better guides for this?

The babypips.com school will take you through the basics of forex trading.

Let’s say that your account has $10,000 and you want to risk no more than 2%, or $200. You want to open a position and you figured out that the risk is about 50 pips. In that case: LOT/0.005=$200 => lot size= 1 (1 lot=100,000). It is as simple as that.

Regarding margin- well, it depends on your balance. If you have $10,000 and you want to open a position of 2 lots (200K), then it means that your leverage is 1:20.

Hope it helped you to understand it better…

There are other factors, it would help you if you review other concepts such as:

- stop loss orders S/L, take profit T/P
- money management
- minimum trade size
- leverage

Then it is easier to incorporate the idea of margin. Once you understand the maths of it, try to open a demo account, open a position, read the marging and compare it with your calculations.

post 74:
Begin with
"Margin is a token amount of money put forth by a trader..."
example note --
"if the trade you opened has a floating loss eroding too much of the margin you put forth to your broker then the broker closes your position (margin call)."

Definitely the school on Baby Pips is worth a read, as numbnuts suggested.

The lot system is a convenient way of buying currency. You open a position for a number of lots in, for example, EurUsd. What that means is that your broker swaps a load of Euros for a load of US dollars (short position) or the other way around (long position). The standard lot is 100,000 currency units (dollars or euros). If you have a micro account you can trade micro-lots - which is normally cheaper while you get the hang of things. One micro-lot is 1000 currency units.

Margin is the amount of money your broker expects you to contribute to the buying or conversion process, and you get it back when the position is closed. You can consider it as insurance. If you have to close a position because your account value has become zero, normally this happens because it is going against you too strongly and this type of closure is termed a margin-call, the margin amount covers the outstanding loss (usually) leaving you with a little bit left over. These days there tend to be regulations that specify the minimum margin amount that must be taken.

If you attempt to open a position which is too large then all your account value may be used up in margin payment - leaving nothing to absorb the movement of the market price until you choose to close your position. Which leads on to leverage.

Leverage is the size of your open position or trade divided by your account value. So if you open a position for one standard lot, and you have an account value of $10,000 then your leverage is 100,000:10,000 or 10:1. This is an important ratio because it indicates how much market swing will make your account value go up or go down a little or a lot. The value of your leverage is a measure of the amount of risk you are taking referenced to your account value.

Here's an example: if you open a trade for one standard lot then the cost to you for each pip movement is typically $10, it might be a bit different if you trade Euros against Yen but it will be roughly that kind of figure. So if you open a position for one lot and it goes against you by 8 pips - if you then close at that value you pay the loss plus the spread (which is around 2 pips for EurYen) so 10 pips or $100. If you opened a trade for two standard lots against and account value of 10,000 your leverage is now 20:1 and the same losing trade costs you $200.

Opinions vary concerning what is a reasonable leverage to use. Around 10:1 is a reasonable working value allowing you to make or lose money at a rate you are comfortable with. Less leverage means your earnings (and losses) are smaller, and more leverage makes earnings and losses correspondingly bigger; but particularly if you want to risk only 1% of your account value before you close a losing position - and if you need to absorb a price movement of 20 pips when that happens (the 20 pips is simply your choice of loss) then your position leverage needs to be 5:1 or less.

Hope that helps, there's loads more on the Baby Pips site.

i try to read the notes and knowledges in babypip and 4 me its quite useful. but is it true that we have to try in demo account for at least 2 months? Ive heard about forex signal n alert but dunno where to learn how to use them and everything have price. It's just im scare to buy those things thinking bout do we really have to buy or not. help me XD.

What is there to understand...?

You can borrow money so you have leverage...
In the US it is 1:50 meaning 1 dollar gives you the possibility to buy for 50 bucks...

1 micro lot is 1000
1 mini lot is 10 000
1 lot is 100 000

and with oanda you can trade single dollars... not in mt4 though...

just make sure you have a SL line, no matter what...

leverage = size of position / size of account

broker advertises 50:1 ( or 100:1 or lol 400:1) refers to the maximum

account 10,000 usd
position 1 lot ( 100,000 eurusd )
uses 10:1 leverage

if broker allows 50:1, you can open 4 more lots

sorta kinda about how i understand it

also
trading on margin just means you open a position bigger than your account, by 'borrowing' from broker. and margin used & remaining is some calculation comparing how much you opened and how much more is left that you can open.

You need to fully understand margin requirements and available/usable margin (and how/why it moves) and magin calls and how they interrelate to one another.

This isn't like stocks when a true "margin call" means a call (now an email) from your broker requiring addition funds be deposited in the next 24 hours or they liquidate your positon. You use up your available margin and you get liquidated automatically in forex.

Pretty easy to understand, just spend a little time on it so you can use margin to your advantage, or it will make for a rough road ahead.

i put Lots of Margin on ma tatters n bread to Leverage the hoohah out of dem tasty fried tatters n bread! don't get no nuff of dem margin slathered tatters.

sometimes i go puttin those margin on some of ma gator skin n make it all shiny like brand new mouf of teef, n den i go stick dat gator right in ma teef n golly there ain't nuthin but a gator n tatter with a smackin of margin n bread!