leverage and margin

Hello,
I'm interested at openning forex account.
i understand that there's things like leverage , margin and equity, i read about them at the school of baby pips but still don't understand.
I'm going to open micro account with ALPARI , initial deposit of arround 200$-250$ , an i'm going to trade micro lots (0.01 - 10 cents per pip).
i don't understand how margin , leverage and equity will effect my account.
lets say my initial deposit is 200$, my max risk per trade is 2% , that's 40 pips MAX stop loss per trade.
opening no more than 6% risk for all of my open trdes together.
so what is the problem with opening a micro account with 200$?
babypips say that i need minimum of 1000$ to open that kind of account , why??

1. Balance = your current account balance, meaning deposits - withdrawals + realized profit from closed trades - realized losses from closed trades (cost of trading like commissions, spread, swap is usually already included in profits & losses). The currency denomination of your balance is also important (for example, USD in your case).
2. Equity = Balance + assets (opened trades which are currently in profit) - liabilities (opened trades which are currently showing a loss). This is your net worth.
3. Leverage = Leverage ratio - for example, if your leverage is 10:1, you can purchase $10 worth of assets at a cost of $1 (the broker is lending you the remaining $9) ; if your leverage is 200:1, you can purchase $200 worth of assets at a cost of $1 (the broker is lending you the remaining $199)
4. Margin = Total cost to you, at your current leverage, of purchased assets (i.e. opened trades), in your account currency. Say your leverage is 200:1, and you want to buy 0.02 lots of EURUSD (= 2000 units of the base currency, EUR) at a price of 1.35. If you had no leverage, you would have to pay 2000x1.35 = $2700. With 200:1 leverage you only have to pay 2700/200 = $13.50. Your margin is the sum of the actual cost (to you) of all your opened positions.
5. Free Margin = Equity - Margin. In short, it's your remaining buying power.
6. Margin Level = 100 x Equity / Margin. This value is very important. It is the ratio of your Equity to your Margin. Usually, when your Margin Level drops to somewhere between 200% and 100% (meaning your Margin is more than half your Equity), you will get a Margin Call. This means you're close to wiping out your account, because the cost of your opened positions (losses included) is very close to your Equity (your actual net worth, including opened positions). In order to protect itself and the money it lent to you through leverage, your broker will usually close your opened trades. This guarantees that the only money you can lose is the Margin (the money you personally put in), and that your Balance does not become negative.

I strongly advise you to get familiar with these concepts BEFORE you open a real trading account. Practice using a demo account until you're very comfortable with these, because they're the very basics of money management. Most brokers offer demo accounts.

Thank you , now i understand those terms.
i can i set the leverage in the MT4 platform when trading?
and i still don't understand why babypips says not to open a micro account with 250$ , only 1000$.

You set the leverage when you open an account and you can't change it unless you open a new account.

Start with $10 and trade 0.01 lots....

On babypips, well, traders with small accounts opt for higher leverage and better margin, which is risky for newbies. That could be one reason why babypips suggested that you need $1000 for a micro..

What is the best leverage to choose?
I want to trade 0.02 lot so that each pip will be 20 cents.

Go for the maximum leverage available, just be aware that although it enables you to open larger positions (or more trades), doing so also increases your risk/exposure. Leverage is great, but it's a double-edged sword.

Also, while having a predefined idea of what types of volumes you want to trade is good, don't let that dictate your trade setups.

Instead, identify what you believe is a good trading opportunity, find the appropriate stop-loss depending on the market conditions and adjust the volume depending on the risk you are willing to accept. The formula for risk is pretty simple. It is what you stand to lose on a given trade, and if you use stop losses, you can predefine that risk:
Absolute Risk (in the quoted currency of the pair you plan to trade) = volume (in units) x abs(entry - stop loss)
Since you know beforehand what risk you are willing to take, and where you want to place your stop loss, all that is left is to figure out the appropriate volume:
Volume (in units) = Risk / abs(entry - stop loss)
Then round the volume down to the closest multiple of 1000 (= 0.01 lot) and there you go.

In order to make things clear, let's use a real example.

Say you have an account with 200 USD balance, and 190 USD free margin (you already have a trade opened), and the risk you're willing to accept is 1.5% (you already allocated some of your risk to the opened trade).
You identify a trade opportunity in EURJPY. It's in an uptrend and has just tested a support at 135.15. You decide you want to buy at 135.18 with a stop loss at 135.10.
Your absolute accepted risk, in USD, is: 190 x 1.5/100 = 2.85. Why use the free margin rather than the balance? It's a more accurate representation of your net worth at the time you open a trade.
So your absolute accepted risk is 2.85 USD. However, the trade you want to open is quoted in JPY, so you need to convert your risk into JPY as well. Say the USDJPY is currently priced at 101.20, this means your absolute accepted risk in JPY is: 2.85 x 101.20 = 288.42.
Now that you have your accepted risk in the quoted currency, your entry price, and your stop loss, you can calculate the volume:
Volume = 288.42 / (135.18 - 135.10) = 3605.25.
Rounded down to the closest multiple of 1000, that's 3000 units, or 0.03 lots.
All that's left now is to define your profit target, which should be defined by market conditions and your risk:reward ratio. Ideally, you don't want that ratio to be below 2:1. For example, in our example trade above, your profit target would be 135.34 or above. If there's a clear indication that price is unlikely to reach that level, you're better off staying out of the trade.

Hope this helped.

Hello. .02 lots is worth 20 cents per pip. The leverage determins how much you will have to invest in order to secure that order. The lower the leverage the more money will be required to open the position. 2000:1 leverage at .02 lots would be less then 2.00 a pip... Compared to 200:1 which would require 20.00 usd to open. Some would contend that lower leverage is better, but I would say that higher leverage is better. Especially if you're system doesn't have a high "pip drawdwn".

Because if you want to put stoploss 50-100 pips far then it won't fit into your 1-2% risk management.
If you trade with small account then you can't afford big stoploss, so you are forced to trade lower timeframes with tight SL and small profits.

There are some brokers that let you change it. I recommend you to be sure if you can or not change it in your broker, and if you can`t you should think it sheriously before you open the acc.

It is not easy to change leverage mid way, but check with your broker - and remember to check out their trading conditions, spread before opting for the micro account. Anything more than two or three pip spread for major pairs, walk away from the broker..

Hi, I am opening new account very soon. What is the most leverage I take, one broker offered 400 is this ok or too much, I want Mini account in beginning?

Thank you all very very much , i really appreciate your help.
I think i will open my account with ALPARI or HotForex .
if i'm trading 0.01 lot , my MAX pips SL will be 50 pips . and it's fine with me because i never trade that big stop loss.
i will trade 0.02 lot , i'm not going to risk 2% per trade . my MAX risk per trade that i ever consider to open will be 2% , but most of all it will be less.
i will take 1:500 leverage ( the biggest ) , trade 0.02 MAX lot per trade with MAX of 25 pips SL (2%) or if i see that i need a little big more SL , i would take 0.01 lot for that trade.
for the trade of 0.02 lot , after reaching the 1:1 RR i will close 0.01 lot for my profits and move SL to break even.
in the 0.01 trades i just move SL to BE after reaching 1:1 RR or if i see by price action that the price seems to be going to the other direction , i will lose it on 1:1 .
what do you think?

Having a solid money management plan and knowing your risk is always a good start. Good luck!

Is there any function on MT4 that will display the required margin for an individual position or do I just have to do the math?

Hello. Yes you would have to do the calculations yourself as MT4 doesnt have an indiactor which will do it for you. Luckly you can use the following website to give you the exact amount of money you will be required to have in order to open a position. Simple complete all the information (make sure you enter the correct leverage)

https://www.exness.com/intl/es/tools/calculator

Some brokers offer margin calculator, others do not. So you can use it to keep track of margin for your positions easily..

Hi , I asked question about leverage, can someone tell me about leverage on mini account I found 400 & 500 is this to much or normal for small accounts?

Leverage alone isn't the problem. It is the equity which you use with leverage. Many people speak badly about high leverage, when all it does is require less funds to open a position compared to lower leverage. I all boils down to the trader. If you have a trade with a lot of self-discipline as far as money management, then those turn out to be the 5% of the fore world. You can simply look at all those who use trade explorer to verify. Those with pretty decent profits are doing so with high leverage.

Here's a neat tool: http://www.forexrazor.com/en-us/tool...alculator.aspx