calculating risk in a leveraged account

Hi guys I am a very frustrated newbie when it comes to calculating risk in a leveraged account. Would anyone be kind enough to explain how does leverage affects pip value. I recently opened a 500 dollar micro account with a leverage of 3:1. Any assistance is HIGHLY appreciated. Thanks

First you have to understand that leverage is a tool given to you but you don't necessarily need to use it. It is tempting for all being able to trade 400 times the money they have so they can make thousands quick. But it is also double edge sword as much as it can make you rich it can make you broke (in many cases broke). So basically your 500 USD micro account is able to open 1500 USD worth of units. The lower the leverage the safer it becomes for you. You cannot have 400:1 leverage on 100.000 USD account due to various facts and eventually as the account grows you end up in direct trade like banks does (no leverage, almost zero spread in many pairs.. basically physical exchange).

So coming to your question again leverage is not taking place in your risk calculation per trade. Rather be considered as your total risk you can take.

If you risk 1% of your balance per trade that means you are ready to risk 5 USD per trade. And from then on you calculate your RR; 0.01 lot in EURUSD every pip worth 0.1 USD which means you can set 50 pips SL to take that 1% risk. This also means that you actually exchange 1000 USD in return to get euros. But you have 500 USD so you actually use 2:1 leverage.

I hope you get it. If not I will keep on writing till you get it. My example is made for standart lots not micros so take that into consideration as well. Feel free to ask if you need any other example or more info.

Regards

hi Kxeroo. thank you for replying to this post and for committing to help me understand and see things clearly coz when it comes to these calculations, i am confused. i choose to use leverage coz of its advantage and i am well aware of its disadvantage and when it comes to calculating leverage position size so that leverage does not hurt me I use the explanation foend here http://www.investopedia.com/articles...rex-trades.asp ....so for my 500 dollar mic a/c with 3:1 leverage and risking 2%:
500*3=1500
1500/1000(units)=1.50 lots
1.50lots *$0.10(pip value for a mic lot)=$0.15
i am assuming that pip move in my leveraged account will be $0.15 and i intended to risk a maximum of 40pips in a trade with a position size of 1.50... that will therefore be 40*0.15=$6 and this is within the 2% capital risked even after i add the spread of the dollar pair i intend to trade. Kindly advice on whether i am on the right track or whether there is even a simpler way of doing these calculations.
Thanks.
Regards

We are all on the right track compositeman. What makes the right track is how it suits you best and your system. For instance I cannot bother with my SL and TP that much. What matters to me is the my entery points, timing and my risk per trade. I am an intraday trader I cannot just sit down and calculate for every position I am going to take. But if you are trading on daily bars you can and you should. Sometimes I close position to find a better entry or add up cos I know it will be favourable and I already put enough cash aside for the month or year. Do you get the idea? This is a secret ingredient you make and feel comfortable with and as you progress it becomes the holy grail. The only real holy grail is your system that matches your personality and produces consistent profit over the long run. I am telling all this to you so dont try to strict yourself with many bounderies. It all comes on over time.