Beginner Question

[mojo321]

My first question is regarding margin. What I set as my leverage with my broker will determine the margin requirement for my trades. Right? So if I say 1:100, my margin requirement will be very small for a 1 lot trade. But If I say 1:3, my margin requirement will be much higher. Having the higher margin tied up in each trade simply allows me to set our stops out further, right? It doesn't really change the risk, it just eliminates the risk of margin call. Only the size of the transation , aka 1lot, 0.1lot, 0.01lot, will effect the price per pip. Is all of that correct?

I need to get something straight. I've been demo account trading for a while now, and I bought Bird Watching, which I'm working my way through now. I am planning on opening an account with $6000. That's my risk capitol. (about 8% of my current portfolio)

For kicks, I have been demo trading 1 Lot in one direction. I have gotten about 600 over the last 3 weeks.

Now, at 1 lot, that comes out to $6000. At 0.1 lot, that comes out to $600 per month. (I am more likely to trade the 0.1 lot size for a while when I go live)

So when someone says, "I pull 1000 pips a month" are they saying, "I make $10,000 per month."?

I was here a long while ago, but now I'm back as I have accumulated this bit of risk capitol, it is time to get serious.

Dr Forex's Bird Watching in Lion Country ebook

Featured Forex Brokers

Risk Management Calculator

	Leverage Leverage is the ability to gear your account into a position greater than your total account margin. For instance, if a trader has $1,000 of margin in his account and he opens a $100,000 position, he leverages his account by 100 times, or 100:1. If he opens a $200,000 position with $1,000 of margin in his account, his leverage is 200 times, or 200:1. Increasing your leverage magnifies both gains and losses.<p>To calculate the leverage used, divide the total value of your open positions by the total margin balance in your account. For example, if you have $10,000 of margin in your account and you open one standard lot of USD/JPY (100,000 units of the base currency) for $100,000, your leverage ratio is 10:1 ($100,000 / $10,000). If you open one standard lot of EUR/USD for $150,000 (100,000 x EURUSD 1.5000) your leverage ratio is 15:1 ($150,000 / $10,000). For more on leverage, visit the following links: http://www.goforex.net/forex-leverage.htm http://www.goforex.net/forex-leverage-2.htm

	Margin The deposit required to open or maintain a position. Margin can be either "free" or "used". Used margin is that amount which is being used to maintain an open position, whereas free margin is the amount available to open new positions. With a $1,000 margin balance in your account and a 1% margin requirement to open a position, you can buy or sell a position worth up to a notional $100,000. This allows a trader to leverage his account by up to 100 times or a leverage ratio of 100:1. If a trader's account falls below the minimum amount required to maintain an open position, he will receive a "margin call" requiring him to either add more money into his or her account or to close the open position. Most brokers will automatically close a trade when the margin balance falls below the amount required to keep it open. The amount required to maintain an open position is dependent on the broker and could be 50% of the original margin required to open the trade.

Pip Calculator

[DrForex]

1. Yes, the only thing that changes the real risk is the positions size, which determines the real leverage / gearing. Whatever you set as maximum is irrelevant in the bigger scheme of things. Simply use the default.

2. The question about "pulling in pips":

It all depends on your definition of "one lot". The correct definition of 1 lot should be that one lot is the amount you trade based on your trading account value where the size of the lot doesn't exceed the account value substantially, i.e you trade close to 1:1 real leverage.

You can't determine what someone made if he just give you the number of pips without the position sizes which as you can see from the first answer is the most important risk factor. And if the answer doesn't include the position size relative to capital, i.e in order that you can work out the true leverage of his trading it also doesn't say much.

Marketing wizards obviously don't disclose this mostly, especially the recent spate of automated trader marketing wizards which blow up the short term performance amazingly and then people fall in the trap that you are apparently very close to and that is to slip the three letter word "per" in as if there is any rationality to extrapolate correctly that an once off occurrence suddenly may or will happen "per month"!

With your 6K account you would be crazy to trade 100K lots and should you as you plan start and stick to trading 10K lots, especially if you are going to use the 4x1 strategy.

Cheers

Dirk

Dr Forex's Bird Watching in Lion Country ebook

Ebook Strategies and Education

Automated Forex System

Risk Management Calculator

	Leverage Leverage is the ability to gear your account into a position greater than your total account margin. For instance, if a trader has $1,000 of margin in his account and he opens a $100,000 position, he leverages his account by 100 times, or 100:1. If he opens a $200,000 position with $1,000 of margin in his account, his leverage is 200 times, or 200:1. Increasing your leverage magnifies both gains and losses.<p>To calculate the leverage used, divide the total value of your open positions by the total margin balance in your account. For example, if you have $10,000 of margin in your account and you open one standard lot of USD/JPY (100,000 units of the base currency) for $100,000, your leverage ratio is 10:1 ($100,000 / $10,000). If you open one standard lot of EUR/USD for $150,000 (100,000 x EURUSD 1.5000) your leverage ratio is 15:1 ($150,000 / $10,000). For more on leverage, visit the following links: http://www.goforex.net/forex-leverage.htm http://www.goforex.net/forex-leverage-2.htm

[mojo321]

Thank you Dirk. That just made your book click with me. Now I see that leverage is LOTVALUE:ACCOUNT VALUE. And has nothing to do with anything else.

I'm looking forward to this experience, and will definately be trading 10K lots until I can afford at LEAST 3:1 leverage on 100k lots.

Dr Forex's Bird Watching in Lion Country ebook

Forex Books

	Leverage Leverage is the ability to gear your account into a position greater than your total account margin. For instance, if a trader has $1,000 of margin in his account and he opens a $100,000 position, he leverages his account by 100 times, or 100:1. If he opens a $200,000 position with $1,000 of margin in his account, his leverage is 200 times, or 200:1. Increasing your leverage magnifies both gains and losses.<p>To calculate the leverage used, divide the total value of your open positions by the total margin balance in your account. For example, if you have $10,000 of margin in your account and you open one standard lot of USD/JPY (100,000 units of the base currency) for $100,000, your leverage ratio is 10:1 ($100,000 / $10,000). If you open one standard lot of EUR/USD for $150,000 (100,000 x EURUSD 1.5000) your leverage ratio is 15:1 ($150,000 / $10,000). For more on leverage, visit the following links: http://www.goforex.net/forex-leverage.htm http://www.goforex.net/forex-leverage-2.htm