Thread: newbie question

Hello everybody, I am looking to begin an account with 1000 dollars.
I understand that its not alot, and should be trading micro mini lots.
I read that Oanda you can trade 1 pennies for each and every pip and interbankfx its 10 cents to get a pip.
Will be fine with interbankfx. Lets say I risk 2 percent in a trade that would be 20 and that will be around 200 pips. Or should I proceed with Oanda
Thank you for the advice.

Yep.

Originally Posted by ;

The risk and leverage for every position ought to be calculated independantly, adjusting leverage by means of adjusting percent risked till it falls according to one's experience level. Once you've the resultant percent risk for every place, just add them all together. You can keep adding positions (assuming they are not correlated) until you get to the 10% maximum.

Thanks for the reply. That last line caught my eye, however. Opening the same position on EUR/USD and USD/CHF would most often have the impact of having two open positions on each pair. But for pairs that typically have a lesser degree of coorelation, how can you take that into account? I've never read any instructions along those lines. Truth be told, in terms of MM, this is the first time it ever entered my thoughts (which is kind of scary).

Jonathan

Originally Posted by ;

Just checking to see if I have my mind wrapped around that correctly.

If one is a beginner trading miniature lots with a $10,000 account balance, one would exchange 1 lot at one time (10,000/10,000).

Additionally, one would risk no longer than 2%-3% per trade and so with a 1 mini-lot trade, one's stop-loss will be no longer than 200-300 pips away from the entrance.

Correct so far?

A few questions:

1) If one's system has closer ceases, say 50 pips off, what would be the injury in trading 4 mini-lots at one time? That is a true leverage of 4:1, however, an equal risk of 2% of their bankroll. What is the difference?

The leverage guidelines I mentioned above are based on the grounds that beginners will have more losses that winners as they learn to trade. Thus the reason for the lower leverage would be to diminish the rate at which their equity is depleted, allowing them to remain in the game more. As a trader progresses from beginner to advanced, their win/loss ratio will probably swing positive and they will be able to take on more leverage.

Leverage is just one piece of this pie. As you have mentioned, percent risk, stop size and consequent position size are also in the pie. The right sequence in preparing for a trade is:

1. Determine Stop size
2. Employ% risked to determine place size
3. Calculate resultant leverage from place size / account dimensions.
4. Reduce risk until leverage falls within guidelines (beginner to advanced)

Stop size, percent risk, position size and leverage are mathematically forgettable. Change one and you alter others.

As you have already figured out, having a more compact scale dimension permits you to wear a greater leverage and the 4:1 degree is perfectly fine so long as it fits your experience degree.

One thing to be careful about is avoiding the temptation to use tiny stop sizes just so you are able to use increased leverage. If the stop size is smaller than what is prudent for your trading method, you will get stopped out too frequently. Combining that with the increased leverage the more compact stop gave is damaging to your equity.

Appropriate stop sizes and leverage, coupled with compounding over time is your key to riches. Not large leverage alone.

Originally Posted by ;

2) I have read guidelines that indie that you don't ever have over 10 percent (or a different amount in that ballpark) of your bankroll at risk at one time across all open positions. Just how can those rules relate to the idea of position size, accurate leverage and risk?

The risk and leverage for each position should be calculated independantly, adjusting leverage by way of adjusting percent risked until it falls according to one's experience degree. As soon as you have the consequent percent risk for each position, just add them all together. You can keep adding rankings (assuming they're not correlated) until you get to the 10% max.

Originally Posted by ;

True Leverage: This is calculated as Position Size Split by Account size. As a general rule of thumb this leverage should match the traders expertise degree as follows:

Beginner 1:1 or less.
Novice 1:1 around 3:1
Intermediate 3:1 up to 5:1
Advanced 5:1 up to 10:1

So you want high broker leverage for margin and reduced true leverage for trading.

Dial

Just checking to see if I've my mind wrapped around this properly.

If one is a beginner trading miniature lots using a $10,000 account balance, one could trade 1 lot at a time (10,000/10,000).

Additionally, one would risk no longer than 2%-3% per commerce and therefore with a 1 mini-lot trade, one's stop-loss would be no longer than 200-300 pips away in the entrance.

Correct so far?

A few more questions:

1) If a single system has nearer ceases, state 50 pips off, what would be the injury in trading 4 mini-lots at a time? That's a true leverage of 4:1, however, an equivalent risk of 2% of their bankroll. What's the difference?

Two ) I've read guidelines that indie that you never have more than 10% (or a different number in that ballpark) of your bankroll at risk at a time across all open positions. Just how do those rules relate to the idea of position size, true leverage and risk?


Thanks,

Jonathan

Originally Posted by ;

ummm....sorry but can someone go over the 2 varieties of leverages again. Wats authentic leverage? Can u give an example of this, just wen I believe I got most things learned, I read up on something new! Must take it slowly....

I will attempt and undertake this and anyone will correct me if I'm wrong. .
Just so you know, I learned too here in forexforum.co.za (FF), and I'm just trying to help the best way I could.

So anyway, broker leverage, how I know it, decides the maximum position/contracts you'll have (though in fact, you can never truly use such leverage because of disperse, but for now, let's just concentrate on you knowing the 2 kinds of leverage).

As for authentic leverage, it's the position you currently possess, in respect to your current equity. The computation Diallist gave above should help you understand it more clearly.

These things may seem somewhat confusing at first, but don't worry, you'll receive it in time (like I got it. . ) . . Continue reading. .

Therefore for instance, for a 200:1 broker leverage:

Capital: $1000
Broker Leverage: 200:1
Lot size: 10,000 (for a mini-account)

Leverage when you take on a single contract:
10,000(lot)/1000(capital) = 10:1 leverage

Max. Leverage:
200,000/1000 = 200:1 leverage

So to max out your broker leverage, you will have to exchange 20 contracts. Even though you will not be able to really take on that position because of disperse, for discussion purposes, let's assume that you were able to undertake that position.

In the scenario above, the moment you took the position of 20 contracts, you are already working out the utmost leverage your broker allows you (200:1), along with your true leverage is also 200:1 (that isn't good when you're beginning).

Authentic leverage is the leverage you can in fact control.
Broker leverage would be the leverage ascertained by? ... correct, your broker.

Now to address your own queries:
1) Why do I want to have high broker leverage?
- in order to address this question, I think it's important that you know margin. And right now, I don't have that good a grasp on such topic to prevent adding confusion. So for today, I think it's important to get a good grip on leverage first.

2) Why do I want to have low true leverage?
- So you will not be placing on too large a position specially when you are just starting. But if you've figured it out, using a large true leverage, will raise the volume that can profit or lose on any single transaction.
If you would like to maximize the learning (if you are already trading live), then what you need to focus is how to protect your account, rather than how to profit more.

I hope that this helps, but when it causes you more confusion than understanding, then please disregard this article and wait for other people's view.

East
P.S.
Alright, I peeked again at Fiji's MM...

Originally Posted by ;

haha, stick with the system no matter what. Do no over leverage
no scalping. Trading on the time frames are some of the things I found that helps. And prices sometimes move against you before going in your direction. Lol
regrettably when I realized all that, my account is down to the last 10%, lol.

Ok correct answer

Good fortune Jotty

Originally Posted by ;

Hi Jotty!
What are you heard blowing this up original account?
I ask you this because it's important, it's your first encounter.

Haha, stick with the system regardless of what. Don't over leverage
no scalping. Trading on the larger time frames are some of the items I discovered that helps. And prices sometimes move from you prior to going in your direction. Lol
regrettably when I realized all this, my account is right down to the last 10%, lol.

HI Dial,

ummm, bit not sure. Do you believe 1:1 will take care of both brokertrue leverage...! Bcoz in among earlier post you pointed to choose the highest leverage provided by broker to reduce the margin (something like 400:1), other side as a newbie un state 1:1 is fantastic to trade....not though apparent....

Fxbee

Originally Posted by ;

Hi jotty,

You asked Do I want low or high leverage. The answer to that question is yes.

There are two types of leverage: Broker Leverage and True Leverage.

Broker Leverage: Anywhere from 50:1 around 400:1. The only value in broker leverage is to reduce your margin requirements. Therefore, for that purpose, and that goal only you should take the highest leverage your broker offers.

True Leverage: This is calculated as Position Size divided by Account size. As a general rule of thumb this leverage should match the traders expertise degree as follows:

Beginner 1:1 or less.
Novice 1:1 around 3:1
Intermediate 3:1 up to 5:1
Advanced 5:1 up to 10:1

so that you want high broker leverage for margin and low accurate leverage for trading.

Dial

Ummm....sorry but can someone go over the 2 kinds of leverages again. Wats true leverage? Can u give an example of this, just wen I believe I got most things learned, I read up on something new! Must take it slowly...