Hi guys, I'm a pretty frustrated beginner when it comes to calculating the risk in a leveraged account. Would anyone be so kind as to explain to me how leverage affects the value of a pip? I recently opened a micro account with $500 and leverage 3:1. Any help will be HUGEly grateful. Thank you.
First you have to understand that leverage is a tool that you are offered, but it is not mandatory to use it. It is tempting to be able to operate with 400 times your capital and earn thousands quickly. But it is also a double edged weapon: as it can make you win, it can bankrupt you (and in many cases it does).
Hello, thank you for responding and for committing to help me understand, because when it comes to these calculations I feel very lost. I choose to use leverage for the advantages it offers and I am aware of the risks. To calculate the size of the position without the leverage harming me, I use the explanation I found here: http://www.investopedia.com So, for my 500 USD account with leverage 3:1 and 2% risk: 500 * 3 = 1,500 / 1,000 (units
We're all on the right track. What marks if that path is "the right one" is how it fits you and your system. For example, I don't care so much about the SL and the TP. For me the important thing is the point of entry, the timing and how much I'm willing to risk by operation. I'm intraday, I don't have time to sit down and calculate for each entry. But if you operate in larger time frames, as a daily, you can (and you must)
I appreciate all the answers. Every time I read it, I understand it a little better. I realize that leverage is not the problem, but not knowing how to use it head-on. I was definitely wrong to think that more leverage was equal to more profits. Now I understand that it is more poorly managed risk if you don�t know what you�re doing.
It's not how much leverage, but how you do it. Leverage is not bad if you know when to slow down. Many burn accounts not for leverage, but for greed.
Another question arises: is it correct that, if I use a lower lotage, I automatically reduce the leverage used, even if I have 3:1 available? I find it hard to separate what I have "offered" as leverage and what I am actually using.
Yes, you're right. The leverage available is only the maximum you're allowed to use. The real depends on the size of your operations. You can be 100:1 and operate as if you were 2:1 if you handle the lot size well.
Okay, so if I open a small position, is it as if I didn't use almost anything of leverage, even if it's activated? That reassures me, I thought that just by having it I was already at risk.
It's like having a high limit credit card. There's only risk if you spend it all. The key is to control how much of that limit you use per operation.
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