Originally Posted by
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Thank you all for your informative posts. So much my demo-ing has involved jumping from 1 system posted in the forum into the next. But in this process I've happened to dismiss the actual mechanics of the trading.lt;? Xml:namespace prefix = o /gt;lt;ogt;lt;/ogt;
Of course I can wait more before spending actual money but I am not enjoying demo-ing anymore. I understand in all likelihood I'll wipe out a real account but I wish to feel the loss as I think it'll allow me to accelerate the learning process.lt;ogt;lt;/ogt;
Dial,lt;ogt; lt;/ogt;
Thanks for asking me those questions. I didn't actually investigate most of these things before you asked them. But let me understand if I understand them right now:lt;ogt;lt;/ogt;
Definitions:lt;ogt; lt;/ogt;
(1) Account sizelt;ogt;lt;/ogt;
Cash in the account together with the broker.lt;ogt; lt;/ogt;
Yes, or for large accounts, most is kept in an insured bank account, with just enough in the brokerage account to cover margin and a little more to allow for trade movement.
(2) Stop sizelt;ogt;lt;/ogt;
quantity of pips before an open commerce is closed -- to avoid any further losses. Correct.
Lt;ogt;lt;/ogt;(3) Percent risklt;ogt;
lt;/ogt;Amount of this account size being risked per trade.lt;ogt;lt;/ogt;
Correct.
(4) Lot sizelt;ogt;
lt;/ogt;Size of trade produced by the broker on the client's behalf, can be Standard (100k), Micro (10k), Mini (1k). Lt;ogt;lt;/ogt;
True, but it's your decision, not the broker's. You decide this when you start the account.
Lt;ogt;lt;/ogt;(5) Broker leveragelt;ogt;lt;/ogt;
lt;ogt;lt;/ogt;The highest leverage given by the broker on the account.lt;ogt;lt;/ogt;
Correct. The maximum leverage provided by a broker should be selected when you start an account. Not because you'll ever use it, but because is reduces the margin requirements. Possessing the smallest possible margin requirements is helpful in specific types of hedge egies.
(6) True leveragelt;ogt;
lt;/ogt;The leverage used per trade.lt;ogt;lt;/ogt;
Correct. Defined as Account Size / Position Size. The smaller the better. Overleveraging is a fast path to the poor house. Keep it below 5:1 until you gain experience, and even then keep it under 10:1. (I am sure to get some argument on this, but better safe than losing all of your money trying to become rich quick.
Relationships:lt;ogt;lt;/ogt;
lt;ogt;lt;/ogt;Together with the help from witchazel:lt;ogt;lt;/ogt;
lt;ogt;lt;/ogt;Percent Risk = (cease size*pip value*lots*100)/account sizelt;ogt;lt;/ogt;
No formula is needed. You simply decide on a value; 1%, 2%, 3% etc.,. Using the formula above gets the process backward. It is supposing the number of lots is currently known. State your percent risk and from that decide your position size in lots. Do not decide how many lots and then work out the percent risk.
True Leverage = (place size/account dimensions ) -- in the stickylt;ogt;lt;/ogt;
Well, if it is in the tacky, it needs to be correct!
So with the principles outlined in this thread:lt;ogt;lt;/ogt;
- don't risk more than 2 percent /commerce correctlt;ogt;lt;/ogt;
- use 1:1 true leverage re-read the stickies. Leverage is decided from your dollar risk amount, stop size, and account type. You can't say it beforehand if you are already saying the percent risk.
- start with a micro accountlt;ogt; CORRECT!! Absotutely, posilively! Given the specific same trades, you will actually make more money with a micro account than with a mini account. Lt;/ogt;
I get the following figures:lt;ogt;lt;/ogt;
Account size: $1000 a specified
lt;? Xml:namespace prefix = st1 /gt;lt;st1lace w/ st=ongt;Lotlt;/st1lacegt; dimension: micro a specified
Percent Risk: 2 percent a givenlt;ogt;lt;/ogt;
True Leverage: 1:1 not a given. Have to be calculated.lt;ogt;lt;/ogt;
For a given commerce with 1 mini lot: I think you meant micro as you're using a pip value of 10c below.
Value per pip (xxx/usd): 10c/piplt;ogt; lt;/ogt;lt;ogt;
lt;/ogt;True Leverage: position size/account dimension = 1000/1000 = 1:1lt;ogt;lt;/ogt;
Stop reduction: (percent risk*account dimension )/(lots*pip value*100) = (2*1000)/(1*0.10*100) = 200 pipslt;ogt;
lt;/ogt;
Stop reduction isn't based on a calculation. You decide it in the technicals and price action on your chart. True Leverage in your example would just be 1:1 in the event that you have chosen to restrict yourself to 1 micro lot for safety while you are getting a feel for trading reside money, which I presume is your purpose here. Quite great.
Is this right?lt;ogt;
lt;/ogt;
Divya, I really appreciate you are taking the opportunity to answer these concerns. It is a refreshing change from several people who are interested in being spoon fed without any attempt on their part. You're gonna do Okay!!!
Thanks Divya!!
Thanks,lt;ogt;lt;/ogt;
Divya