risk level?

vicks09

Recruit
Hi i have an account ($500) and i have been trading with a freind who gives me signals to help me out etc (as i am just building my own knowledge from this forum and working out my stratagies etc)

after reading many posts about risk and money managment i think i am risking to much of my account per trade...

like i said it is a $500 account (now at $450) i have been setting my risk as follows:

risk level : x100

amount :$50

stop loss: $50

can anybody tell me if those figures are correct for an account my size (obviously i understand the stop loss can go up or down depending on the type of trade/news release), or if i should be doing something different?

thanks
 

Ricex

Sergeant
Hi,
yes I think your risking far to much, on every trade your risking 10% of your capital, it needs to be more like 1-2%.

With very little capital you need to really protect it as much as possible if you want to stay in the market beyond a couple of weeks. Now you have $450 so 1% is $4.50, at that level you need to be trading microlots which makes a pip worth 10 cents, it will also allow you to be more flexible in your trading decisions.
 

vicks09

Recruit
thanks ricex

im not sure what type of account i have, can you change it to a microlot once it has opened, as im unsure of how much each pip is worth right now?

if i wanted to risk only 1-2% of my account on each trade then how should i set my figures?

thanks once again...
 

Pharaoh

Colonel

Ricex

Sergeant
Ok it's very important to know what type of account you have, ring your broker and ask. The different account types change the value of a pip or point, which is the smallest value change in a currency pair.

Pharaohs article is very good, here I'll give you a quick overview.

In a standard account buying or selling 1 lot, every pip is worth $10. You can break that 1 lot down into 10 smaller minilots where 1 minilot will give a pip value of $1.

A micro account, which you would have to open up independently, breaks that 1 minilot down even further into 10 micro lots where 1 pip is worth 10cents.

So taking your situation as an example. You have $450 and you open a micro account. If you want to risk no more than say 2% of your capital in any one trade you have the following options: (you will have to include the spread from your broker)

2% of $450 = $9
Trade 10 microlots at 10x 0.10 cents = $1 a pip, you can risk 9pips.
Trade 7 microlots at 7x 0.10 cents = 0.70cents a pip, you can risk 12 pips.
Trade 5 microlots at 5x 0.10 cents = 0.50cents a pip, you can risk 18 pips.
Trade 1 microlot at 1x 0.10 cents = 0.10cents a pip, you can risk 90 pips.

Being able to change your lot size will give you the possibility to vary your Stop loss distance without changing your total capital risk of 2%.

I hope this helps, calculating risk and money management are the most important parts of trading.
 

RahmanSL

Major
Huhh....10 microlots at 10 x 0.10 cents = $1 a pip….1 microlot at 1 x 0.10 cents = 0.10 cents a pip???

…And here I am thinking all pips are valued at least USD10 a pip! That’s the trouble with Demo account that gives us Newbies USD100k to “play” with.

Looks like I still have a long2 way to go before I can even consider a live account…let along going live, as I’ll most probably burn my USD1k account within the first day of live trading.
 

Ricex

Sergeant
That’s the trouble with Demo account that gives us Newbies USD100k to “play” with.
Yes exactly Rahman, it is fantasy money and far from the reality of many retail forex traders, but the first time a novice trader places a lucky 5 lot trade thinking this is normal and it goes 100pips..... it's HOLY COW! I just paid the mortgage and all my bills in 1 hour of work!!! ..... this babys for me! (I've got the t-shirt too, in fact I think I might try selling them)

We know to well unfortunately how many of these turn out.
 

Music Man

Corporal
Never has there been an enterprise where beginner's luck was more corrosive to a person's long-term success than in Forex. The fact that demo accounts may trade more profitably than real money accounts only adds to the "holy cow" effect.

Heck, the first few weeks I tried demo Forex trading, I thought I was a freakin' genius at trading. I had the Midas touch, it seemed.

That didn't last very long when actual $$$ were at stake. :)

MM
 

cowmadagan

Sergeant
Well, that's why people have been saying, 'put your money where your mouth is' for hundreds if not thousands of years.
 

vicks09

Recruit
thanks for your replies

i have contacted my broker who said i have a micro-lot account...

and that if i set my levels as follows:

risk: x100

amount: 10$

stop loss: -10$

then my pip value should be 0.10 cents

is that correct, and is this a better level or money managment for an account my size ($450)

Also ricex, in the examples you gave:

2% of $450 = $9
Trade 10 microlots at 10x 0.10 cents = $1 a pip, you can risk 9pips.
Trade 7 microlots at 7x 0.10 cents = 0.70cents a pip, you can risk 12 pips.
Trade 5 microlots at 5x 0.10 cents = 0.50cents a pip, you can risk 18 pips.
Trade 1 microlot at 1x 0.10 cents = 0.10cents a pip, you can risk 90 pips.

im unsure of which one i should be going for with a an account my size? dont i have 1 microlot account anyway (eg. i just have one trading account and my broker said it is a microlot) based on that fact are you saying that when i enter a trade i can set my stop loss at -90 pips (as a maximum amount)

i found that bit a little confusing.....


EDIT: I just entered a trade as follows (USD/CAD) SELL: risk = x100, amount= $10, stop loss =-$10
my spread is =0.47

but the broker is showing a price of 106.43 (usd/cad)
and my demo account is showing 106.33 (usd/cad)

the price always seems to be different by 10 pips?!

is this becasue of the amount i entered 10$ ??

or is somethign funny going on?

they never seem to be the same price on my demo account and my real brokers account....is this normal?

thanks
 
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