How to calculate risks with high leverage in Forex
Please, I want to know how to calculate your risk when you have $200 with 1:500 leverage.
With $200 on balance, no matter how high you are leveraging yourself, you should stick to trading no more than few mini lots at once.
It is highly advised to not use standard lot sizes for mini accounts (1 standard lot = 10,000 units) offered by most of Forex traders, as it is very expensive for a mini account like yours. Aim for a micro lot of 1000 units at stake; this will make your risks in Forex trading reasonable and will allow to achieve some positive performance even if your trading path starts with a strip of consecutive losses.
When you invest $200 with 1:500 leverage, you'll be able to operate with virtual funds of $100 000.
As a happy novice trader, if you open 1 standard lot of 100 000 units (theoretically, because on practice it would mean draining down an account in few minutes), you're putting $10 at risk for every pip that goes up and down... think quickly, how many pips would it require to wipe out your account? The answer is 20. Not so much. Also this 20 will already include the spread paid.
Now, if you open 1 mini-lot of 10 000 units, then you'll be risking $1 for each pip. With -20pips on the position, your account will lose only $20.
(Yet even this is too much for $200 investment, because losing 1/10 of the investment just in one trade means than potentially under unfavorable conditions, where you always lose, you'll be able to trade on total only 10 times or less...)
That is why it is important to opt for micro lots in your case. Micro lot of $1000 units will decrease the cost of 1 pip to $0,10; and losing 20 pips would mean losing $2.
10 cents may sound not so attractive in terms of making big profits quickly... My advice to traders looking for high quick profits, it is better to think about investing more money in the first place.
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