1:10 Leverage Limit? Keep Up the Fight


by Boris Schlossberg and Kathy LienNever risk more than 2% per trade. This is the most common - and yet also the most violated - rule in trading and goes a long way toward explaining why most.

To explain this situation, scientists said that, in general, we avoid grief caused by losing transaction and we are aiming to reach pride caused by wining one. What ratio should you use? Originally Posted by shadowninja.

Does anyone trade with a 2:1 Risk/Reward ratio?

by Boris Schlossberg and Kathy LienNever risk more than 2% per trade. This is the most common - and yet also the most violated - rule in trading and goes a long way toward explaining why most.

The Standard Lot is therefore assigned a value of 1. Trade sizes can be a lot more or a lot less than a standard lot. This is why there are subdivisions of the Standard Lot as follows:.

This is equivalent to a position size of 10, units of the base currency of the account, with a minimum lot size of 0. Mini lot measurements therefore start from 0. This is equivalent to a position size of 1, units of the base currency of the account, with a lot size of 0. Micro lot measurements start from 0. However, these are not standardized and tend to differ from one broker to another. Lots in forex are used to assign a measurement to the trade volume of a forex trade position.

Considering that the value of a trade position as well as the movement of the currency pair in pips is what determines the level of profit or loss after a forex trade, what is the monetary value of the forex lot? We will assume that the base currency is US Dollars. All other measurements of the value of a pip can be calculated using these formulae.

So a trade which uses 0. The value of the forex lot applied to a trade will have a bearing on the risk profile for the account.

The risk to an account is a function of the account size, stop loss , currency traded, risk percentage applied and the Lot size. We'll also discuss how it differs from the equity market in order to get a greater understanding of how the forex market works. The Good and the Bad We already have mentioned that factors such as the size, volatility and global structure of the foreign exchange market have all contributed to its rapid success.

Given the highly liquid nature of this market, investors are able to place extremely large trades without affecting any given exchange rate. These large positions are made available to forex traders because of the low margin requirements used by the majority of the industry's brokers.

This amount of leverage acts as a double-edged sword because investors can realize large gains when rates make a small favorable change, but they also run the risk of a massive loss when the rates move against them. Despite the foreign exchange risks, the amount of leverage available in the forex market is what makes it attractive for many speculators. The currency market is also the only market that is truly open 24 hours a day with decent liquidity throughout the day. For traders who may have a day job or just a busy schedule, it is an optimal market to trade in.

As you can see from the chart below, the major trading hubs are spread throughout many different time zones, eliminating the need to wait for an opening or closing bell. While the forex market may offer more excitement to the investor, the risks are also higher in comparison to trading equities.

The ultra-high leverage of the forex market means that huge gains can quickly turn to damaging losses and can wipe out the majority of your account in a matter of minutes.

This is important for all new traders to understand, because in the forex market - due to the large amount of money involved and the number of players - traders will react quickly to information released into the market, leading to sharp moves in the price of the currency pair.

Though currencies don't tend to move as sharply as equities on a percentage basis where a company's stock can lose a large portion of its value in a matter of minutes after a bad announcement , it is the leverage in the spot market that creates the volatility. For example, if you are using Therefore, it is important to take into account the risks involved in the forex market before diving in. Differences Between Forex and Equities A major difference between the forex and equities markets is the number of traded instruments: The majority of forex traders focus their efforts on seven different currency pairs: