Lots, % Risk and Margin Call in XAU/USD
Dec 22, 2023 at 04:49
280 Visa
1 Replies
Dec 22, 2023 at 04:49
Hello everyone!!!
This is the first time I am interested in trading in my spare time and I would like to elaborate on some technical aspects that are not clear to me in the case of XAU/USD but general as far as trading is concerned (tell me if this is the right section of the forum!).
I ask you to answer the questions marked with this emoji: 🙄
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Suppose I start with:
- an initial capital = €300
- choose a 1% risk (i.e. 3€ out of 300€) per each operation
- a leverage 1:500
- current gold price = 2039.34€/oz (for example)
1) If I decide to open/enter every trade I make with 0.01 lots (i.e. 1 oz .. because with Gold 1 lot = 100 oz) I am 'entering' with [0.01 lots (1oz) * 2039.34€/oz] / 500 = 4€ ... CORRECT?🙄
Clearly the price change generates profit/loss not on 4€ but on the amount invested without leverage, so 2039.34€ ... I know it well.
2) Warning! This 4€ operation is > of the 3€ risk I chose at the beginning ... and since I cannot select smaller lots than that, I am forced to increase the capital OR use a higher risk (e.g. 3%) OR increase the leverage .. CORRECT?🙄 (..it's basic math)
But should I increase the leverage to 1:1000? Isn't that a bit too much? Maybe better to deposit 200€ more getting to 500€.
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Now let's talk about Margin Call, another aspect that I don't quite understand:
Suppose I start with:
- a starting capital = €500
- a broker with Margin Call = 80% and Stop Out = 50%.
3) Do these two values refer to the initial capital? ..that is, Margin Call of 80% of 500€, or 400€?🙄
Let me clarify this with an example:
Suppose I currently have opened these positions in my account:
- 1st trade: is in negative -80€ .. margin used to open it: 20€
- 2nd trade: is in negative -120€ .. margin used to open it: 20€
- 3rd trade: is in negative -150€ ... margin used to open it: 20€
- 4th trade: is in positive +15€ .. margin used to open it: 20€
Equity = 500€ - 80€ - 120€ - 150€ + 15€ = 165€
Used Margin = 20€ + 20€ + 20€ + 20€ = 80€
Margin Level (%) = (Equity / Used Margin) * 100 = 165% ... CORRECT UNTIL HERE?🙄
If this Margin Level (%) falls below the broker's Margin Call (in this example 80%), the broker will alert me ... CORRECT?🙄
How will it alert me? With an email? A notification on MT4?🙄
I really hope I have been clear I hope you can help in understanding these basic concepts.
Thank you in advance.
This is the first time I am interested in trading in my spare time and I would like to elaborate on some technical aspects that are not clear to me in the case of XAU/USD but general as far as trading is concerned (tell me if this is the right section of the forum!).
I ask you to answer the questions marked with this emoji: 🙄
---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Suppose I start with:
- an initial capital = €300
- choose a 1% risk (i.e. 3€ out of 300€) per each operation
- a leverage 1:500
- current gold price = 2039.34€/oz (for example)
1) If I decide to open/enter every trade I make with 0.01 lots (i.e. 1 oz .. because with Gold 1 lot = 100 oz) I am 'entering' with [0.01 lots (1oz) * 2039.34€/oz] / 500 = 4€ ... CORRECT?🙄
Clearly the price change generates profit/loss not on 4€ but on the amount invested without leverage, so 2039.34€ ... I know it well.
2) Warning! This 4€ operation is > of the 3€ risk I chose at the beginning ... and since I cannot select smaller lots than that, I am forced to increase the capital OR use a higher risk (e.g. 3%) OR increase the leverage .. CORRECT?🙄 (..it's basic math)
But should I increase the leverage to 1:1000? Isn't that a bit too much? Maybe better to deposit 200€ more getting to 500€.
---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Now let's talk about Margin Call, another aspect that I don't quite understand:
Suppose I start with:
- a starting capital = €500
- a broker with Margin Call = 80% and Stop Out = 50%.
3) Do these two values refer to the initial capital? ..that is, Margin Call of 80% of 500€, or 400€?🙄
Let me clarify this with an example:
Suppose I currently have opened these positions in my account:
- 1st trade: is in negative -80€ .. margin used to open it: 20€
- 2nd trade: is in negative -120€ .. margin used to open it: 20€
- 3rd trade: is in negative -150€ ... margin used to open it: 20€
- 4th trade: is in positive +15€ .. margin used to open it: 20€
Equity = 500€ - 80€ - 120€ - 150€ + 15€ = 165€
Used Margin = 20€ + 20€ + 20€ + 20€ = 80€
Margin Level (%) = (Equity / Used Margin) * 100 = 165% ... CORRECT UNTIL HERE?🙄
If this Margin Level (%) falls below the broker's Margin Call (in this example 80%), the broker will alert me ... CORRECT?🙄
How will it alert me? With an email? A notification on MT4?🙄
I really hope I have been clear I hope you can help in understanding these basic concepts.
Thank you in advance.
Feb 17 at 13:58
Hello
Regarding the first and second points, your idea is correct. For investors, leverage is just a tool for you to use your positions flexibly. High leverage can bring you more flexible position allocation. But please note that the premise of all this is that you cannot be a gambler. If you use high leverage and large transactions to gamble, then using high leverage will be very scary.
However, generally speaking, a leverage of 1:500 is enough to cope with most trading situations. According to the first and second points you raised, I think you should increase the principal instead of adjusting the leverage.
Regarding the third point, you misunderstood. It is not 80% of the initial capital, but when the margin level is 80%, forced liquidation will occur. This is only related to the current net value of your account and the used margin.
In addition, if the warning level is reached, different brokers will remind you in different ways, but generally large brokers will send reminders to customers via email. The better the broker's service, the more timely this email will be sent. As long as the market is not extreme, you will still have time to replenish your margin after receiving the email. MT4 is just a software and generally will not actively send you messages.
I read your message through Google Translate, and my reply was also made using Google Translate. Please forgive me if there is any unclear part of the reply.😄
Regarding the first and second points, your idea is correct. For investors, leverage is just a tool for you to use your positions flexibly. High leverage can bring you more flexible position allocation. But please note that the premise of all this is that you cannot be a gambler. If you use high leverage and large transactions to gamble, then using high leverage will be very scary.
However, generally speaking, a leverage of 1:500 is enough to cope with most trading situations. According to the first and second points you raised, I think you should increase the principal instead of adjusting the leverage.
Regarding the third point, you misunderstood. It is not 80% of the initial capital, but when the margin level is 80%, forced liquidation will occur. This is only related to the current net value of your account and the used margin.
In addition, if the warning level is reached, different brokers will remind you in different ways, but generally large brokers will send reminders to customers via email. The better the broker's service, the more timely this email will be sent. As long as the market is not extreme, you will still have time to replenish your margin after receiving the email. MT4 is just a software and generally will not actively send you messages.
I read your message through Google Translate, and my reply was also made using Google Translate. Please forgive me if there is any unclear part of the reply.😄
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