ok guys I know this has probably been asked 100x but after alot of reading I'm still confused so someone help me.
lets start. (btw keep it simple i'm to bright lol)
my account is 500:1 leverage and my initial balance is 100 GBP. I want to trade upto 3% of my account per position no more and I want to use ATR to determine trade sizes. How would I do this???? Does this even make any sense??
For example a low ATR would mean higher trade size (or lower not sure tbh) but whats the formula for this sort of thing??
sorry if I don't make sense I'm not even sure what I'm talking about anymore.
btw this is demo account so don't worry not real money
Hi
You're stuck in no mans land because you want to use a really high gearing with a really low risk and that doesn't work.
You use a high leverage because you will have a risk appetite that acknowledges what you are doing is very high risk and you accept you will possibly blow your account up. When you use low risk (3% per trade is not so low but responsible enough) you are saying to yourself carefully does it, don't go crazy.
if you use 500:1 leverage on an account with £100 cash you will be doing deals that have a notional trade size of £50,000 (£100 cash x 500 leverage = £50,000)
If you want to trade up to 3% of your account per position on an account with £100 cash you will only be risking £3 per trade and that can't work. for example a £50,000 notional deal size in GBP/USD is worth $5 per point. To risk £3 on something that is $5 per point will leave you with less than a 1 pip stop from your entry and there aren't many products that are traded less than 1 pip wide.
You have to decide whether you really want to roll the dice and go all out to spin the £100 in to something worthwhile and risk losing most of the £100 or you decide that you want to build your pot steadily month on month. If you want to take the risks then use the maximum leverage, if you want to stay in the game then use the low leverage option.
if I explain it in terms of buying a house you may understand it better.
you buy a house for £500,000 putting down a 20% deposit. This means the bank lends you £400,000 and you put up £100,000. this is 5:1 leverage.
or, you buy a house for £500,000 and put £1,000 down as a deposit. This means the bank lends you £499,000 and you only put up £1,000. This is 500:1 leverage.
if your house falls by more than £1000 using the 2nd option then the bank has the right to foreclose on you. this is what we would term as being given a margin call.
using low leverage your house could fall much more in value before you have your position closed (house repossessed)
most importantly, just because they provide you leverage up to 500:1 it doesn't mean you have to use it. its pretty bad that you're even offered that much rope.
