Newbie asking about leverage & margin calculation in MetaTrader4
How can we say higher leverage (200:1) is riskier?
Same way a fast car is "riskier" than a lesser vehicle... It depends how you drive it.
but there is a stop point.
How can we say higher leverage (200:1) is riskier?
Same way a fast car is "riskier" than a lesser vehicle... It depends how you drive it.
It kind of seems to me that the only impact of higher leverage is that it makes you overtrade because of the smaller amount you need for "locked margin". But if I have strict money management rules e.g combining #lots & stop loss levels such that the max loss of all open orders is not larger than the "free margin" i.e keeping margin level always > 100%, then it would be fine, right?
Higher Dealer leverage gives you more "buying power", yes.
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Hi seniors,
In the MetaTrader Trade Terminal, I see the following figures (and my understanding of their meaning -:))
- Balance: the amount before orders are placed
- Equity: balance + gain/loss not yet realized of open orders
- Margin: this figure is set to be different from dealers to dealers. For example: IBFX always take margin = 1000$*lot (for 100:1 standard account), so 0.5 lot would make margin = 500$, whereas other traders would take into account the entry price (EURUSD buy 0.5 lot at 1.5280 would make margin = 500$*1.528) etc.
- Free margin: equity - locked margin
- Margin level: equity/ locked margin
I'm confused by the widespread use of the "margin" term and such expression as "margin call at 50%", "cannot place trades if margin at 100%" that are spoken out there on Internet. So the most useful figure I will look at is the margin level % mentioned above in the trade terminal. Now my questions are:
- At what "margin level" (i.e equity/ locked margin) will a margin call happen? At 100% (i.e no free margin left, just locked margin)?
- At what level will the dealer close out your trades to prevent them from suffering your loss? At 50% (loss eating into half of locked margin)?
- How can leverage (100:1 or 200:1) work "against" you? How can we say higher leverage (200:1) is riskier? I'm not clear about this because the leverage will decide the "locked margin" figure, and just that. Profit or loss are calculated straigth away from lot size, nothing to do with leverage. With a higher leverage like 200:1, there will be a lower "locked margin", thus a higher "margin level". A higher "margin level" is always good for you and works for you, why could it be "against" you?
Your advice and comments for the above concerns are much much appreciated.
Best regards