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yes I want to risk 50$ on 100$ my balance. my levarage is 1:500 0.25 volume/lot would allow me only 0.25 cents no ?
Okay lets start here. Definations:
Leverage
In finance, leverage (sometimes referred to as gearing in the United Kingdom and Australia) is a general term for any technique to multiply gains and losses.[1] Leverage exists when an investor achieves the right to a return on a capital base that exceeds the investment which the investor has personally contributed to the entity or instrument achieving a return. (from wikipedia)
Lot
The equivalent to 100,000 units of the quote currency in a forex trade. A standard lot is similar to trade size. It is one of the three commonly known lot sizes; the other two are mini-lot and micro-lot.
A standard lot represents 100,000 units of any currency, whereas a mini-lot represents 10,000 and a micro-lot represents 1,000 units of any currency. A one-pip movement for a standard lot corresponds with a $10 change. For example, if you wish to buy 100,000 U.S. dollars, then you are buying a standard lot with 100,000 units as your trade size.(from investopedia)
As it says above 1 standard lot represents 100,000 units of the quote currency and is always referenced when using any other lot size e.g. 0.01 lot means 0.01 of a lot(100,000) which is 1,000 units. So where does leverage come in? Ill explain.
Leverage from the definition is a multiplication factor. Without leverage people would need $1000 (assuming account is in usd) in every 0.01 lot opened. This would mean to open ten trades of 0.01 lot you would need to have over $10,000 of account balance. What leverage does, is that it enables opening lot sizes with smaller amount of cash. i.e. We found 0.01 lot to be 1000 units so when we have 1:100 leverage 0.01 lot will be $10 of our cash since this $10 multiplied by the leverage gives the required 1000 units that is represented by 0.01 lot(0.01 of 100,000). Without leverage, it would be impossible to open any trades with an account balance of $100.
Lets see another example from your original question. You have a $100 account and leverage is 1:500. So what lot size would represent the $50 we want to open a trade with? If we leverage the $50 by multiplying it by the leverage(50*500) we get 25,000. So what is 25k in standard lot? Its 25% of standard lot in other words its 0.25. This 0.25 lot is now what we enter when opening trades.
Trading forex without research is like eating the leg of a hen only to find the cook forgot to put salt in it. Practice and research more and good luck in your trading.
Okay lets start here. Definations:
Leverage
...Great explanation about leverage tonny. Though there is a little omission : it depends on the traded currencies. For pairs beginning with USD your reasoning is right. But for others you have to convert your 50$ to the margin currency. For example EURUSD, you want to use 50$ of margin with a leverage of 1:500. 1 lot is 100 000 €, so you need 100 000/500= 200 € as margin. Suppose the quote of EURUSD is 1.35 at this moment, you have a margin of 200*1.25=250$. As we want to use a margin of 50$, you have to use 50/250 = 0.2 lot (not 0.25).
hi
I have 100$ how to bid 50$ with the volume ? the amount to bid on the market how to do not only 1$ but 50$.. on 100$ on my balance.
That is one reason for a practice account, to get familiar with the trading platform, the tools available, and using it to place trades ect.. Learn and Practice ..(-:
If I well understood the question of the OP, the reasoning of tonny about leverage isn't to good answer. Indeed, the question was "I want to risk 50$ on 100$ my balance" or "how to bid 50$ with the volume ?"
So it's about risk, not leverage. We have seen we need to trade 0.25 lots of USDCAD (for example) to use a margin of 50$ (on 1:500 leverage), but when the trade position will be closed the margin comes to you again, you don't risked 50$ of margin.
If you want to know which lot to used to risk 50$, you have to know your opening price and your stoploss. I will take an example with EURUSD. Suppose we want to open a buying position (trade) on EURUSD and risking 50$, the opening price would be 1.3010. To calculate the lot size, with a risk of 50$, you have to fix a stoploss, otherwise there is no way to calculate a risk. So suppose we fix the stoploss to 1.29975.
If the value of euro goes against our trade, we will lost 1.3010-1.29975 = 0.00125 or 12.5 pips. The value of a pip will be fixed by the lot size we are trading, it's a simple rule of three :
Anyway if you have only 100$ on your account, it's highly recommended to not open 0.4 lot on EURUSD, and so risking 50% of your account on 1 trade. But it's an other matter.
The easy way to find out.. Open your terminal in practice, open a trade, go to your trade screen in tools and observe, check the margin, ect. then make the adjustments to get what you want.
That is one reason for a practice account, to get familiar with the trading platform, the tools available, and using it to place trades ect.. Learn and Practice ..(-:
There is a lot of things that can't be learned by practice. Practice is good and necessary, but if you want to progress (in trading and in live), you have to study some theory. It's a way faster if you combine practice and study.
The easy way to find out.. Open your terminal in practice, open a trade, go to your trade screen in tools and observe, check the margin, ect. then make the adjustments to get what you want.
That is one reason for a practice account, to get familiar with the trading platform, the tools available, and using it to place trades ect.. Learn and Practice ..(-:
Sometimes you can do demo or trial and error and accidentally its opportune moment for the result to be like this or that then the person develops their own theory and applies it somewhere then it backfires. This is why its also good to know the mathematics behind it. i.e. someone could demo with a broker whos leverage is 1:100 and get an idea of what the lot sizes represent then maybe open an account with another broker whos default leverage is 1:200 and use the same style he saw on the demo that had 1:100 leverage and find himself with questions in their head. This is why its good to know the concept well to be able to adapt to all conditions.
If I well understood the question of the OP, the reasoning of tonny about leverage isn't to good answer. Indeed, the question was "I want to risk 50$ on 100$ my balance" or "how to bid 50$ with the volume ?"
So it's about risk, not leverage. We have seen we need to trade 0.25 lots of USDCAD (for example) to use a margin of 50$ (on 1:500 leverage), but when the trade position will be closed the margin comes to you again, you don't risked 50$ of margin.
If you want to know which lot to used to risk 50$, you have to know your opening price and your stoploss. I will take an example with EURUSD. Suppose we want to open a buying position (trade) on EURUSD and risking 50$, the opening price would be 1.3010. To calculate the lot size, with a risk of 50$, you have to fix a stoploss, otherwise there is no way to calculate a risk. So suppose we fix the stoploss to 1.29975.
If the value of euro goes against our trade, we will lost 1.3010-1.29975 = 0.00125 or 12.5 pips. The value of a pip will be fixed by the lot size we are trading, it's a simple rule of three :
Anyway if you have only 100$ on your account, it's highly recommended to not open 0.4 lot on EURUSD, and so risking 50% of your account on 1 trade. But it's an other matter.
So you are agreeing with the poster that 0.25 is 25 cents? I happen to think he meant it the other way only he doesnt quite understand the terminologies and thats why he possibly agreed to your risk question.