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    Exclamation How to choose account size + leverage used?

    Hey fellow traders,

    this is the beginners section though I think it is useful information.

    In addition to this thread you have to read and learn about margin (free margin/used margin) and margin calls!

    Account Size:

    IMHO this is the account you want to open:

    If your account balance will be less than 10.000$ open a account where you can trade micro lots(1.000 units).
    If your account balance will be less than 100.000$ open a account where you can trade mini lots(10.000 units).
    If your account balance will be more than 100.000$ open a account where you can trade standard lots(100.000 units).

    If you are a real beginner, trade DEMO! Then go live open a micro account and step it up over time as you are proven in being consistently profitable!
    Why open a micro account with 10.000$ in deposits? There are normally no disadvantages to micro accounts compared to mini accounts, the spreads are most likely to be the same or almost the same, you might not be able to trade CFDs but you want to trade Forex anyways! You can trade standard lots in a micro account (you will be limited here) but until you reach standard lots you may just open a mini account.
    Though a micro account is saver and better(though more advisable) for most beginners.


    Leverage:

    Do not be FOOLED by advertisements telling you that you will be able to trade 400:1 or 500:1 leverage, you NEVER NEVER want to use those kinds of leverage.

    There are two different kinds of leverage:

    Accounts leverage - True leverage

    Account leverage:

    Your account leverage may be set to 100:1, that means for every 10.000 units you buy or sell 100 units of your capital are used. In other words, for every 1$ you have you trade with 100$. This leverage is rather unimportant, advisable to not set it to 400:1 or 500:1 though, use 100:1 or less. A high leverage leaves you with more free margin, you need free margin to not get a margin call!

    True leverage:

    The true leverage is calculated differently, e.g. you have 1.000$ in your account and you buy 2 micro lots meaning 2.000 units, you buy or sell 2.000$ using a 1.000$ account. That would mean your true leverage is 2.000/1.000 = 2:1.
    This leverage is very important as it is responsible for your account grow but at the same time for how fast you can lose your money. If you compare 2 trades, always compare the lot size and true leverage, not the account leverage!

    Now it is up to you what true leverage you want to use, some figured might be interesting here: Up to 1,5% risk per trade is often advised for new traders, up to 5% risk per trade (imho 5% are already risky if you are not experienced yet).
    It is often said your true leverage should not exceed 10:1, big dogs use 2:1 or 1:1, on some very good trades up to 6:1, but they already good a lot of money though it means different numbers.

    It is all UP TO YOU, but you should know that a lot of forex traders blow at least one of their accounts. Some blow more than one. Often due to taking to much risk and trading to large lot sizes in addition to not having good money management, reward:risk - ratios and methods/strategies.

    I hope this thread helps some novice traders who have been asking them exactly those questions.

    Regards
    Last edited by bob898; 08-30-2010 at 12:09 AM.

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