Charging Forward…Round 2
ByBack from the real world, I was able to squeeze in one more lesson today, number 9…Money & Leverage.
Finishing up on the money topic for now, Sid continues showing me how to change my pip value if I want to place a larger stop on my trade. This is important because I never want to risk more of my capital than is safe. The example Sid uses is very clear and helped me really grasp this concept. To close on this topic, using Sid’s pip value formula, “you control the situation by using the math to guarantee that you never risk more than you should for safe trading”.
Moving onto leverage…this apparently can be quite a large subject. However, Sid has trimmed it down to the very basics of what we need to know. My basic understanding is that leverage is the amount of money the broker allows me to use. They will never let me go into the red, so they ultimately control the money.
Sid states several times that we will never trade near something called a margin call. This is when the broker closes your trade because you are close to losing most of your money. This is an absolute no-no! Don’t panic, there is some good news! The money management strategy allied to a trading strategy that I will be using will keep me safe because I will never be risking more than 0.7% to 0.8% of my actual capital on any trade. By following these guidelines, I will never fear being shut down.
So, here’s the thing, the larger the leverage, the faster I could lose all of my money. Whoa! The good thing, however, is that Oanda has a maximium allowable 50 to 1 leverage, which is very conservative. I want to grow my capital in a safe and controlled manner, so by using Sid’s formula to calculate my pip values and sticking to the money management and trading strategies, this will never be a problem.
Summing up my feelings about today’s lessons, I would say that they are really starting to heat up and get into the real substance of what I need to know to make good trading decisions. I’m glad that Sid gave me only what I need to know on leverage because I hate wasting time on useless information. I’m a meat and potatoes kinda gal, so I appreciate Sid’s brevity and candor.
In the great words of Tigger…TTFN 
< Previous Post - Home Page - Next Post >