welcome back everyone I'm rob Booker welcome back to our FX trading 101 lessons I'm super happy to be with you let's say for instance Nate who's running the cameras as always let's say that you want to trade a mini lot remember that was 0.
1 and it was worth $1 per pip that is 10, 000 units of currency that seems odd but when you trade a mini lot you're controlling 10, 000 units of currency but let's say Nate that you only have $1, 000 in your trading account how can you control a 10, 000 unit position and I say units because your account may be denominated in pounds or euros or yen or whatever how can you trade 10, 000 units of currency with only a $1, 000 account target talk talk to EF Hutton talk to your broker it's through the wonders of margin and leverage and in this longer lesson which you may want to return to later we're going to discuss a topic and really simple easy to understand terms that most people never get but it's really important your margin Nate and everyone else is essentially a down payment on a trade now when you buy a house you don't have to put down the full value of the house otherwise you're buying the entire house for cash you offer a down payment equal to a percentage of the total purchase price Nate sometimes that's 10% sometimes that's 20% well in the world of trading you may only have to put up 2% you may only have to put up 1% you may have to put up 3% but generally speaking in the world of currency trading you only have to put a small percentage of the total value of the position in order to take the trade and that's called leverage leverage is just like it sounds it's adding power to whatever existing capital you have leverage is in other words the beautiful thing that your FX dealer will offer you that allows you to put a small down payment up and then multiply that down payment by a certain number in order to control a larger position in other words your dealer will let you control a large position with a small initial investment all right let's see if I can pull this up correctly there we go now let's say that you have a ten thousand dollar trading account Nate and you want to put up $1, 000 as your down payment now we're going to use the word margin down payment margin down payment margin you're gonna put up $1, 000 as your down payment or your margin and let's say that your FX dealer offers you one hundred to one leverage meaning they're willing to let you put up only one percent of the total value of your position how big of a position can you control with a $1, 000 down payment or margin if they offer you one hundred to one Nate says he's really bad at math I'm gonna give everyone watching me to give you some time to think about I'm gonna give Nate some time to think about it so it's not ten thousand I know a lot of you might have thought it was ten thousand but if one thousand is one percent of your total position size if you're if you're FX dealer is offering you one hundred to one leverage they're willing to increase your down payment one hundred times so it's a 100 thousand unit position in other words name in some trading accounts around the world you can put up a one thousand dollar margin down payment and control a one hundred thousand unit position or a standard lot that allows you to take a small trading account and trade larger position sizes and maybe make a more significant amount of money let's use some examples here name so let's say Nate you have a one thousand dollar training account and let's say that you trade in a jurisdiction that offers a maximum of fifty to one leverage where the FX dealer will multiply your payment by fifty times this is common in the United States and it will be more common around the world fifty to one as a maximum it's a huge giant amount of leverage so let's say that you take Nate out of your 1000 dollar trading account size let's say you offer to put up $100 as margin and I'll call that mga your broker because your FX dealer is offering you leverage is willing to multiply that times 50 what's 50 times 100 well that's pretty easy all right so a five zero zero zero your dealer is willing to let you control a five thousand unit position which is five mini Lots if you watch that video on pip values and trade sizes that's five mini Lots or $5 per pip so in a $1000 account if you made 10 pips you'd make $50 on a $1000 account $50 one day $50 another day $50 another day ten days in you've made $500 or fifty percent of your account value even though you have a small account you're racking up some pretty serious gains even though you don't have a large trading account let's do another example so we'll drive this point home let's say Nate once again we'll try smaller account sizes let's say you have a 1, 000 dollar trading account let's say that your FX dealer is offering you let's do let's do a hundred to one because that math is a little bit easier let's say you live in in Europe or the UK or Australia where you can still get 100 to one or even higher you have a thousand dollar trading account and Nate I want you to I want you to tell me if you have a hundred to one leverage so you could you could really multiply things you could you could really do something crazy here let me ask you if you wanted to trade 500 we did five mini Lots just now let's do seven mini Lots you want to trade seven mini Lots which is a point seven in your volume as you as we talked about in our previous lesson that is seven minis and that is equal to how many units of currency 7, 000 units 70, 000 units of currency all right so it's a point seven-volume in your trade size in your in your brokers platform your volume that's seven mini lots and it's a position value of seventy thousand units of currency now your broker offers you one hundred to one leverage they're willing to multiply whatever downpayment you put by a one hundred times so what you have to figure out is can I trade seven mini Lots the first way to find the answer to that question is you simply go to your trading platform late and you simply type in point seven and I don't have my keyboard right here but I could just try I could try to type in point seven and then if it takes the order then I was definitely able to make that trade fine okay great so it's possible that maybe maybe they allowed it but what we also need to know is well how much do you really need to put up as margin what are they going to take out of your trading account and set aside as your down payment and the answer is they're gonna take $700 as your down payment they're going to take $700 700 1 hundred is seven plus one two three four zeros one two three four and that gets you to your position size so once again let's do another example and we'll talk about it if your dealer offers you one hundred to one leverage you live in Europe or the UK or Australia and they let's say you want to trade let's do something crazy let's say that we want to trade 10 standard Lots each standard lot is 100, 000 units of currency as you learned in the previous lesson that means we're going to do a position of 1 million units of currency that makes sense so far now if each standard lot is $10 a pip what's your value per pip if you trade 10 of them yep it's $100 for every pip the market moves largest trade size I ever took was 80 standard Lots $800 a pip it was a big big trading account but I was still pretty freaked out so let's say you want to control it let's say you want to trade 10 standard Lots that's a million units of currency and your broker offers you one hundred to one leverage what you need to do is you need to divide 1 million by 100 now that now that's just to simplify the whole process that's gonna mean that you have to put up $10, 000 as your down payment or as your margin 10, 000 times 100 let's just check our math 1 with 1 2 3 4 5 6 zeros 1 2 3 5 6 there we go so we work backwards from there let's do another example just to make sure we're all on the same page let's say that your dealer offers 50 to one leverage and let's say you want to trade one many lot 1 mini lot is expressed as a volume size of 0.
1 in your trading account and one mini lot is $1 per pip it's a nice small trade size and you want to just trade one mini lot and your your dealer offers you 50 to one leverage on the currency pair that you're trading what we have to do is we have to find out how many units of currency is 1 many lot 10, 000 its 10, 000 units of currency so we have to divide ten thousand by fifty and that is 200 bucks 200 dollars times 50 is ten thousand and there you go you need to have two hundred dollars put up as margin to make that trade so once again it all comes down to this most people just want to know can I trade can I trade one Mini can I trade five micros most people want to know the answer to that question and in order to answer that question you just need to know the leverage that your dealer offers you and then you need to know well that's it you have to multiply the units because excuse me divide the units by the leverage let's do one last example just to make sure we're all on the same page just make sure we're all here we're all together let's say you want to trade – mini lots and let's say your dealer offers you one hundred to one leverage how many units is too many Lots Nate you take a guess it's that that's the volume that's the trade size that's the trade size point two is the trade sighs what's the pip value on to many Lots every pip it moves it's two dollars and the number of units of currency that you're controlling twenty thousand now to end or if you get one hundred to one leverage you have to divide 20 thousand by 100 so that would be so 100 times 200 is 20 thousand so you'd have to put down 200 dollars in margin now why does this all matter I told you this was going to be a little bit of a longer lesson this all matters because in your trading account when you run out of margin or when you've used all of your down payment when you've when you've basically used up all of your down payment your broker will close out will do you a service and will close out all of your trades for you so what I want to do here is I want to see if I can expand this upwards there we go this is great now I'm gonna walk through the numbers at the bottom of the screen and then I'm going to write out those numbers for you in a separate window you can see your your account balance is here your equity is here your account balance is the amount of money that you had in your account before you opened any trades your equity is your account balance plus the gains minus the losses that are open in your account right now margin is the amount of money that the dealer is taking out of your account and setting aside as the good-faith down payment on the trades you take and your free margin is the amount of money that you have left over to take more trades and your margin level is basically showing you the health and strength of your trading account now this all matters for a very important reason and I want to walk through all of these number specifically I'm gonna need a brand new slide and I don't have one available in purple so we're gonna use the white background let's walk through these terms and I'll what I'll explain them one at a time your account balance is the amount of money in your account before you open any trades so we're just going to do before trades your equity which is a really important number excuse me apologize for that I have to write more slowly or else everything goes wrong your equity in your trading account is your balance plus or minus open trades so if you have a lot of positive open trades Nate you have a higher equity than balance and if you closed everything your balance would go up and that'll be fine if you have no open trades your balance is the same as your equity if you have a bunch of open negative trades your balance is high and your equity is lower than your balance because if you closed everything you'd have lost money equity is important you don't want to run out of equity you don't want to have a bunch of open losing trades margin what did we say the margin was Nate it is a it's the down payment and that's not money available to you anymore your FX dealer keeps that down payment sets it aside and actually marks it at the bottom of your trading platform as the down payment that's no longer available to you now it also has a number which called free margin or usable margin is another word that people use for that term so we'll call it usable or free margin usable or free margin is the amount of money that you can use for new trades number one so that's the first thing it is you can use your free margin for new traits just like a real-estate investor might have a hundred thousand dollars to work with and they might have ten thousand dollars out as a downpayment on one property and that means they have how much leftover for more down payments on more properties $90, 000 okay so you could take new trades with your free or usable margin but that's not the only thing that you're free or usable margin is used for it's used to cover losing trades as your trades are losing and if you're not taking good trades and they're going the wrong way and you're losing money you have less usable margin your account is falling the value of your account is falling so imagine that that real estate investor puts $10, 000 down on a property has 90, 000 dollars in the bank and then goes and blows seven to ten thousand dollars on drugs they don't have that money anymore and now they don't have as much money as they had before in free usable downpayment money so your broker will use your usable and free margin to cover open losing trades the nice thing is also that if you have a bunch of winning trades in your trading account your usable margin goes up so you actually have more money to play with so if the value of that real estate that that guy bought goes up by fifty thousand dollars he could borrow against that fifty thousand dollars and keep trading or keep buying real estate in other words as you make good trading decisions and your account groans either realized or unrealized your usable margin goes up as well there's a final number inside of meta trader that we want to focus on before we wrap things and that final number is your it's called your margin margin level and it's expressed as a percent of all of the numbers that we've talked about today and most of you are going to use Metatrader this is the most important number every FX dealer in the world will close out all of your trades and give you what is called a margin call which means basically they've said you've run out of usable margin and they'll do that when your margin level hits a certain percent and you need to ask your FX dealers representative what that level is in the trading account that you opened generally speaking if your trading account reaches a 30% margin level percent you will get a margin call and all of your trades will be closed they'll close all your trades out you want to keep your margin level percent as high as possible so there's no risk of your trades being closed down over in this demo account over here my margin level percent is 859 you can't see it very well but that's what that number is that means i have virtually no chance that this demonstration trading account is going to have a margin call or any problem this is the most important number that you can focus on and the easiest way to keep this margin level percent high and you want a high number the easiest way to do that is and now we come full circle on our conversation about trade size is keep your trade size small trade micros and mini trade sizes don't trade standard Lots with a small trade size you'll never use very much margin you'll never need very much leverage your free margin or usable margin will always stay high and you'll never get a margin call the last point I want to make is most traders blow up their trading account within 90 days 90 of traders lose 90% of their money within 90 days it's probably not exactly that number but that's pretty close that's because they have big trade sizes in small trading accounts if you have small trade sizes in every account you will last past that 90-day mark if you can last beyond the 90-day mark as a brand-new trader and you have the original account that you started with the chances that you are going to succeed go way up not gonna throw around promising statements or anything like that I'm not gonna make any promises but the longer you can survive with small trade sizes the better you can do and the more likely it is that you're going to figure out what trading system you like while your trade sizes are small and then as you do better and learn more you can increase your trade sizes as your confidence and your account grow I'm Rob Booker thanks for being here I want to thank our sponsor Forest Park FX for sponsoring this video series if you're interested in FX trading contact forest park FX to open a trading account and get cashback rebates on every single every single every single trade you place contact Forest Park FX at Forest Park FX comm trading involves a substantial risk of loss when you're trading Forex terms and conditions will apply I just like to say that will apply and we'll see you in the next video.
