Now we are going to explain some basic concepts of Forex Trading
which is margin and leverage. People give
far too much importance to margin and leverage
far more than they should. If you follow the rules that I have talked about
in this and previous videos and if you an follow proper risk management
I guarantee you that you will never have to use
all the leverage that your broker offers
so leverages like 1:100 or 1:200
for a professional trader using all this leverage
would be crazy it's these are enormous liverages
let me explain to you what leverage is in forex
when we are trading it's very hard to make
money if you have a small balance
even if you have like 10,000 and the maximum position your can open is 10,000 euros
you're going to have to be very patient in order to make some
some money this way. The way we solve that is brokers get in the way
and they let you control a far bigger amount of money
with your initial balance so for example if you have
a 10,000 account and you get 100 leverage
that means that you control 10,000 multiplied
by 100 which is a million. So what happens when you controlling one million is that
you get the profits and the losses from trading with an amount
like 1 million into your 10,000 balance account so
the whole process is faster. Now let's go back to cTrader I'm going to
explain to you
what's you're seeing with some numbers here. Here I have my
10,000 account with 1:100 leverage
so theoretically like we said I can control one million
I'm going to explain to you what we see here in the balance line when I'm opening
my positions because I want to explain to you how
you gonna get how you get stopped out
Let me open
a 100,000 EUR position
let's talk about
margin first. Marging
is the amount I have opened in Euros
divided by my Leverage
which is 1:100 in this case because
everything is in Euros and my count currency
is also EUR there need to be no conversion so
if we divide the 100,000 euros
of my position with 100, I would get this number
which is a margin that is used for my position. If I open one more position
I'm gonna have 1000 each
so it's gonna be 2000. The more I open
the more my margin increases. Let's go to the next number which is free margin
free might is equity
minus my used margin so it's
actually how months free equity do i still have
to use. Since we didn't explain what equity is
equity is your account balance minus your
unrealized profit or loss
in this case I have
free margin of well 5900
euros now the
the last number that is used when
brokers do a margin call or stop about which confuses traders a lot is
margin level
what is margin level? Margin Level is
if we divide margin by equity
we get margin level so it shows us as a percentrage
how much bigger my equity is compared to my free margin
in this case as a perrcentage my equity
is two hundred percent of my free margin. This is a number that you
should watch
when to know when you can not open any positions anymore or you know when
you're going to get stopped out
usually when this number reaches 100 percent
so your equity is equal to your free margin
if you keep on trading for example , Let's do more trades
it 100 percent
your broker is not going to let you open any more positions
now the stop out level and the margin call level
are different for each broker so you need to go to the broker specific web site to
to check it out but usually it's around 30 percent so when this
number reaches thirty percent and your equity is thirty percent of your
free margin then you're going to get stopped out
stop out means that the broker is going to start closing
your positions with a loss in order
to protect himself so that he will not lose any money
since we mention stop outs I want to give you some
basic rules of what you do is very basic rules very things to do in order
to protect yourself and not get stopped out. First thing you need to do
try to keep a 1:1 risk to reward ratio when trading we talked about
about that in previous videos. Second is the whole
point of this video have calculated risk management
know how much you risking at all times
so the what people who get stopped out
don't know how much they will risk they just enter the trades, go with the flow
hope that everything is going to go their way, things don't go their way
they get stop about because they lose more than they can handle or
they close the application without a stop loss
and they lose. Another thing that you must not do is
not add to your losing positions when
that is not part of your system if you're losing
you open a hundred 100k position, it's losing it's so instead of putting a stop loss
you buy one hundred more and then it goes
still going down you buy one hundred more and you keep on doing that and then you blow
your account
if you do these simple things you're going to protect yourself
from blowing your account. With this video we conclude the
series of videos that gets you in the correct mindset
before you actually start reading and
that was intentional from now on we gonna be
concentrating a bit more on technical analysis on set ups on
specifics like that so, thanks for watching