Many times in my Forex day trading account, using Forex Conquest , I will have a stop that is over 100 pips. For some, that may seem ridiculous. On one trade on the EURUSD pair in January of this year, my stop was just over 200 pips and the trade was a winner. How can you manage that? How can you take on that much risk? Seems ridiculous right? Unless, you master the power of position sizing and your account is set up to handle it, then, yes, it would be absolutely ridiculous to take a trade with a 200 pip stop. Take a look at the real life example below based on an actual trade this year. In the first scenario, you have a $20,000 account and are willing to risk 2% or $400 on a trade. As you can see from the scenario, the trade captured 436 pips with 3 different profit targets or scale outs. You will notice in the Proper Position Size column that you would not be able to assume this level of risk with a standard account – 0 positions because a single position risks over $2000 and you can only risk $400. A mini account would allow you to risk 1 position because 2 positions would risk $406 which is more than $400. A micro account would allow you to risk 19 positions and result in a 1.24% gain to your account and finally an account that allowed you to trade in individual units (100,000 units to a standard lot) would allow you to risk 19,704 positions and results in a 1.25% gain to your account.
Obviously, with a $20,000 account you need to be trading a micro or a units based account if you want the ability to take a trade with a stop this size. But, you may say, “I want to trade the forex market but only have $1000 to invest.” Let’s examine the same trade with that scenario in mind. You will notice in the Proper Position Size column that you cannot enter this market with anything but an account that lets you trade in units. Your risk would be too great trading Standard, Mini, or Micro accounts because with $1000 you can only risk $20 per trade. And what do you know? The gain on your account was still 1.29% just like in the $20,000 account.
The whole point of this exercise is to show the importance of position sizing and having the right account for what you want to accomplish in the forex market. The fact is that the account that lets you trade in individual units offers the most flexibility for any size account. I am not affiliated with any broker, but I use Oanda to trade in units. They do have an MT4 platform but it will not let you trade in units – only in $1 pip or mini size, so I would recommend their FXTrade platform to anyone interested in learning to trade with a small account and real money.