A good rule of thumb for either a mini-account or standard forex account, is to limit your margin usage for each trade to 5% - 10% of your usable margin.
As an example, if your usable margin is $5000, to trade safely, limit your margin usage for each trade to a maximum of $250. This means trading only 1 full lot for each trade. This is assuming that you are trading in a CMS Universal account with 400:1 margin. Your use of margin is increased with a smaller ratio, as most other brokerages only offer a smaller ratio, normally 200:1 or even 100:1.
As your account grows and your usable margin grows, you can increase your margin usage and trade bigger mini or full lot sizes. If you lose money and your account shrinks, drop your margin usage back down to smaller sizes. You need to learn to keep your eye on your usable margin, especially if you've suffered some losses.
Protect your usable Margin by not having more than 2 open hedged or unhedged position at any one time. Your usable margin & equity will get eaten up by un-hedged open positions that go bad in the wrong direction...this is a really good reason why you want to use stops, and if you hedge, hedge tightly.
IMPORTANT: Don't just keep putting on positions because you think it's a good opportunity. First sell a position and book some usable margin before you put on another position.
NOTE: Hedging does not use up more margin! Use it to protect your equity & usable margin, esp. in an emergency situation!
If you break the hedging rules, and your positions go against you and you aren't properly hedged with stop losses, you'll quickly see your usable margin degrade. If it degrades enough so that your usable margin goes into the negative, you'll get a margin call. This means that the operators will automatically start selling some of your lots in your oldest losing positions in order to beef up your usable margin. This makes your unrealized loss become a realized loss...and the money is gone from your account.
If you lose too much useable margin, they won't even let you trade in your account, the message they'll give you when you try to put on a new trade is, 'Account in Untradeable Condition'.
If this happens, you might have an open position that needs to be hedged immediately or you might need to sell an old position. Or you might need to deposit more money into your account. Then you can start trading smaller lots to win back some usable margin.
You can lose your entire account balance if you're not careful. One other good thing about forex trading is that you will never lose more money than is in your account, you won't have to sell your house if you get a margin call! Stick to the rules above and this won't happen to you. You'll make more money than you thought possible and without the stress of loss.
- Related Videos
- Related Articles
- Ask / Related Q&A
- Foreign Currency Trading: the Joy of Getting Rich From Foreign Currency or Forex Trading
- Trading Currencies - A Market Guaranteed to Never Crash
- Make Money Trading Currencies - What Are the Basic Tricks?
- Forex Trading: Currency Exchange Tutorial
- Trading Currency For a Living - Is it Really Possible?
- Make Money Trading Currencies - 4 Steps to Currency Trading Success
- How To Systematically Trade Currency And Reap In The Profits
- Trade Currencies From Home - 4 Simple Steps to Currency Trading Success




How Do You Know Which Are the Best Penny Stocks?
By: Cory Espinoza | 15/11/2009Making an investment in penny stocks is often thought to be a waste of time. Too much risk, for not enough reward is what most people believe. These folks are obviously not aware of the potential for extraordinary profits when the chance is essentially kind of small. And with a little information and tips from someone that's been there and done that you too will soon be investing successfully in penny stocks. First, observe the market attempting to find trends or patterns. T...
Secured Credit Cards - Are They Right For You?
By: Stephanie Andrews | 15/11/2009Secured credit cards are a reliable option for many consumers looking for a new card. How to tell if they're right for you, however, depends on a number of factors. Here are some signs that a secured offer can help your financial situation. You have a Low Credit Score Are you trying...
Chase Freedom Card - What To Consider Before Getting One
By: Stephanie Andrews | 15/11/2009There are many different credit cards to choose from on today's market. While some cater to those with poor credit, others are geared for people with a high credit score. Still others are designed for those with an average rating. If you've seen commercials for the Chase Freedom Card, you may...
Cash Advance Credit Cards - Three Things to Consider
By: Stephanie Andrews | 15/11/2009If you need cash quickly, you may find that it can be hard to get a normal loan at the bank. In today's credit world, lenders are hesitant to lend out money, and that can affect many consumers. If your score is less than excellent, you may have a hard...
Canadian Credit Cards - Three Reasons to Apply Online
By: Stephanie Andrews | 15/11/2009If you want to apply for a Canadian credit card, there are a number of ways to do so. The easiest, by far, however, is the online application option. If you haven't considered applying online before, now is a good time to do so. Here are three reasons to look...
Secured Credit Cards - A Chance to Rebuild Credit
By: Stephanie Andrews | 15/11/2009If you have a low credit score, you're probably anxious to bring it up, and fast. The trouble is, it can be hard to get approved for a credit card when you have less than perfect credit. And filling out too many applications can make your score drop even more. But...
Is It A Good Idea To File Bankruptcy To Stop Foreclosure
By: Paula Adams | 15/11/2009Exhaust all your options before you fall victim to foreclosure. If you follow all the steps, bankruptcy can stop foreclosure. It will allow you to stay in your home if you have the funds to keep up the payments.
Debt Settlements - Accept a Lower Credit Score and Eliminate 60% of Your Debt
By: Matt Couch | 15/11/2009Due to heavy layoffs and biting high expenses debts have been on the rise in the economy. Debts in the form of credit card, medical and personal expenses have made the situation pretty tough for the customer to survive. To run the day to day expenses people are resorting to credit cards as there is a high shortage of money in the economy.
Trading is a Business
By: Cynthia Macy | 21/12/2006 | FinanceSuccessful traders look at their trading as a business and they are disciplined, decisive and they are motivated to succeed. What are the hangups non-successful traders suffer from and what can be done about it?
About Diamond Weights and Choosing a Wedding Ring
By: Cynthia Macy | 01/04/2006 | MarriageDiamonds are measured in Carat Weight. Beware when shopping for diamonds that are already set or mounted. The Carat Total Weight does not tell you the carat weight of each stone in the piece.
The Best Time to Day Trade the Forex Market
By: Cynthia Macy | 07/12/2005 | FinanceThe three major forex trading ‘sessions' are as follows (all in Eastern Standard Time): 1. New York open 7:00 AM to 4:00 PM 2. Japanese/Australian open 7:00 PM to 3:00 AM 3. London open 3:00 AM to 11:00 AM
Forex Trading: Margin Usage and Introduction to Hedging
By: Cynthia Macy | 01/12/2005 | FinanceHow to safely use margin and hedging in forex trading.
The Day Trade Forex System: How to Choose An Online Forex Brokerage Firm
By: Cynthia Macy | 19/11/2005 | FinanceChoosing an online forex brokerage is one of the most important aspects of successful forex trading.
'Fixed Ratio' Money Management
By: Cynthia Macy | 17/11/2005 | FinanceA unique method to use money management in forex trading.
The Cold Facts of Starting Your Own Small Business
By: Cynthia Macy | 15/11/2005 | BusinessOwning your own small business is the new "American Dream". The dream is this: that you can work less, have less stress, have more time for your family, have more money, take more vacations when you want, retire early, enjoy life more. What is the r