?Kunle Adeyeri
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Equity simply in Forex trading is the total sum you have at any point in time you are trading or when all positions are closed. At inception it could be termed the sum invested. The aim of a trader is to grow his equity through profiting or make profits from it.
Equity, based on risk disclaimer could be partly lost or totally lost, hence the advice that you should consider your risk appetite or limit before investing. The loss is usually due to unexpected volatility in the market coupled with other factors.
Let us see how equity could be well managed. It is said that you should plan the trade before you place the trade. The first plan is to factor what percentage of loss you can absorb from your equity by using a stop-loss before calculating your expected profit in your risk to reward ratio analysis.
The main threat to equity is the lot size (trade volume). In the three categories of accounts that exist, micro, mini and standard there must be a safe lot size to match the risk on the equity, remembering that lot size will determine the margin used based on leverage selection.
First and foremost except you are a highly skilled professional, it is difficult to trade, manage or grow equities or investments of or less than $500. Though it could be thought wise to invest such low amount initially as a beginner, but starters do not have the patience to make something out of such even when well trained. The greed inherent in every man or trader takes control during trading. Initial losses do discourage beginners. Let me x-ray what permissible lot sizes should be taken for different account levels.
Micro account
This is an account category suitable for small investors. Most investors in this category usually invest less than $500. The minimum lot size that could be taken on this account is 1,000 units of the base currency or 0.01 lot size. On opening of a live account a selection of micro account opens the platform to allow for micro lot sizes or volumes. The return on 0.01 lot size is about 10cents. A micro account trader whose orders are not more than two with this size and with a fair market entry positions will do well. He must see his return as not being too small. With sure market trend he can equally risk maximum of one 10,000 units of a base currency trade or 0.1 lot size for a reward of $1 per pip. But basically orders between 0.01 and 0.05 are advised for a good trading margin. These investors are mostly intra-day traders. These categories should keep off from volatile pairs and high spread pairs.
Mini account
Investors in this category have minimum of $1,000 in their account and maximum of $2,000. If at the point of account opening this category is chosen, the micro lot sizes may be not be available on the volume bar. Available trade volume will begin from 0.1 lot size or 10,000 units of base currency. Total trade volume or maximum lot size for a good margin and safe trade should not exceed 0.2 and that must be based on a good judgement of market trend. Minimum reward begins from $1 per pip. Trading gets more interesting based on reward but caution is needed not to avoid overload of orders on equity. Traders may heed the advice to avoid volatile pairs and also pairs with high spreads. These investors are intra-day traders or scalpers
Standard account
Accounts with investments between $2,000 and $10,000 are classified as Standard accounts. On Meta Trader platform, it allows for mini lots as well. So, risk-averse traders do protect their equity using mini lot sizes on their standard accounts. Some platforms such as ECN and others allow or lock only standard lot sizes of minimum 1.0 or 100,000 of base currency units for these categories with low leverage of 1:50 or 1:100 to protect equity from being overloaded with trade volumes risky to it. The minimum reward on a standard lot here is $8. And in some pairs could be up to $10 or more per pip. Most brokers target this category with many juicy options as it offers them higher brokerage returns. Advisable maximum lot is 1.0. These investors are day traders and can swing a little
VIP account
Traders who invest over $10,000 belong to this category. With some brokers it is even a higher sum to belong here. These investors are few but enjoy low spreads and other benefits than the other categories mentioned. Some of these traders could afford to swing (stay in a trade for a long time like weeks or months). Minimum lot size or volume is standard, that is, 1.0 which gives a minimum of $8 and more. These traders could afford to trade volatile and pairs with high spreads which give higher returns. If equity is not more than $10,000, maximum 2.0 total volume size is advised on a highly probable sure trade.
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Source: http://www.punchng.com/am-business/forex-trading-equity-management-in-relation-to-trade-volume/
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