Placing a sensible sized trade in relation to the funds that you have available on your account is the first step towards implementing a sound risk management strategy.
Let’s consider this through an example. You have EUR 10,000 on your account. You open a leveraged trade worth EUR 187,500.
Assuming a margin requirement for a DAX 30 trade is 5%. This means that you must have 5% of EUR 187,500 in your account to open the trade (not including trading costs).
5% x EUR 187,500 = EUR 9375.
If you have EUR 10,000 in your account and EUR 9375 is being used as a deposit to open a position, there is very little room for that trade to move before you will have used your available funds and the position closed by the margin closeout policy.
Let’s consider another example. You have CHF 10,000 in your account and you open a position on the SMI index valued at CHF 37,500. The margin requirement is CHF 1875.
If you have CHF 10,000 on your account and you use CHF 1875 as margin you are giving your trade more room to develop and you will be able to choose where to place the stop loss, rather than the trade being closed out owing to the margin closeout policy.