Is high leverage really bad for traders?

[Rentt]

Here's trading myth: high leverage is bad for you! You see this idea in every futures/forex forums over and over again.

That is of course complete nonsense and this is the reason.

Every time you start a 100 to 1 (or longer ) leverage stake in a forex mini-account, your favorable forex dealer is only saying this: Hey Mr. Trader, just put $100 on your account plus cost of disperse and I will let own $10,000 worth of currency, and if the market moves just 1% in your favor you earn 100% profit on your margin money, less price of spread along with a possible little interest!

This high-leverage-is-bad myth is based on a very simple confusion the majority of traders, newbies (and some experts alike!) Assume that leverage means your whole trading equilibrium divided by the value of your position.

Your trading equilibrium has of course NOTHING related to leverage!

It does not matter if your trading equilibrium is $1,000,000 or $100, if you start a stake and you just want $50 to own/control $10,000 worth of currency then you're trading using a 200:1 leverage, period.

So high or low leverage, it doesn't make a difference. HOWEVER, what is really, really important is the percent. If you open a forex position and you need $5000 margin money and that margin money represents 100% of your trading balance then Houston we've got a problem no doubts about that.

In fact, if a trader has an superb forex trading platform, then the best course of action is to choose the highest leverage possible (400:1), to allow for a quick compounding of profits.


PS: this thread is NOT an invitation to exchange using higher/lower leverage, as always trade at your own risk.

[Refaco]

So let's say I start a forex position with $100 (that is ALL I have in my account) and that I control $10,000 worth of currency. What is the leverage?

Right, 100:1

Now let's say I tell you this over a beer: Hey Faure, you know what, I have $10,000 dollars just sitting and collecting dust in ANOTHER forex account with a different forex broker.

Now you mean to tell me that NOW my leverage isn't 100:1 ANYMORE however 1:1 simply because I told you that I have $10,000 somewhere else??? Come on! What if I inform you that I lied, that the $10,000 is at the cookie jar in my kitchen am I trading with 1:1 leverage according to you?

Leverage doesn't have anything to do with your trading equilibrium, nothing! It means how much money you may control with X amount of money, period. How much money you've got in your FX account, your bank account, your mattress or your attic doesn't have anything to do with leverage, nothing.

That is exactly what FX is about: Give me $100 and I will let you have $10,000 worth of currency (100:1 leverage). Money is ALREADY in your FX account or how much money you wish to cable to your FX account each week/month is insignificant. Here - t take my word for it - see if you become aware of a definition everywhere in here.


How much leverage if you use?


Maximizing expansion without risking bankruptcy

Many hedge fund disasters come not from making the wrong stakes -- which happen to the best people -- but from making too large a bet by overleveraging. On the flip side, without using leverage (i.e. borrowing on margin to buy stocks), we frequently cannot realize the full growth potential of their investment egy. So how much leverage if you use?

Surprisingly, the answer is well-known, but little practiced. It's called the Kelly criterion. The leverage is defined as the ratio of the size of your portfolio. Kelly standard says: f should equal the expected excess return of the egy divided by the expected variance of the excess yield, or

f = (m-r)/s2
(The excess return being the yield m minus the risk-free rate r.)

This quantity f looks like the familiar Sharpe ratio, but it isn't, since the denominator is s2, not so as at the Sharpe ratio. However, if you can gauge the Sharpe ratio, state, from some effects of a egy, then you can even estimate f just as easily. Suppose I have a egy with expected return of 12% over a period with risk-free rate being 4%. Let's state the Sharpe ratio that is expected is 1. It's easy to calculate f, which comes out to be 12.5.

That is a shocking amount. That is telling you that for this egy, you should be leveraging your equity 12.5 times! If you've got $100,000 in cash to invest, and in the event that you think the values of Sharpe ratio and your returns, you should borrow money to trade a $ 1.2 million portfolio!

[Rocky]

So let's say I open a forex place with $100 (that is ALL I have in my account) and I control $10,000 worth of currency. What's the leverage?

Proper, 100:1

Right.

Now let's say I tell you that over a beer: Hello Faure, you know what, I have $10,000 dollars just sitting and collecting dust in ANOTHER forex account with ANOTHER forex broker.

You mean to tell me that NOW my leverage isn't 100:1 ANYMORE however 1:1 because I told you that I have $10,000 someplace else???
Come ! What if I tell you that I lied, that the $10,000 is in the cookie jar in my kitchen instead, am I trading using 1:1 leverage according to you?

From the aforementioned your point seems to be the money that is not in your account is irrelavant. I concur.

Leverage doesn't have anything to do with your trading balance, nothing! It means how much money you may control with X quantity of money. Just how much money you've got in your FX account, your bank account, your mattress or your loft doesn't have anything to do with leverage, nothing.

This is what FX is all about: Give me $100 and I will allow you to have $10,000 worth of currency (100:1 leverage). Money is ALREADY in your FX account or just how much money you INTEND to wire to your FX account every week/month is completely insignificant.

That's where you are incorrect. Leverage is a multiplyer of the two risk/ return, that it exists. So there is a direct connection between leverage and risk/return. If you are going to quantify your risk/return contrary to your account balance why quantify leverage from the margin utilisation rate? Shouldn't you're measuring it from your account balance too. You don't say, Gee I created $10 off trading a mini-lot ($10 000) and the margin I want to exchange that was just $100 (1:100). I must have made 10%! , meantime your account balance was actually $10 000, your leverage was 1:1 and you just made 0.1%. The same point was made by leugimp. That's not what I am saying at all. All that matters is how much money is in the account. Not in the cookie jar, not anywhere else. Just in the account which you have used to make that trade and where the trading p/l will be reflected.

To quote Leugimp:

So I guess when you've got a 100K account together with 100:1 leverage offered and you also make $1000 dollars over the course of a calendar year, you'd state that you created 100 percent in that year - bravo - I can now tell my family that even though they are just up 15% to the year, they really are up 1500% on their margin money. What's the usage of this logic? It's all about your account balance not your margin utilisation rate.

I am not trying to attack you I only want you to see where you are going wrong in your thinking.

[Rentt]

Here - dont take my word for it see if you become aware of a definition everywhere in here.


Just how much leverage if you use?


Maximizing growth without risking bankruptcy

Lots of hedge fund disasters come not from making the incorrect stakes #8211; that happen to the best of us 8211; but from making too big a bet by overleveraging. On the flip side, without using leverage (i.e. borrowing on margin to buy stocks), we often cannot realize the full growth potential of their investment egy. So just how much leverage if you use?

Surprisingly, the answer is well-known, but little practiced. It is called the Kelly criterion. The leverage is defined as the proportion of the size of your portfolio. Kelly standard says: f should equal the expected excess return of the egy divided by the anticipated variance of the excess yield, or


f = (m-r)/s2

(The excess return being the yield m minus the risk-free rate r.)

This amount f resembles the recognizable Sharpe ratio, but it is not, because the denominator is s2, not s as in the Sharpe ratio. However, if the Sharpe ratio can be estimated by you, state you can also estimate f. Suppose I have a egy with anticipated return of 12% over a span with risk-free rate being 4 percent. Additionally, let#8217;s say the Sharpe ratio that is anticipated is 1. It is not hard to calculate f, which comes out to be 12.5.

This is a shocking amount. This is telling you for this particular egy, you should be minding your equity 12.5 occasions! You should borrow money to exchange a $ 1.2 million portfolio if you've got $100,000 in cash to invest, and in the event that you believe the anticipated values of your returns and Sharpe ratio! I'm already familiar with the Kelly formula although I don't use it all in my trading. I use the much, much superior Fixed Ratio position sizing as clarified by R. Jones.

That is said Kelly's definition of leverage has of course nothing to do with FX, we're just playing with words here.

[Refaco]

I'm already familiar with the Kelly formula although I do not use it all in my trading. I utilize the much, far superior Fixed Ratio position sizing as described by R. Jones.

That's said Kelly's definition of leverage has of course nothing to do with FX, we're simply playing with words .
You are just too funny - I can't tell if a schitzo lawyer or a highschool prom queen.

[suarwzsj]

This is a another normal trading myth: large leverage is awful for you!

.

Since this is in the beginners section, I'll respond. :

High leverage is awful for new traders. It gives them the impression that they are capable of greater than they are. In a 400:1 account, a new trader with $500 will say, I'll use just 1/4 of my account to trade. Of course, one trade of -50 pips will stun a new trader. As you know, new traders arrive with a fantasy... not the belief that they'll get hammered their initial trade. Now that they have just $250 left in their account... they'll actually bet that previous half to attempt to get the $250 they had just dropped.

However, if leverage to the newbie was just 20:1, 10:1... they might in reality say I'll use all my account. Their very first transaction they would still lose -50pips, however, they would be sitting on $450-$475 account balance and would continue to be able to maintain that fantasy they had. This would also be a learning experience for them... rather than a devestating blow to their hopes.

Now, a seasoned trader would get that 400:1 account and simply say I will trade 5% of my account balance to start. If he loses the 50 pips, he will be in the exact same position since the newbie with 20:1.

I am just trying to provide a perspective here. I've spoken with enough of my peers to understand that they were thrown away from the leverage bargain. They literally had no idea that they would get hit so hard. Traders that know what is going on have nothing to dread of leverage.

So new traders... trade micro lots... not minis. Do not ship in $500 to a broker that lets you trade minimal $1/pips. Your fantasy not just will last longer, it may just last long enough to actually come true.

[Rentt]

Because this is from the beginners section, I will respond. :

High leverage is awful for new traders. It gives them the belief they are capable of more than they really are. In a 400:1 account, a new trader with $500 will state, I will use only 1/4 of my account to exchange. Of course, 1 trade of -50 pips will stun a new trader. As you know, new traders come with a dream... not the belief that they'll get hammered their first trade. Now they have only $250 left in their account... they will actually gamble that previous half to attempt to get the $250 they'd just lost.

However, if leverage to the newbie was only 20:1, 10:1... they could in fact say I will use all my account. Their first transaction they would still lose -50pips, however, they would be sitting on $450-$475 account balance and would be able to maintain that dream they'd. This would also be a learning experience for them... rather than a devestating blow to their hopes.

Today a veteran trader would get that 400:1 account and just say I will exchange 5 percent of my account balance to get started. If he loses that same 50 pips, he'll be in the same position as the newbie with 20:1.

I am simply trying to give a view here. I've spoken with a lot of my peers to understand that they were thrown off from the leverage deal. They literally had no idea they would get hit so hard. Traders that know what is currently going on have nothing to worry of high leverage.

So new traders... trade micro lots... not minis. Don't send in $500 to a broker that allows you exchange minimal $1/pips. Your dream not just will last longer, it may only last long enough to really come true. For the last time, it isn't important if you have just $100 in your FX account and start a 100:1 leverage position but mean to wire a total of $50,000 for your FX account through the years or if you start a FX account with $50,000 immmediately and just open a 100:1 position using $100 margin cash.

Most traders will state Hey the first solution is VERY BAD, you are way overleveraged while in the second choice they'll clap and say Wow, very conservative move, fantastic trading choice! .

Actually, BOTH trading decisions are IDENTICAL and will not make a damn difference in your trading results/profits, this is what I am attempting to explain folks.

[suarwzsj]

For the last time, it isn't important if you have only $100 on your FX account and start a 100:1 leverage place but intend to wire a total of $50,000 for your Foreign Exchange account through the years or if you start a Foreign Exchange account with $50,000 immmediately and only open a 100:1 place with $100 margin cash.

Many traders will say Hey the very first solution is VERY BAD, you are way overleveraged while at the second choice they will clap and say Wow, very conservative move, very good trading choice! .

Actually, BOTH trading choices are IDENTICAL and won't make a damn difference on your trading results/profits, this is precisely what I am attempting to explain people. Was this in response ? I really don't follow if it is. All I'm saying in my article is that you will find people who open an account with $500 and that is simply. They will never ship in anything or 50k of the type. If you mix that handicap with the simple fact that they've 400:1 leverage, they will be at a lot of difficulty. You don't agree?

The original article was asking the question regarding whether high leverage is bad. It is if you are a newbie who has little concept of what is going on. If you chose that high leverage out and made them trade 20:1, 10:1... there are a lot of people still clawing their way through the market. Since they had to trade more these individuals may have actually made something of themselves. This as opposed to simply gaming a couple trades.

That I have no debate regarding the structure of an account along with its impact on leverage. All I understand is... when an account has a $0 balance... it won't be trading much anymore.

[Copipk333]

I am already knowledgeable about the Kelly formula although I don't use it at all in my trading. I use the much, much superior Fixed Ratio position sizing as clarified by R. Jones.

That's said Kelly's definition of leverage has of course nothing to do with FX, we're just playing with words here. I nearly died lauging once I read this. Not because of its wrong or something.

Its only funny!

[Refaco]

For the last time, it does not matter if you have just $100 in your FX account and start a 100:1 leverage place but mean to wire a total of $50,000 for your forex account over the years or if you start a forex account with $50,000 immmediately and just open a 100:1 place with $100 margin money. In your case - the leverage used at the next part is not the same as the leverage used at the first part. But lets assume that it is. 100:1 leverage standing on $100 account will make it possible for you to exchange 1 10K lot. If the market moves 1 percent against you, you will have murdered the account. Now lets say that it does not and your money double . At this point you have $200.00 - if you use 100:1 leverage and exchange two 10K lots - a 1 percent move against you and your account is at zero. A 1% movement in your favor will double you up again. The point is if you use the complete amount of leverage available for you, you will always risk your entire account on any 1% movement against you. This is true wether you have a account or a 50K account.

That's all assuming you are utilising the maximum leverage readily available to you which was exactly what the discussion was initially. What you are suggesting here is that wether or not you have $100 or even 50K you are still just trading 1 lot. This is not as bad as the first situation because if you double your money a few times by the fifth trade you will already be using 25:1 leverage as opposed to 100:1 - still high but much more manageable. And at this stage it isn't important if you deposit your 50K today or later as you are never scaling down or up (although an opportunity may pass you by while waiting to fund the account). From the bill gates instance as in every one of your cases, you imply using each of the leverage available for you, in which case 100: leverage utilisation is just plain suicidal. That would interpret trading 500 10K lots with 50K. Again a 1% move from you and you are completed - an eventual certainty in that situation.

Dont take it to heart though, I know you had good intentions all along and that I apologize for any offense I may have made. I really don't believe that you are stupid either, special is more the term.

Good day

[Mioxra72]

Folks,

I believe we are getting caught up here in semantics.

The two FXT and the rest of you are correct about leverage. We're arguing about the difference between POTENTIAL leverage and KINETIC leverage. . .akin to potential and kinetic energy.

FXT is only describing POTENTIAL leverage. . .in that, to his stage, I am in complete agreement. The blanket statement that 400:1 leverage from a broker is poor is not a true statement.

What Faure and the rest of you are describing is exactly what I'm going to refer to KINETIC or real leverage, which is also quite significant. Kinetic leverage identifies the initial size of your portfolio (or trade size) to your initial equity balance. This is very important for newbies to understand because occasionally, you can not really control your possible leverage (case in point, MBT doesn't permit you to adjust your prospective leverage. . .it's 100:1 and that is it).

You guys are just bickering about who is semantics are much better and it's becoming just a little mundane. For those of us who can see it either way, let's move on, otherwise, I am thinking ya'll will just have to agree to disagree, since everyone is merely pumping up the rhetoric when the material has been on display since the initial 6 or 7 posts.

StockJay was the only one who pointed out the plogical effect of owning a higher potential leverage. . .which is true. There'll be temptation. . .but I am in the camp that believes that by touching the fire, you learn to not get burnt. . .and then adjust your risk so. That is how I live. . .Not that it doesn't help to keep the warning signs. . .but I think newbies are going to make the mistakes that newbies make because that is the natural progression of all things. I am not necessarily advoing higher potential leverage...I am just not condemning people who have it for the sake of getting it.

[Rentt]

On your example - that the leverage used in the next part isn't the same since the leverage used in the initial part. It's the same exact leverage! The same!!

Going into a casino with $10,000 and betting only $100 on every roulette spin is the exact same EXACT DAMN THING as going into the casino and betting $100 daily, 100 successive days, when are you going to get this through your head!!

From the initial scenario traders/gamblers will applause and say: This man is great, he's just gambling/trading with an extremly lt;lt;lowgt;gt;?? Leverage

At the second case they'll say: This man is crazy, he's betting ALL his money in 1 shot (bad high leverage), what a weirdo!

In reality, the two alternatives are EXACTLY IDENTICAL.

IDENTICAL!!!

Sorry, but when a few traders can't understand that then there is absolutely nothing I could do.

[LuisYoGoLo]

FXterminator,

I believe your way of thinking is just one dimensional. Yea, both use $100 everytime they bet. From this point of view, leverage doesn't mean anything cause you seem only in terms of monetary value, which is the exact same for both people

In the risk point of view, 1 trader simply employs 2% of the equity every time he gambles while another one uses 100%. We have a different scenario. In gambling, they both will end up losing since they're playing with roulette. But from the markets, it is about survival then profits afterwards. Not about looking strictly at the $ value

I guess folks are thinking a step ahead of you by thinking of the risk connected to leverage rather than just the $100 or whatever it's the $ amount they're betting. And I suppose you are not, although they assume that you are thinking of this also.

Miscommuniion perhaps?

[Rentt]

In the risk point of view, one trader simply employs 1% of his equity each single time he gambles while the other one uses 100%. We have an entirely different scenario. Nothis is what you don't understand Hilmy.

BOTH traders/gamblers are using only 1% of the balance on each trade/bet.

In the first case, gambler # 1 has $10,000 in his pocket and gambles only $100 on each roulette spin. So his alloing of the bankroll to each bet.

At the next case, gambler #1 has only $100 full in his pocket and bets $100 at the roulette table.

Okay, today it seems that gambler #2 is gambling 100% of his bankroll, BUT when he intends to return daily for another 100 times and bet another $100 each time then gambler too is ALSO alloing 1% of his bankroll to each bet, although it seems he is gambling 100% of the bankroll on each bet.

Same thing with Currency Market, depositing $10,000 all at once and gambling $100 on each trade is the SAME EXACT THING than gambling $100 (with only $100 trading equilibrium ) 100 consecutives times (you simply wire another $100 to your FX account, as required ), although in the second instance it seems that I'm trading with way too much leverage.

Get it know my buddy?

[layunny]

Same thing with forex, depositing $10,000 at once and gambling $100 on every trade is the SAME EXACT THING than gambling $100 (with just $100 trading balance) 100 consecutives times (you simply wire an additional $100 for your FX account, as needed), even though in the second instance it appears that I'm trading using far too much leverage. Why would anybody care about this exactly? Are you attempting to justify risking your whole account?

[Rentt]

Why would anyone care about this exactly? Are you trying to justify risking your whole account? How do you define whole account exactly?

If a trader is poor and has just $100 to risk on FX (and ONLY $100 and no more) and he risks the whole thing on one trade now that is betting not trading and it's exceptionally bad, I agree 100%.

Now if the trader has $100 in his FX account but has a fantastic job and intend to cable $1000 monthly (WHEN NEEDED and just when desired ) to his FX account, then it doesn't matter he is bets that the whole $100 with a 400:1 leverage or 4000:1 leverage, it will not make a damn difference in his trading results/profits.

In fact this is just what I did 5 decades, once I started trading on the Foreign Exchange (I traded the SP 500 futures ). I opened my account with just $100 and opened a 200:1 leverage commerce. My brother saw that and said that I was crazy to do that, way too much leverage he explained.

Of course it seems that way at first glance. What he did know of course is that I had over $50,000 to alloe to the Foreign Exchange market, but $100 at a time when and IF needed.

But hey only try it, open two mini demo accounts.

Let us assume that mini-account 1 gives you $50,000 to perform with but account #2 gives you only $100 to trade with.

Ok, place your trades generally in both accounts and bet just $100 every time. Of course if you lose $100 (account # 2, leverage used 100:1) just open another mini demo account and repeat this operation as many times as required.

Once 1000 trades like this, you will notice that you have the exact same EXACT profits in both accounts, not a cent less, even though you're alloing 100% of your money to every transaction in account #2 and just 0.0002% of your money in account #1!!!

This is what most traders have a challenging undertanding.

[layunny]

How do you define entire account exactly?

If a trader is bad and has just $100 to risk on FX (and ONLY $100 and no more) and that he risks the whole thing on one trade today that's gambling not trading and it's exceptionally bad, I agree 100%.

Now if the trader has $100 in his FX account but has a fantastic job and mean to cable $1000 each month (WHEN NEEDED and just when needed) to his FX account, then it does not matter he is bets that the whole $100 using a 400:1 leverage or 4000:1 leverage, it will not make a darn difference in his trading results/profits.

Actually this is exactly what I did 5 years, when I started trading on the Currency Market (I traded the SP 500 futures ). I opened my account with exactly $100 and opened a 200:1 leverage commerce. My brother saw this and told me that I was crazy to do that, way too much leverage that he explained.

Of course it seems that way at first glance. What he did understand of course is that I had more than $50,000 to alloe to the Currency Market market, but $100 at a time when and IF needed.

But hey only try it, open two miniature demo accounts.

Let's presume that mini-account 1 gives you $50,000 to perform but account #2 provides you $100 to trade with.

Okay, place your trades generally in both accounts and wager just $100 every time. Of course should you lose $100 (account # 2, leverage utilized 100:1) simply open another miniature demo account and repeat this operation as many times as required.

After 1000 trades in this way, you will notice that you have the SAME EXACT profits in both accounts, not a penny less, though you're alloing 100% of your cash to every trade in account #2 and just 0.0002% of your cash in account #1!!!

That is what the majority of traders have a hard undertanding. Great, so what? What are we learning?

[javiersd12]

Great, so what? What are we learning? Exactly nothing.

[Cardtt]

How can you specify entire account precisely?

When a trader is bad and has only $100 to risk on FX (and ONLY $100 and no more) and he risks the whole thing on a single trade today that's gambling not trading and it's extremely bad, I concur 100%.

Now if the trader has $100 in his FX account but has a fantastic job and mean to cable $1000 each month (WHEN NEEDED and only when needed) to his FX account, then it doesn't matter he's bets the whole $100 with a 400:1 leverage or 4000:1 leverage, it will not make a damn difference in his trading results/profits.

In fact this is exactly what I did 5 decades, once I began trading on the Foreign Exchange (I traded the SP 500 futures before). I opened my own account with exactly $100 and opened a 200:1 leverage trade. My brother saw that and told me I was crazy to do that, far too much leverage he explained.

Of course it appears that way at first glance. What he did know of course is that I had more than $50,000 to alloe to the Foreign Exchange market, but $100 at a time when and IF needed.

But hey just try it, open two miniature demo accounts.

Let us assume that mini-account 1 gives you $50,000 to perform but account #2 provides you $100 to exchange with.

Okay, place your trades generally in both accounts and wager only $100 every time. Of course should you lose $100 (account # 2( leverage used 100:1) simply open another miniature demo account and repeat this operation as many times as required.

After 1000 trades in this way, you'll notice you have the SAME EXACT profits in either accounts, not a cent less, though you're alloing 100% of your cash to every trade into account #2 and only 0.0002percent of your cash into account #1!!!

That is what the majority of traders have a challenging undertanding. Let me see if I understand this properly...

You are saying we should (when we have $1000 to spend in an account) only cable $100 at one time? Instead of incurring 1 bank wire charge, we can incur up to 10 bank wire charges? This would mean that you're automatically down $25 (25%) per deposit you make!

Surethis concept can work, but recommend it if it puts the odds against you?

[Rentt]

Great, so what? What are we learning? It ought to be extremely evident by now darkstart: that so called high-leverage-is-bad myth is only that, a myth, as the preceding examples show.

[Rentt]

Let me see if I understand this properly...

You are saying we should (if we have $1000 to spend on an account) only wire $100 at a time? Can I state that Hidethereal? :

By the way, funding/depositing money (to your FX account) by credit card charges nothing, zero, there are no fees involved.

[LuisYoGoLo]

What the heck happened to my article???!

[Cardtt]

Did I state that Hidethereal? :

Incidentally, funding/depositing money (to a FX account) by charge card charges nothing, zero, but there are no fees involved. You didn't state this exact scenario, but the concept is the same.

[LuisYoGoLo]

I'm the one using $10,000 cause then I could open new ($100) positions while the other positions are still in play. While the man can do one place at a time. Since more chances translates to better returns (provided you've got the edge).

So I guess in fact, both traders aren't equal. They could risk equal $ number, but the one trader has a higher probability of success.

Plus does not it take at least few hours or even days for account balances to be upgraded even if you do credit card deposit? The trader who retains depositing will wind up wasting time and overlook good trades. .

[Rentt]

I rather be the one with $10,000 trigger I could start new ($100) positions while the other places are still in play. While the other man can do one place at one time. Since more opportunities translates into greater returns (provided you have the advantage ). Well we do not know for certain if greater opportunities translates into greater returns in the long run Hilmy83. What is true however is it will certainly decrease the drawdown and give you a much smoother equity curve.

But MORE profits I am not certain about that.


Subsequently the trader who keeps depositing will end up wasting time and overlook superior trades on the way. . Authentic, but he'll also avoid a lot of losing transactions too, while awaiting his deposit to clean in the long term things will even out.

[javiersd12]

Well we don't know for sure if more chances translates into greater returns in the future Hilmy83. What is true however is that it will certainly reduce the drawdown and give you a smoother equity curve.

But MORE profits I am not sure about that.



Authentic, but he'll also avoid a lot of losing trades also, while awaiting his deposit to clear in the long term things will even out. You are supposing his system has only a 50% success rate and also that his profit trades and losing trades will be exactly the exact same size.

[Cardtt]

True, but he'll also avoid a lot of losing trades too, while waiting for his deposit to clear in the long term things will even out. If you get a good system with specific entry and exit rules you want to take every sign. You never know which trades will likely be profitable and which will be unprofitable. You might miss the winner or even the loser, which makes it up to determine which trades you miss turns your system to betting.

[javiersd12]

It ought to be extremely obvious by now darkstart: this called high-leverage-is-bad fantasy is simply that, a myth, since the preceding examples show. Okay....not that I buy your entire premise, but what if it's a fantasy? That is his point. Are you going to tell us that if we have two accounts, one with $100 and one using $10,000 and should we utilize the system on the two, that we'll earn more money by maxing out our account on each transaction? If not, then there is no point.

[layunny]

It should be extremely obvious by now darkstart: that called high-leverage-is-bad fantasy is only that, a myth, as the previous examples show. Finding a hypothetical situation where you incur outrageous transaction costs and gain zero tangible benefit barely qualifies as justifiion for a blanket statement about something being generally good or bad.

Make your point about how a person may benefit from your arguement.

[Rentt]

you are assuming his strategy has only a 50% success rate and also that his profit trades and losing trades will be exactly the same size. Everything depends on your take profit and your stop, not your winning percentage.

Also please bear in mind I wouldn't have to deposit $100 eternally in my FX account, at the second or third deposit the profits will begin to grow by the system wouldn't require any more deposits.

[Rentt]

Create your point about how a person may gain from your arguement. This post is NOT (NOT!) About not to trade on the FX or how to trade. I am exposing my views about this high leverage myth. How traders utilize their money or intend to utilize their money is not my problem and has nothing to do with this particular thread.

[Rentt]

okay....not that I buy your whole premise, but so what if it's a myth? That is his point. Are you going to tell us that if we have 2 accounts, one with $100 and one with $10,000 and if we utilize the same system on both, that we'll make more money by maxing out our account on each transaction? If not, then there is no point. No, all I said was that those 2 accounts would end up making the same sum of money, although at the next account it would appear we're using too much leverage and at the first account we're using secure leverage.

This secure leverage is of course only a illusion, both accounts are creating exactly the same precise profits and are experiencing the same precise drawdown.

[nervitta]

No, I said was that those 2 accounts would end up making the exact same sum of money, although in the next account it would seem we're using too much leverage and in the first account we're using secure leverage.

This secure leverage is of course just an illusion, the two accounts are creating the exact same exact profits and are experiencing the exact same precise drawdown. I dont see how this can be possible

[Rentt]

I dont see how this can be possible What's that?

Recall a pip is a pip, regardless of what leverage you're using.

But hey, do not even take my word for it, just try the experiment for a week and then see for yourself Don Perry.

[oxnyx3]

This safe leverage is of course only an illusion, both accounts are creating exactly the same exact profits and are experiencing the same exact drawdown.
Okay, both are creating exactly the same drawdown and profits supposing that the wire transfer prices are minimal and no good/bad trade missed while awaiting wire transfer.

Why bother discussing this in the first place is what I do not know.

[calda]

High leverage isn't the problem. It only becomes a problem when it's misused. It isn't only the novices that abuse ita lot of pros do all of the time.

[Rentt]

Ok, both are creating exactly the same drawdown and profits assuming that the wire transfer prices are minimal and no good/bad commerce missed while waiting for wire transfer.

Why bother discussing that at the first place is exactly what I don't understand.
Well if both accounts are making precisely the very same profits even though one account is having an extremely conservative leverage and the other account is having a frightening 400:1 leverage then we have to conclude that this large leverage is poor thought is simply a myth.

This is precisely what I am attempting to describe from the start.

Okay folks, that is it for me as far as this thread is concerned, I cannot add anymore remarks. Thank you all for your input.

[zeudes]

Well if both accounts are making the same profits even though one account is having an extremely conservative leverage along with the other account is having a scary 400:1 leverage then we must conclude that this large leverage is poor idea is simply a myth.

This is precisely what I am trying to explain from the beginning.

Okay folks, that's it for me as much as this thread is concerned, I cannot add anymore remarks. Thank you for your input.
I know im late to the party here but I must agree with you FXTerminator about your overall view of leverage when it comes to Currency Market trading. Ive been trading using the highest leverages possible and have been very profitable. What makes it work for me is that the fact I have a HUGE amount in my trading account but only trade a very low lot amount and here's the kickerI dont use stop losses. Yeah I know, alot of you are rolling your eyes but it works for me as it allows me a window of draw while also using the added impact of my broker not being able to stop hunt against me. In any given day a pair doesnt regular more than 1%. My guesses usually wind up correct. Sure ive taken losses and manually gotten from a trade but alot of instances just roll onto it until it veers back around my way. High leverage when investing low lot sizes allows you to just let it ride occasionally for two or three days before finally (barring some kind of sudden swing predicated on breaking news) items return around your way. Over the last 5 years I'm FAR more up than down entire.

As this thread began, those dumb CFTC rules tooke change and of course I immediately pulled my cash from my U.S. based broker and moved it abroad. FX, I'm interested to know how you handled this invoices **t regulation alter. Did it slow you down much or did you move your account abroad? I dont even have to ask exactly what the other guys on this thread did. They likely applauded that go and appreciate 50:1 or not as leverage lol. What believing that's. I'm a man. Everybody in the market are developed men and women. I dont think I must be limited because women cant and grown men manage cash. Bring back high leverage at the U.S. and let us GROWN MEN AND WOMEN decide for ourselves how we want to manage OUR money.

[AyrpknSenna]

If money management is the key to making forex profitable, what level of margin vs equity would be good in the event that you want to be a long term trader. Thank you for any input.

[xavi__12]

Should you use EA leverage Might help

[Kivva]

For me, equilibrium between leverage and amount of pips that a commerce can turn against me is that the crucial (pain threshold that I call it). There's another member here on FF that does something and does it well. Other people state that the Ris poor, but the secret in my method would be diminished leverage, and results per commerce. It is how you find and utilize a balanace for your method, although everyone has a different strategy.