Is high leverage really bad for traders? -
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thread: Is high leverage really bad for traders?

  1. #11
    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.

  2. #12
    Member Rentt's Avatar
    32
    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.

  3. #13
    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?

  4. #14
    Member Rentt's Avatar
    32
    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?

  5. #15
    Senior Member layunny's Avatar
    195
    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?

  6. #16
    Member Rentt's Avatar
    32
    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.

  7. #17
    Senior Member layunny's Avatar
    195
    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?

  8. #18
    Junior Member javiersd12's Avatar
    21
    Great, so what? What are we learning?
    Exactly nothing.

  9. #19
    Junior Member Cardtt's Avatar
    5
    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?

  10. #20
    Member Rentt's Avatar
    32
    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.

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