If you follow my advice, it doesn't matter if your broker allows 1:1 or 500:1. Calculate the amount that a 1 pip move will cost you on a pair. Then, based on your stoploss, account size, and maximum percent of your cash you wish to risk, you can determine the maximum number of lits/minilots/microlots that you can trade.
100:1 and 200:1 are the most common amounts of leverage for retail forex brokers. Just because your broker lets you control tens of millions of dollars doesn't mean you have to use all that leverage.
Leverage is a big sledgehammer. Swing it slowly and carefully or you'll hurt yourself.
Results 11 to 20 of 77
05-12-2008, 05:33 PM #11
05-12-2008, 07:51 PM #12
Leverage can be a very powerful tool as it can allow you to work with a large chunk of cash without having to deposit it all into your brokerage account. If you had $100,000 USD to put into an account planning to max it out at 50-1 leverage... you could trade the same volumes and risks depositing $50,000 into a 100-1 leveraged account and keeping the other $50k in the bank. Or on the high extreme, do 400-1 leverage with $12,500 exposed in the account and $87,500 in the bank. The great thing about this last setup is you're limiting yourself to about a 12% maximum loss before you're forced to reconsider your strategy and refund the account. Also, if your broker (God forbids) goes under, you're not stuck with all of your capital lost.
Leverage is a powerful, but potentially deadly tool. If wielded improperly or with inexperience, I agree it does MUCH more harm than good. However, I would much prefer to have access to higher leverage to have the flexibility to set my own agenda.
05-12-2008, 08:55 PM #13
Aside from that, I know of no broker that does less than 100:1 leverage except that they have a minimum opening deposit of something like $50,000 or more.
For bucket shops anyway, it is in the broker's best interest to get people to use higher leverage, as high as possible, and persuade traders to max out that leverage for the very reason that it's a stupid thing to do. It's profitable to a , BECAUSE it takes all the trader's money!
100 pips only wipes out their account if they put too much on the trade. How much the broker would ALLOW them to put is irrelevant.
How about a trader taking responsibility for understanding what he's doing before putting his entire account on a trade with a 100 pip ?
05-12-2008, 09:43 PM #14
- banks use nothing more than 2% margin. If you apply for a job as a trader and state that you use 4% margin, expect outright rejection.
- 10% margin utilization can bring in a drawdown of 60% in no time.
- Keeping a diversified portfolio where you spread your money over different pairs, is advisable, even though you might find lesser enteries. Examining less traded pairs also is a good idea .
- If you can't set mathematically, then consider using it on time. Let's say, after 48 hrs. you will close , whatever the result be.
05-12-2008, 10:02 PM #15
To Illustrate Why Risk Management is Important...
Here is an article I wrote that will illustrate that:
BizHobby How to manage risk in FOREX?
05-12-2008, 10:09 PM #16
05-13-2008, 03:11 AM #17
05-13-2008, 06:17 AM #18
05-13-2008, 09:03 AM #19
That's ridiculous, you wonder why 99% of retail forex traders fail? Because they use 100:1 leverage and think they are the **** because they can make a $100,000 trade with $1,000. You should not even be trading unless you have $10,000 and can open a mini-lot position without leverage, these brokers are making crazy bucks off of you people who try to make a living or start a living by trading on insane leverage. Anything more than 10:1 is incredibly irresponsible and you will never succeed at such degrees of leverage. If you are with a broker that does NOT allow you to adjust your leverage, you most certainly have a short future in forex trading, or a long future with a lot of lost money.
05-13-2008, 09:57 AM #20
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