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Chapter 34, Part I. A Bit More About Leverage. Page 2

Discussion in 'Complete Trading Education- Forex Military School' started by Sive Morten, Dec 28, 2013.

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  1. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Pipruit: Right, but I tell you what – I will better trust professionals.
    Commander in Pips: Do you? This is very surprising decision, but speaking seriously – you’re absolutely right. So it turns out that it looks like leverage is a double-edged sword, and somehow professionals try to avoid using it freely and too much. I tell you even more – 1:20 is a killing leverage for professionals. Almost never they use just initial margin on an account bucks to bucks. They always have a significant additional reserve, so their margin is rarely grater than 1:10. What does it mean? There is no doubt that professionals are wise, otherwise they couldn’t become a professional. So if you would survive on the market as long as they do, you have to follow them – also in terms of leverage.

    Pipruit: So, sir, applying our conclusions to Forex, we come to result that we can trade 1 standard lot, only if we have account of $10,000?

    Commander in Pips: Not quite, because as we’ve estimated in previous chapters this is more the question of money management system. Probably it’s better to treat it like since you don’t have 80-100K USD – it is probably better to open an account that will allow you to trade mini lots. If you have less than 10K – open an account that allows you to trade micro lots. It does not mean that if you have, say, 10,000 USD, you have to trade 0.1 lot every time. Depending on your rules and money management, you probably will trade 0.1-0.3 lots, but your account should allow to do it.

    Pipruit: I see, and what to do, if I have just 2000-5000 USD?​

    Commander in Pips: Well – it’s better to deal with a micro account, I suppose.

    Pipruit: Right. So, we should not open an account with 25$ or standard account with just 5000 USD just because brokers allow traders to do that.
    Commander in Pips: Absolutely. Anyway dealing with Forex trading you have to be absolutely aware of terms of leverage and margin. Many newbie traders were eliminated from this business not because they were bad traders or had bad trading systems, but because of a careless attitude or misunderstanding of leverage and margin. If you also have this misunderstanding – then you will lose all your money sooner rather than later.

     
    #1 Sive Morten, Dec 28, 2013
    Lasted edited by : Oct 9, 2016
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