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Chapter 34, Part II. Overleveraging and Transaction Costs. 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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    Some examples


    Commander in Pips: First, I would like to ask you create a table that shows how much your account value will change depending on price change %.

    Pipruit:
    Well, I suppose we do not need even the table. For example, if leverage is 1:100, it means that if price will change for 1% our account value will change at 100%. That’s why it calls 1:100.

    Commander in Pips: Right, I see you’ve really got it. And what about margin – can you tell the same, if you know margin, say, 5%?

    Pipruit:
    Margin shows the change of price in percents that will lead to 100% change in account value if leverage is totally utilized. As you’ve said margin is 5% and we apply leverage totally to our account value, i.e. use total account value as margin, then price should change for 5% to force the change in account value at 100%.

    Commander in Pips: That’s correct. I see that you probably do not need any examples, but we will show them anyway, just to point devastating power of leverage.
     
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