Part II. Overleveraging and Transaction Costs. Commander in Pips: In second part of this chapter I would like to touch the theme of trading costs and overleveraging with some examples – just to show you how dangerous leverage is. In the beginning just couple of words how leverage impacts on your transaction costs. Let’s assume that you trade EUR/USD and pay no fees and commission, except for the bid/ask spread. Let’s say that this spread is 2 pips, so when you open and then close your trade you have to pay 4 pips totally as your trading expenses. Here is information to think about: Leverage 2xBid/Ask Spread, Relative to Your Position Bid/Ask Spread Paid as a Part of Your Capital, % 1:14 pips = 0.00040.04% 1:24 pips*2 = 0.00080.08% 1:44 pips*4 = 0.00160.16% 1:84 pips*8 = 0.00320.32% 1:164 pips*16 = 0.00640.64% 1:404 pips*40 = 0.01601.60% 1:1004 pips*100 = 0.044.00% 1:500 4 pips*500 = 0.220.00% Pipruit: Wow, so, if we will totally utilize 1:500 leverage that is commonly provided now by different brokers, the bid/ask spread will be 1/5 of my start up assets. Say, if my capital 10,000 USD, then the bid/ask spread at any trade with 1:500 leverage will cost 2,000 USD? Commander in Pips: Absolutely. So you can see that “fiscal death” and “leverage underestimation” are the same. But to give you just hard rocking foundation of that statement, let’s turn to some numerical examples. I know you like them, don't you?