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Low leverage is dangerous, why?
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MichaelWhite1

Member Since Feb 09, 2017  7 posts MichaelWhite1 Feb 09 2017 at 12:41
togr posted:
LOW leverage is in fact dangerous. WTF I am saying that?
It is simple - to get the same profit you need to invest and thus risk more money.
Lets say you want to trade 1 lot of EURUSD with SL/TP=100 pips.
With leverage of 1:3 you need 100000*1.12/3= $37,000 to cover the margin so you have to have account of $40,000 to trade 1 lot.
You are risking these $40,000 as anything could happen.

With leverage of 1:500 you need 100000*1.12/500= $224 to cover the margin so you have to have account of $1000 to trade 1 lot.
You get the same profit or loss on both accounts for trading 1 lot. Lets say profit of $100.
For 40k account it is just 0.25%
For 1k account it is 10%.

So it is much better to have 40 accounts of 1k with high leverage and diversified portfolio of broker/pairs/strategies than having one 40k account.



I would agree on the fact that if you have no knowledge a high or even low leverage can be both good or bad for your account.

It is important if you are a beginner to have someone to explain to you the proper leverage you should be using according to a proper money management control.

Feel free to contact me at michalis.m@bdswiss.com for a free education and explanation about leverages and their importance according to money management ideal levels.

Trading can result in amazing profits and results or even kill your account balance if it is done recklessly.

Education and assistance is a must. Do not walk alone.

No strings attached...feel free to contact me.
 

togr

Member Since Feb 22, 2011  3822 posts vontogr (togr) Feb 09 2017 at 12:55
MichaelWhite1 posted:
togr posted:
LOW leverage is in fact dangerous. WTF I am saying that?
It is simple - to get the same profit you need to invest and thus risk more money.
Lets say you want to trade 1 lot of EURUSD with SL/TP=100 pips.
With leverage of 1:3 you need 100000*1.12/3= $37,000 to cover the margin so you have to have account of $40,000 to trade 1 lot.
You are risking these $40,000 as anything could happen.

With leverage of 1:500 you need 100000*1.12/500= $224 to cover the margin so you have to have account of $1000 to trade 1 lot.
You get the same profit or loss on both accounts for trading 1 lot. Lets say profit of $100.
For 40k account it is just 0.25%
For 1k account it is 10%.

So it is much better to have 40 accounts of 1k with high leverage and diversified portfolio of broker/pairs/strategies than having one 40k account.



I would agree on the fact that if you have no knowledge a high or even low leverage can be both good or bad for your account.

It is important if you are a beginner to have someone to explain to you the proper leverage you should be using according to a proper money management control.

Feel free to contact me at IamIdio@@bdswissnlde.com for a free education and explanation about leverages and their importance according to money management ideal levels.

Trading can result in amazing profits and results or even kill your account balance if it is done recklessly.

Education and assistance is a must. Do not walk alone.

No strings attached...feel free to contact me.
 


@MichaelWhite1
Dont promote yourself here. You have no experience not accounts - according to your own profile here so dont try to sell your so called help to newbies here.
If anyone needs help feel free to ask here on MFB. Dont listen to guys without proven record of profitable account.
Of course like me:)

I like what I trade, I trade what I like
togr

Member Since Feb 22, 2011  3822 posts vontogr (togr) Feb 09 2017 at 13:01
OK so back to leverage. I have great system which could open up 2 lots of positions.
It make like 10% monthly with low risk.
I do trade it with HIGH leverage and 5,000 deposit.
https://www.myfxbook.com/members/togr/simplythebest-fxpro/1854918

Now imagine trading this account without leverage, you would need over $200,000. The profit will be the same ~500 /month
So for my LEVERAGED account it is 10% a month indeed
Now do your math for 200k account, hmm, so?



Yes it is 0.25% so 40x times less.

As always I do limit risk by system not by leverage. Leverage is not risk mgmt it is just way how to increase your profit.

I like what I trade, I trade what I like
BaldoN

Member Since Feb 12, 2016  504 posts Baldo (BaldoN) Feb 14 2017 at 09:37
Hello :)
The leverage is not danger - if you KNOW what you are doing. This is an option you can use in your benefit.

vavad

Member Since Aug 07, 2016  10 posts vavad Feb 21 2017 at 15:45
I think every new trader should have notion of leverage. That is, you can not say 'do not use it, it can be dangerous for you', the new trader must learn how to handle it! How else can you succeed with this method?
You just have to know how to use it. And I think of course, in the process you will have to lose some money, to learn what to do and what NOT to do.

vavad

Member Since Aug 07, 2016  10 posts vavad Feb 21 2017 at 15:45
Keyword: know. smiley

BaldoN posted:
Hello :)
The leverage is not danger - if you KNOW what you are doing. This is an option you can use in your benefit.



togr

Member Since Feb 22, 2011  3822 posts vontogr (togr) Feb 21 2017 at 20:26
vavad posted:
I think every new trader should have notion of leverage. That is, you can not say 'do not use it, it can be dangerous for you', the new trader must learn how to handle it! How else can you succeed with this method?
You just have to know how to use it. And I think of course, in the process you will have to lose some money, to learn what to do and what NOT to do.


yeah people usually start trading without knowing what leverage is,
some like @crazytrader does not know it by now yet
they dont know how to use it and what are the limitations

I like what I trade, I trade what I like
masatrasa

Member Since Dec 28, 2016  8 posts wetalktrade (masatrasa) Feb 27 2017 at 07:29

I use 1:500

togr

Member Since Feb 22, 2011  3822 posts vontogr (togr) Feb 27 2017 at 07:31
masatrasa posted:

I use 1:500


Good for you but dont forget stop loss :)

I like what I trade, I trade what I like
togr

Member Since Feb 22, 2011  3822 posts vontogr (togr) Aug 02 2017 at 12:52
shirley_F posted:
togr posted:
So using low leverage is forcing you to risk more to get the same profit.


This is wrong. With low leverage you actually not risk but secure more money in your account in case of reaching your broker's stop out level, meaning you will end up having more after your trade is automatically closed.

Example:
If you trade 0.1 lot on EURUSD (10,000 EUR) and your broker's stop out is set to 50%, in case of negative price movement, with a leverage of 1:100 (margin required - 100 EUR) you will reach the stop out having 50 EUR left in your account. However, with a leverage of 1:1000 (only 10 EUR required as your margin) you will reach the stop out having 5 EUR. Therefore - with the higher leverage you are losing 10x more, meaning you are putting at stake (risking) 10x more money. It's is that simple. Once again, I am talking about the connection between risk and leverage, not between profit and leverage, as this is the topic of the discussion. It is also true that if you risk more you could earn more. But danger comes with the risk of losing.

An account can be wiped out with any leverage but in normal conditions (no flash crashes or black swan events) the lower the leverage, the slower the account can be wiped out. No wonder why brokers who trade against their clients always recommend using a high leverage focusing on the big profits and ignoring the risk of big losses. They know that when they clients lose, they make a good profit and faster smiley

To make sure my example earlier is clear - we can simply say that we want to invest 10,000 EUR (having in our account enough funds to do it, considering margin calls, spreads, commissions etc.). If you trade these 10K at 1:1 leverage, you risk losing 0.1 USD for every pip of adverse price movement, while if you trade the same 10K at 1:100 leverage, you risk losing 10 USD for every pip of adverse price movement. This means that higher leverage is riskier.

@kebayamwamba Don't get me wrong, I am not against the leverage in general. In fact leverage makes trading accessible to all small investors which is good and you are right that no one forces us to open large trades. I just wanted to explain with an easy to calculate simple example why the statement 'low leverage is more risky' is wrong. I prefer actually trading FX with a leverage of not more than 1:100, risking less.

@togr Your attempt to challenge a common truth deserves admiration and this was a nice and solid attempt. It's also important to present both sides of the coin. Wish you good luck in trading at high leverage as it seems you have the skills to sustain it over long term and are happy with such conditions!

@shirley_F
now compare you many profitable accounts do you share to my profile...
so who is right?

I like what I trade, I trade what I like
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HIGH RISK WARNING: Foreign exchange trading carries a high level of risk that may not be suitable for all investors. Leverage creates additional risk and loss exposure. Before you decide to trade foreign exchange, carefully consider your investment objectives, experience level, and risk tolerance. You could lose some or all of your initial investment; do not invest money that you cannot afford to lose. Educate yourself on the risks associated with foreign exchange trading, and seek advice from an independent financial or tax advisor if you have any questions. Any data and information is provided 'as is' solely for informational purposes, and is not intended for trading purposes or advice.