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Silverthorn (Silverthorn)
Apr 06 2014 at 01:14
268 posts
I see a lot of talk about high leverage accounts. Anybody care to explain leverage to me and tell me why I would want high leverage?

Does it help you make more money?

You can't spend open trades.
ForexAssistant (ForexAssistant)
Apr 09 2014 at 00:21
465 posts
Leverage is one of those common errors in forex because it is different than for stocks.
In forex the trade size is set by the lots size. For a standard account that is $100,000 per lot, or 100,000 pounds or yen, it doesn't matter but it is 100,000 to 1 lot. (Mini accounts are 10,000 to 1) This is the real leverage but that isn't the leverage that is talked about in forex.

The margin is set by the leverage. The marginal reserve is money that is automatically held back that you can't use to trade with or even protect open trades. How much is held back is determined by the account leverage. Divide the 100,000 by the leverage, let's say 200:1 so 100,000/200 = 500. So for every 1 lot you have open, there is $500 in your account that you can't touch.

Now if you are stuck with 50:1 as in the US, $100,000/50 = $2000 Ouch. You have to put an extra 2 grand in an account to protect the broker in case you lose more than you have in your account. With today's computers, the likelihood of that happening is very low but that is what it is for.

That $2000 would protect a one lot trade for 200 pips. But if you want to protect the trade, you have to put another $2000 in the account. This make your percentage of return drop and you are losing money because of stupid regulations. It in no way helps the trader to have a low leverage, it hurts him. Only in forex.

Bob

where research touches lives.
togr (togr)
Apr 09 2014 at 06:28
4862 posts
Yes higher leverage is better if you know what you are doing.
It will help you to make bigger profit from the same capital.
But you also need to protect your equity if you trade with high leverage.

e.g. you buy 1 lot eurusd
in fact it does mean you buy 100,000 EUR for 138,000 USD

So with lvrg 1:1 you margin requirement will be 138,000 USD
1:10 - 13,800 USD
1:100 - 1,380 USD
1:1000 - 138 USD

So high lvrg allows you to trade high volumes with low capital - good
as negative it can also wipe out the whole account if you do not know what you are doing.

ForexAssistant (ForexAssistant)
Apr 09 2014 at 07:01
465 posts
Yes, I should have added the assumption that the base currency and the currency that the account was set up with is the same. Damn, and I thought I did such a good job with that explanation.

I have never seen 1000:1 being offered, was that just an example or are there brokers offering 1000:1? Highest I've seen was 500:1 but I don't get out much.

Bob

where research touches lives.
togr (togr)
Apr 09 2014 at 08:09
4862 posts
ForexAssistant posted:
Yes, I should have added the assumption that the base currency and the currency that the account was set up with is the same. Damn, and I thought I did such a good job with that explanation.

I have never seen 1000:1 being offered, was that just an example or are there brokers offering 1000:1? Highest I've seen was 500:1 but I don't get out much.

Bob


There is 1:1000 on TradeFort - thought their website is outdated it is good broker
I saw 1:2000 and 1:3000 somewhere as well

ForexAssistant (ForexAssistant)
Apr 09 2014 at 08:37
465 posts
'I saw 1:2000 and 1:3000 somewhere as well '

OK, that's just nuts. It's not a bad idea to leave something to protect from going into over draft but 500:1 is enough. Forcing anyone to use a lower leverage amount is just wrong, uncalled for and would only be used by a dictatorship.

I guess I do have to get out more.

Bob

where research touches lives.
togr (togr)
Apr 09 2014 at 17:01
4862 posts
ForexAssistant posted:
'I saw 1:2000 and 1:3000 somewhere as well '

OK, that's just nuts. It's not a bad idea to leave something to protect from going into over draft but 500:1 is enough. Forcing anyone to use a lower leverage amount is just wrong, uncalled for and would only be used by a dictatorship.

I guess I do have to get out more.

Bob


Well none can force you to use broker with low lvrg
There are brokers with high leverage that handle US clients as well.

csc2009
Apr 09 2014 at 17:07
834 posts
A largely leveraged account will increse your wins when you win and magnifies your loses when lose. Very big leverage can kill your deposit very quickly. Personally I will go less than 1:500, not too risky.

togr (togr)
Apr 09 2014 at 20:42
4862 posts
csc2009 posted:
A largely leveraged account will increse your wins when you win and magnifies your loses when lose. Very big leverage can kill your deposit very quickly. Personally I will go less than 1:500, not too risky.


On High leverage you can control the risk by proper MM, equity protection and stop losses
It has nothing to do with leverage

ForexAssistant (ForexAssistant)
Apr 09 2014 at 20:54
465 posts
csc2009, please read the article that I wrote to start this thread off with. It might help the conversation to mature quicker if we're all on the same page. Certainly if you have a difference of opinion, we do want to discuss that, but we need to know exactly where we disagree to argue the point effectively.

Togr, what broker not under the mandates of the US government still accepts US clients? I had several that did after the prohibition came into affect but they all buckled under and closed out their US clients accounts. If there are some that still take US clients, I will very interested to know who they are. Many thanks in advance.

Bob

where research touches lives.
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