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Don't kid with leverage..

vontogr (togr)
Aug 05 2014 at 09:24
4862 příspěvků
prachait posted:
I emptied by account with 2000:1 , 3 times in last 5 months
Now, i am happy with 50:1 and it is doing great for me |

Prachait


@prachait
It does not depend on leverage. OMG.
You can have leverage 1:3000 and still risk just 1% of your account.
In fact risk/profit depends on money management.

Prachait Saxena (prachait)
Aug 06 2014 at 19:12
36 příspěvků

Some thing to read on leverage, which I found on google |

>> Bob, would you mind telling me what leverage level you trade with?
I have a USA account that is 25:1 and 50:1. I plan on doubling my funds and going down to 20:1 or even 10:1. As my account grows I have been lowering my ratios. I also do not oppose traders with small amounts of capital trading high leverage with sums less than 500-1000 dollars. I call it tuition money where they learn how to trade. At some point you have to learn this business and you will pay tuition. The smaller the amount the cheaper the university of learning. However, when you get to trading large amounts you should get rid of the high leverage and stay as low of leverage as you can and still make money. I try to trade lot sizes that allow me to earn 5-10% a month. That would be in the 2-4 cents per thousand of account. So if I have a 1000 dollar account I would be trading 2 cent lots. 10K account would be 20 cent lots and 50K account would be 50 cent to 1.00 lots. If you go see the guys who trade million dollar accounts you would then get these kind of ratios. Guys who have million dollar accounts will trade 10 dollar lot sizes. They also trade in the 5:1 to 10:1 leverage ratios. The good ones will make 20-40% a year. If you want to hear their side of the story go read this thread of professional traders answering questions. You will see that these guys will teach some, not all, of what I am trying to say. You will also see various philosophies of trading and what goes on behind the scenes. Much of what brokers get blamed for is nothing more than the big bank traders going after a big fish whose SL is too tight. Very interesting read.

https://www.forexfactory.com/showthread.php?t=486128


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Here is a post at another forum where I explained the deceptiveness of high leverage accounts. I hope this makes it clearer to you.

We have had a similar discussion before so let me hit on two issues you have brought up. High leverage deceives you on the amount of funds you have available to trade. You will see the percent of the account put into play is very low with high leverage when in reality you have too much funds committed to lots. Yes you can just use small lots and still use high leverage but when you look at the figures at the bottom you will think you have lots of funds left to trade with when in reality you dont. That is the deception. Now could I trade high leverage and stay with small lots. Yes I could but a critical piece of information is missing when I trade. When I trade at 25:1 I have more of my money in play and the percentage numbers will be much different at the bottom of the screen. I can see the amount of money I have left to put into play is getting smaller and I am committing too much funds in total. So with that warning I quit adding trades or I start closing out trades that arent doing anything. You dont get that information with high leverage until its way too late. You are already a goner. Low leverage I can see my percentage left to play with is reaching the 300% then 200% levels I know I have too many lots in play and I can close some out with out damaging my account balance. With high leverage you get down to that 200% level, you already are cooked and you have to damage your account to close out trades. That is a big deal that very very few traders understand or even consider when trading. I stay out of trouble with my account because I can see that percentage number with low leverage and know its time to clean some junk out. High leverage accounts show you still have funds to play with when in reality you have already strained your account to its limit. You are done but you dont know it yet.

The second issue is swap costs are the same, or the interest rate is the same whether you have high/low leverage. That also is a big deception. WHY? Because the interest rate maybe the same but the amount you borrowing is far different. If I put 400,000K in play with my 1000 dollars 400:1 leverage or I can only play 25K into play with 25:1 leverage, the interest or swap is the same but the amount you are paying compared to me is a BIG BIG difference. 10% interest on 400K over one year is 40,000 dollars. 10% interest on 25K over one year is 2500 dollars. You will pay 16X more money in interest trading the same size lots and trades that I do but you will not make anywhere near as much money as I do. Interest costs will eat up your profit from that 1000 dollar account. Again this is an area very very few traders comprehend or understand. The idea is swaps are the same so it makes no difference is very faulty logic. It shows that the trader doesnt understand the amount of money he is borrowing and the cost of borrowing that money to trade with. All he is thinking is the interest rate is the same so it doesnt matter. Well it does and long term you are really making less than you would with a lower leverage account.
Well I hope I explained this good enough to understand. I tried my best.

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Read in detail as it will be useful in may different ways |

Prachait


Forex - Currency Trading is for Living |
gilga01
Aug 07 2014 at 06:37
7 příspěvků
prachait posted:


The second issue is swap costs are the same, or the interest rate is the same whether you have high/low leverage. That also is a big deception. WHY? Because the interest rate maybe the same but the amount you borrowing is far different. If I put 400,000K in play with my 1000 dollars 400:1 leverage or I can only play 25K into play with 25:1 leverage, the interest or swap is the same but the amount you are paying compared to me is a BIG BIG difference. 10% interest on 400K over one year is 40,000 dollars. 10% interest on 25K over one year is 2500 dollars. You will pay 16X more money in interest trading the same size lots and trades that I do but you will not make anywhere near as much money as I do. Interest costs will eat up your profit from that 1000 dollar account. Again this is an area very very few traders comprehend or understand. The idea is swaps are the same so it makes no difference is very faulty logic. It shows that the trader doesnt understand the amount of money he is borrowing and the cost of borrowing that money to trade with. All he is thinking is the interest rate is the same so it doesnt matter. Well it does and long term you are really making less than you would with a lower leverage account.
Well I hope I explained this good enough to understand. I tried my best.

==============================

Read in detail as it will be useful in may different ways |

Prachait


That is a flawed logic. You don´t need to allocate all your money. It´s a bad idea whatever your leverage may be. With a higher leverage you have more space to breath. And besides in that example you pare 16x more money in interest but you make 16x more profit or that example is not valid.

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