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Low leverage is dangerous, why?

Jun 02, 2016 at 13:39
3,692 Angesehen
64 Replies
Mitglied seit Feb 09, 2017   7 Posts
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 [email protected] 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.
 
Mitglied seit Feb 22, 2011   4862 Posts
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:)
Mitglied seit Feb 22, 2011   4862 Posts
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.
Mitglied seit Feb 12, 2016   522 Posts
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
forex_trader_349954
Mitglied seit Aug 07, 2016   10 Posts
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
forex_trader_349954
Mitglied seit Aug 07, 2016   10 Posts
Feb 21, 2017 at 15:45
Keyword: know. 😄

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.

Mitglied seit Feb 22, 2011   4862 Posts
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
Mitglied seit Dec 28, 2016   8 Posts
Feb 27, 2017 at 07:29

I use 1:500
Mitglied seit Feb 22, 2011   4862 Posts
Feb 27, 2017 at 07:31
masatrasa posted:

I use 1:500

Good for you but dont forget stop loss :)
Mitglied seit Feb 22, 2011   4862 Posts
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 😄

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?
Mitglied seit Nov 04, 2017   13 Posts
Dec 17, 2017 at 08:22
togr posted:
JacoAF posted:
Interesting... However, any form of leveraging can be dangerous if you have no clue how to apply proper risk management on your portfolio. High leverage (e.g. more than 200) is very dangerous to NEW traders, who tend to place more trades (because each trade requires less margin). New traders also are less disciplined in using correct stop-loss and take-profit levels, which could result in holding onto multiple high-leveraged losing trades for too long, resulting in blown accounts very quickly.

I think you have a valid point if you are an experienced trader with a solid proven trading system. It makes sense to use high-leveraged accounts when a proven risk management strategy is applied.

But I would not advise any new trader to open a high leverage account (e.g. 1:500) on their first attempt at trading, while they are still very inexperienced in terms of risk and money management, solid technical and fundamental analysis as well as being able to handle the emotional stress associated with trading, especially manual trading.

Anyway, very interesting post indeed! 😄

Well even newbie trader could work with high leverage using fixed stop losses and lets say max XXX trades od size of YYY on account of ZZZ balance. Well ANY even newbie trader should have trading plan including position sizing based on leverage:)


Do you recommend me to work with high leverage?
Mitglied seit Feb 22, 2011   4862 Posts
May 14, 2018 at 13:43
Adelgrepling posted:
togr posted:
JacoAF posted:
Interesting... However, any form of leveraging can be dangerous if you have no clue how to apply proper risk management on your portfolio. High leverage (e.g. more than 200) is very dangerous to NEW traders, who tend to place more trades (because each trade requires less margin). New traders also are less disciplined in using correct stop-loss and take-profit levels, which could result in holding onto multiple high-leveraged losing trades for too long, resulting in blown accounts very quickly.

I think you have a valid point if you are an experienced trader with a solid proven trading system. It makes sense to use high-leveraged accounts when a proven risk management strategy is applied.

But I would not advise any new trader to open a high leverage account (e.g. 1:500) on their first attempt at trading, while they are still very inexperienced in terms of risk and money management, solid technical and fundamental analysis as well as being able to handle the emotional stress associated with trading, especially manual trading.

Anyway, very interesting post indeed! 😄

Well even newbie trader could work with high leverage using fixed stop losses and lets say max XXX trades od size of YYY on account of ZZZ balance. Well ANY even newbie trader should have trading plan including position sizing based on leverage:)


Do you recommend me to work with high leverage?

That depends if you know how to control the risk
Mitglied seit May 23, 2017   13 Posts
Jun 27, 2018 at 06:21
In a way leverage is almost irrelevant to risk. Bad traders will lose money on a small leverage account or a larger leverage. It does not solve the problem of risk management. If anything it gives a false sense of security
Mitglied seit Feb 22, 2011   4862 Posts
Jun 27, 2018 at 10:08
BillyBigNose posted:
In a way leverage is almost irrelevant to risk. Bad traders will lose money on a small leverage account or a larger leverage. It does not solve the problem of risk management. If anything it gives a false sense of security

Exactly. Low leverage in fact force traders to deposit more capital to be able to trade.
Bad traders - majority of them - will lose that capital at the end.
Mitglied seit Jan 30, 2018   1 Posts
Jun 27, 2018 at 14:16
More leverage = more buying power. Use with proper risk and you can 10x your profits. (The same way you can make money, you can lose money. You can 10x losses too)
Mitglied seit Feb 22, 2011   4862 Posts
Jun 28, 2018 at 06:32
danielcabreja posted:
More leverage = more buying power. Use with proper risk and you can 10x your profits. (The same way you can make money, you can lose money. You can 10x losses too)

Sure
first you have to have trading plan
when you are profitable you can scale up
Mitglied seit Jun 28, 2018   10 Posts
Jun 28, 2018 at 13:32
togr posted:

Sure
first you have to have trading plan
when you are profitable you can scale up

That is how it is done. Leverage large or small doesn't matter to most traders. Sensible ones will make money the bad ones will lose it all
Mitglied seit Feb 22, 2011   4862 Posts
Jun 29, 2018 at 06:51
Downtobusines posted:
togr posted:

Sure
first you have to have trading plan
when you are profitable you can scale up

That is how it is done. Leverage large or small doesn't matter to most traders. Sensible ones will make money the bad ones will lose it all
Wisely used leverage allows you to get the same profit with lower balance
Mitglied seit Jan 05, 2016   1189 Posts
Jul 14, 2018 at 03:06
kebayamwamba posted:
with low leverage 99% of retail traders would never trade FX...


All US FX brokers have a hard limit of 1:50 for retail traders.

That's the maximum allowed, and it's been that way for quite some time.

To argue otherwise is completely pointless.

If it looks too good to be true, it's probably a scam! Let the buyer beware.
Mitglied seit Dec 09, 2015   823 Posts
Aug 21, 2018 at 11:36
When leverage is low the temptation to open positions with large lots is greater, which in turn leads to larger losses if or when the market develops against you.
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