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Low leverage is dangerous, why?

vontogr (togr)
Dec 09 2016 at 10:06
4862 投稿
The point is simple. If your goal is to make lets say $1000/month you would need just 10,000 deposit with high leverage to achieve this but you would need 100,000 with low leverage to achieve the same profit. So in fact with low leverage you risk 10x more to acquire the same profit. Think about it.
Tiffany (TiffanyK)
Dec 09 2016 at 13:58
427 投稿
Agree. With lowering the leverage the risk becomes higher and vice versa. Of course every traders goal should be to avoid the big risk of losing, not to concentrate only to the profit at the end. Sometimes the movement can go opposite of your plans and the bigger risk will mean no more funds available.
Accept the loss as experience
ReidHershel (clessm)
Dec 09 2016 at 14:12
32 投稿
sorry for delay answer.
..as I say if u usd no leverage , u not need to SL or Cut loss.
..
..
like U go to Internation bank and Exchance Usd , like this = this is meanig of no leverage.
..
..
when graph move 1 % your balance will 1 % too.
..
U say brexit has move about 2000 pip ? yes 2000 pip just about 20 % .of over all value
..
no leverage stretegies was used in many Hedge fund. and that is a secret of passive income in FOREX.
..
u can create the system that use no Lv ( not need to SL) to create cash flow , and then usd cash flow to bet leverage product
..
If u use no Lv stretegies // if u open 0.01 lot Std u usd full margin at 1000 contract size // such as buy GU at 1.26000 // u must have money in your port about 1260 usd for 0.01 lot std // 1 order
..
the weak point of no Lv stretegies was shown in sitiatuion that u can not open other trade when u still have Loss position //
if we know risk,we will not ruin // Novice Trader :
ReidHershel (clessm)
Dec 09 2016 at 19:14
32 投稿

And !!
.. when u usd leverage such as 1:10
.. it mean when the graph move 1 % your port was move by 10%
..
like this........if your balance was 1000 usd ....and u known...0.1 lot std was 10 000 contract size....
..
if u have 1000 usd in your port // and open 0.1 lot std . // it mean u have 1000 us but play size about 10 000
..
then if u balance still the same and u open 1.0 slot std // it mean u have 1000 us but plat size about 100 000 (leverage about 1: 100) what happen after we known this fact?......
..
u play 100 000 but 1000 is your balance 99 000 is fake balance that broker give to u for open it, not your real balance
..
.. if u loss more than 1000 from 100 000 u will stop out (1 % of overall value)...
..
u call low leverage was dengerous? still ?
if we know risk,we will not ruin // Novice Trader :
Dove_Services
Dec 09 2016 at 21:50
33 投稿
The idea that lower leverage increases risk is intuitively wrong and defies basic financial logic. I am amazed by the conflation in logic used to make such an argument. Leverage is simply a form of financing mechanism. Leverage vs no leverage is just financing structure between the use of debt vs no debt. Your capital (equity) put to risk is still the same regardless on the level of leverage. What changes is the trigger mechanism to stop out your position. In the real world, if you borrow to invest and you looses it entirely the lender will go after you. In the forex market, your broker cuts your position before the leverage crystallise into a real debt. What doesn't change is that the capital employed to earn the return remains the same regardless of leverage. In other words, the risk to your capital is the same regardless of leverage except that the broker automatically cut your position before it becomes a debt issue.

A good example is the USDCHF debacle where some clients ended up in negative equity. Fortunately for some there was a get out of jail cut because of the way the terms were structured and the fail safe mechanism of the brokers did not work as planned. I would not bet on it that in a future black swan event, the same get out of jail card will be available.
rob559
Dec 11 2016 at 07:26
1916 投稿
togr posted:
The point is simple. If your goal is to make lets say $1000/month you would need just 10,000 deposit with high leverage to achieve this but you would need 100,000 with low leverage to achieve the same profit. So in fact with low leverage you risk 10x more to acquire the same profit. Think about it.

i like simple answers
terrate
Dec 11 2016 at 07:32
8 投稿
Just use a example, you will use low leverage when JPY but no use on CHF ...

low leverage means low entry , i don't know why dangerous.

If u says your low leverage is win trade and high leverage is loss trade then can make sense.

low leverage provide you more ways, you also can fixed your leverage x100 or x50 everytime .



vontogr (togr)
Dec 11 2016 at 07:43
4862 投稿
clessm posted:

And !!
.. when u usd leverage such as 1:10
.. it mean when the graph move 1 % your port was move by 10%
..
like this........if your balance was 1000 usd ....and u known...0.1 lot std was 10 000 contract size....
..
if u have 1000 usd in your port // and open 0.1 lot std . // it mean u have 1000 us but play size about 10 000
..
then if u balance still the same and u open 1.0 slot std // it mean u have 1000 us but plat size about 100 000 (leverage about 1: 100) what happen after we known this fact?......
..
u play 100 000 but 1000 is your balance 99 000 is fake balance that broker give to u for open it, not your real balance
..
.. if u loss more than 1000 from 100 000 u will stop out (1 % of overall value)...
..
u call low leverage was dengerous? still ?

that is pure nonsense

...your so called graph move has nothing to do with reality...
learn what does leverage mean
what does pip size mean
what does sl mean
HarriOshord
Dec 12 2016 at 13:49
19 投稿
The higher above the shoulder, you lose in case of failure and more win if successful. Are you sure that nothing, not forgotten in his equation?
McLeonis (McLeonis)
Dec 13 2016 at 06:19
14 投稿
In this case, actually leverage not so important as people think.
It's just a margin requirements to open a position, some broker can provide a leverage from 1:2000 to 1:UNLIMITED (EXNESS).

Broker will return it when you closed order but YOU WILL TAKE ALL PROFIT AND LOSS from the position.

Low leverage mean you need more funds to open a position, you will bear the cost of opportunity.
Example:
You have a $100000 account,
1 lot at 1:5 leverage, you need $20000 to open a position and not greater than 5 orders
1 lot at 1:500 leverage, you need $200 to open a position and not greater than 500 orders
With high leverage you can make more trade than low leverage.

If you have a solid management plan, you will know how much risk per trade and there is no need to mind about leverage.
I personally care about leverage when i need to calculate swaps rate.

Hope this significant.
I don't throw darts at a board – I bet on sure things.
vontogr (togr)
Dec 13 2016 at 07:38
4862 投稿
Dove_Services posted:
The idea that lower leverage increases risk is intuitively wrong and defies basic financial logic. I am amazed by the conflation in logic used to make such an argument. Leverage is simply a form of financing mechanism. Leverage vs no leverage is just financing structure between the use of debt vs no debt. Your capital (equity) put to risk is still the same regardless on the level of leverage. What changes is the trigger mechanism to stop out your position. In the real world, if you borrow to invest and you looses it entirely the lender will go after you. In the forex market, your broker cuts your position before the leverage crystallise into a real debt. What doesn't change is that the capital employed to earn the return remains the same regardless of leverage. In other words, the risk to your capital is the same regardless of leverage except that the broker automatically cut your position before it becomes a debt issue.

A good example is the USDCHF debacle where some clients ended up in negative equity. Fortunately for some there was a get out of jail cut because of the way the terms were structured and the fail safe mechanism of the brokers did not work as planned. I would not bet on it that in a future black swan event, the same get out of jail card will be available.

@Dove_Services
no, you are wrong. Leverage simple determines margin required by broker to allow you to open trade.
(there are of course also trade cost like comission, spread, markup, swap, etc..)
So without leverage you can open trade of 0.01 lot of EUR for the cost of $1060. So you would need at least 1100 to open even the smallest trade possible. No these 1100 US is at risk. There are various reasons including broker bankrupt or aml policy or whatever could happen.
So WITHOUT leverage you are risking these 1100 to achieve very very decent profit - trading just 0.01 lot. You would not even be able to execute another trade until the first one close (or get 1060 with 0.01 lot)

With good leverage you can trade 0.01 with $100. With good money management it could be safe and very profitable.
You can even open 10 small accounts spreading the risk over different
A. brokers
B. systems
C. pairs
etc...

So once again low leverage is risky. As to achieve your profit goal you need to risk more capital.
Fredrick (shirley_F)
Dec 13 2016 at 11:20
41 投稿
The leverage serves as a multiplier to enable you to open positions much larger than your initial investment. To see the relation between leverage and risk, we need to isolate these 2 variables and consider all other trading conditions as equal. Risk corresponds to loss (as no one is risking to win something).

Example:
Let's assume you have 10,000 EUR in your account. With 1:1 leverage, you will be able to open max 0.1 lot on EURUSD (10,000 EUR) and if the price moves by 0.1 pip in the opposite direction, you lose 0.1 USD. You will end up with 9,999 EUR. With leverage of 1:100, you will be able to open max 10 lots on EURUSD (1,000,000 EUR) and if the price moves by 0.1 pip in the opposite direction, you lose 10 USD. You will end up having 9,990 EUR. It goes on like that when you increase the leverage. Again, we are talking about the money you risk on losing when closing the trade.

Another question to consider: How long you may stay in the market with an open losing position if you leverage is 1:1 or 1:1000, hoping for the price to revert in your favour?

The amount you put in your account is your initial investment. It is not the amount you risk at once. The amount you actually risk is the one directly connected to a single price movement. The higher the leverage, the stronger is the negative impact on your balance in case of a negative price movement as the effect multiplies.

This is how I see and understand the relation between leverage and risk. Of course there are other factors involved with risks in trading but here we look just at how those 2 are connected.
vontogr (togr)
Dec 13 2016 at 13:46
4862 投稿
shirley_F posted:
The leverage serves as a multiplier to enable you to open positions much larger than your initial investment. To see the relation between leverage and risk, we need to isolate these 2 variables and consider all other trading conditions as equal. Risk corresponds to loss (as no one is risking to win something).

Example:
Let's assume you have 10,000 EUR in your account. With 1:1 leverage, you will be able to open max 0.1 lot on EURUSD (10,000 EUR) and if the price moves by 0.1 pip in the opposite direction, you lose 0.1 USD. You will end up with 9,999 EUR. With leverage of 1:100, you will be able to open max 10 lots on EURUSD (1,000,000 EUR) and if the price moves by 0.1 pip in the opposite direction, you lose 10 USD. You will end up having 9,990 EUR. It goes on like that when you increase the leverage. Again, we are talking about the money you risk on losing when closing the trade.

Another question to consider: How long you may stay in the market with an open losing position if you leverage is 1:1 or 1:1000, hoping for the price to revert in your favour?

The amount you put in your account is your initial investment. It is not the amount you risk at once. The amount you actually risk is the one directly connected to a single price movement. The higher the leverage, the stronger is the negative impact on your balance in case of a negative price movement as the effect multiplies.

This is how I see and understand the relation between leverage and risk. Of course there are other factors involved with risks in trading but here we look just at how those 2 are connected.

@shirley_F
No. You cant open 0.1 lot on 10,000 EUR account without leverage.
Even though you will have margin to do it you wont be able to pay comission/spread as the whole equity is used as margin.
Also you can get margin call if all your equity is used for margin.

So the right outcome is if you wish to trade 0.1 lot you need just 1,000 balance and good leverage.
Thus again and again you are risking 10x less (10,000 vs 1,000) to get the same 10 EUR profit.
So using low leverage is forcing you to risk more to get the same profit.
Osiris (kebayamwamba)
Dec 13 2016 at 15:40
116 投稿
with low leverage 99% of retail traders would never trade FX...

the margins would be so high...you will need at least minimum $10 000

I bet ...99% of traders here dont have that amount sitting quietly waiting

Leverage is good

No one puts a gun on your head to open huge lots
can the pursuit of wealth be automated?
Baldo (BaldoN)
Dec 13 2016 at 15:59
522 投稿
Leverage is a weapon. If you know how to use it properly its better for you. If you don’t know it will easily kill you. The bigger the leverage the bigger the weapon. Use it wisely and you are good to go. Misuse it and you are dead.
vontogr (togr)
Dec 13 2016 at 15:59
4862 投稿
kebayamwamba posted:
with low leverage 99% of retail traders would never trade FX...

the margins would be so high...you will need at least minimum $10 000

I bet ...99% of traders here dont have that amount sitting quietly waiting

Leverage is good

No one puts a gun on your head to open huge lots

Exactly
vontogr (togr)
Dec 13 2016 at 16:00
4862 投稿
Moreover even accounts with very low leverage were wiped and these can be seen on MFB.
alexforex007
Dec 13 2016 at 23:07
775 投稿
Interesting opinions from all of you, always trying to keep an open mind.
Fredrick (shirley_F)
Dec 14 2016 at 07:55
41 投稿
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!
vontogr (togr)
Dec 14 2016 at 07:56
4862 投稿
BaldoN posted:
Leverage is a weapon. If you know how to use it properly its better for you. If you don’t know it will easily kill you. The bigger the leverage the bigger the weapon. Use it wisely and you are good to go. Misuse it and you are dead.

@BaldoN
That is a perfect definition. :)
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