High leverage = High risk?

unsightlydray posted:

marco_mmbiz posted:

unsightlydray posted:

78678676 posted:
A higher leverage is way too risky, specially for a newbie who can end up getting himself trapped in a bad debt.

Debt?? I don’t intend to take up a loan for trading, as wrongly (I think) suggested by a friend!

Actually 'leverage' just means that you'll get a 'credit' from a bank or liquidity provider of the broker. A max. account leverage of 1:500 means that you can trade with a maximum of 500k per trade (!) while you'll only throw in 1k of your own money. But if you'll lose 2k in that trade, where does the other 1k come from then? Right, it comes from your deposits (and that's how can get into debt). Most professional brokers have a negative balance stop out. But the higher your leverage the higher the chance you'll get to this stop out.

But I won’t be owing anything more than my initial credit right? Or am I wrong here...thanks for your reply

Just read my post again.
Here's also an interesting read for you: https://www.earnforex.com/guides/can-forex-trading-put-you-in-debt/

Let the traders make their own decisions. Trading is not about following the footprints of other traders. It is about paving your own way to reach success and that can be with or without leverage.

High leverage can be useful but only if used correctly. New traders often feel like taking the opportunity to open larger positions to get bigger and faster results from their trades using high leverage. But if the position doesn’t play out the way it was expected, a larger loss occurs resulting in less margin for the next trade.

marco_mmbiz posted:

unsightlydray posted:

marco_mmbiz posted:

unsightlydray posted:

78678676 posted:
A higher leverage is way too risky, specially for a newbie who can end up getting himself trapped in a bad debt.

Debt?? I don’t intend to take up a loan for trading, as wrongly (I think) suggested by a friend!

Actually 'leverage' just means that you'll get a 'credit' from a bank or liquidity provider of the broker. A max. account leverage of 1:500 means that you can trade with a maximum of 500k per trade (!) while you'll only throw in 1k of your own money. But if you'll lose 2k in that trade, where does the other 1k come from then? Right, it comes from your deposits (and that's how can get into debt). Most professional brokers have a negative balance stop out. But the higher your leverage the higher the chance you'll get to this stop out.

But I won’t be owing anything more than my initial credit right? Or am I wrong here...thanks for your reply

Just read my post again.
Here's also an interesting read for you: https://www.earnforex.com/guides/can-forex-trading-put-you-in-debt/

Thanks, I’ll go through it.

Choosing the right leverage for your trades is not a one size fits all circumstance. It depends on how much capital you have and how much you are willing to risk. As a beginner, instead of looking for the best leverage you can use, you must focus on what you should know when you start forex trading.

For me, leverage is the way of reducing the amount of trading capital that must be used. It also releases the trading capital for other trades.

Leverage is for professional traders who have been in the market for quite some time and know what it can do for them. When new traders are told not to use leverage, it means that they should trade like an amateur and not a professional. Every time I trade a currency pair, I use the highest leverage possible with swissquote because I believe that as a trader with years of experience, the more leverage, the better the trades.

Paulbraighte posted:
Choosing the right leverage for your trades is not a one size fits all circumstance. It depends on how much capital you have and how much you are willing to risk. As a beginner, instead of looking for the best leverage you can use, you must focus on what you should know when you start forex trading.

And won’t that include how much leverage to use ? :)

Honestly, I don’t see any harm in using some leverage. You can always keep it low and work your way around it. Risking less is better if you are learning step by step.

@Garey I used to think that too but when I actually used leverage, it kind of increased my capital efficiency. It also works well during low volatility periods. I was recently trading with ib and I worked with some highly leveraged positions but the result was pretty good so there’s that. I think there is more to leverage and we can actually use it for our benefit. Just sharing my 2 bits here.

Gleywilleyy posted:
@Garey I used to think that too but when I actually used leverage, it kind of increased my capital efficiency. It also works well during low volatility periods. I was recently trading with ib and I worked with some highly leveraged positions but the result was pretty good so there’s that. I think there is more to leverage and we can actually use it for our benefit. Just sharing my 2 bits here.

Yeah. Leverage can be quite helpful at times. Better to use it wisely.

Daniel993 posted:
High leverage is considered a risk because the loss value is more than the invested capital, but it is also an advantage to use high leverage because the profit earn is doubled.

Yes, it is totally up to the skills of the trader, how leverage is used.

high leverage not high risk always if you know how to manage risk ,
 because most of the time we trade with no analysis , as a result we become loser.

Johnathankim posted:

Gleywilleyy posted:
@Garey I used to think that too but when I actually used leverage, it kind of increased my capital efficiency. It also works well during low volatility periods. I was recently trading with ib and fxview and I worked with some highly leveraged positions but the result was pretty good so there’s that. I think there is more to leverage and we can actually use it for our benefit. Just sharing my 2 bits here.

Yeah. Leverage can be quite helpful at times. Better to use it wisely.

It is more about being comfortable in what you are doing. If you are conservative and don’t like to take many risks, a lower leverage level like 1:5 or 1:10 can be more appropriate for you. But if you have gained some experience and know that you can manage risk with even high leverage, you can go beyond 1:100 also.

AmDiab posted:
high leverage not high risk always if you know how to manage risk ,
 because most of the time we trade with no analysis , as a result we become loser.

Trading without analysing the market? That would be like a death sentence for the account :)

BarronLucas posted:
Using high leverage does have higher risks and possibilities of blowing up your account.

When a trader uses high leverage and losses in a trade the loss is higher as the leverage and would be difficult for the trader to invest in the next trade.

But using leverage with a proper market research and analysis would do us good right?

deborahbennett posted:

Johnathankim posted:

Gleywilleyy posted:
@Garey I used to think that too but when I actually used leverage, it kind of increased my capital efficiency. It also works well during low volatility periods. I was recently trading with ib and fxview and I worked with some highly leveraged positions but the result was pretty good so there’s that. I think there is more to leverage and we can actually use it for our benefit. Just sharing my 2 bits here.

Yeah. Leverage can be quite helpful at times. Better to use it wisely.

It is more about being comfortable in what you are doing. If you are conservative and don’t like to take many risks, a lower leverage level like 1:5 or 1:10 can be more appropriate for you. But if you have gained some experience and know that you can manage risk with even high leverage, you can go beyond 1:100 also.

True, in a way! But don’t you think that the forex market has no place for those who are not ready to take risks. At some point in time, every trader will have to take one or the other kind of risk.

ddarko3 posted:

unsightlydray posted:
As someone with just a few dollars extra to give trading a shot, would it be possible at all to gain anything without the use of leverage? And is it even wise to use up all of your own cash?

Technically leverage helps you to gain more but the problem with them is that you can also lose completely

Have you ever lost a lot of money like this?

Numero, It’s right that forex investments offer potential profits but at the same time, also have downside risk. Sometimes, you may lose more than the value of your transaction when trading on margin. But if you already have been in the market for some time and have learnt risk management, things can get easier for you. My first leverage ratio was 1:5 with oanda. I got an idea about using it and in my next trade, I increased the ratio to 1:50. It turned out to be a profitable trade later. Had I not taken the risk, I would have not made that much.