Leverage
Member Since Oct 24, 2013
268 posts
Apr 06, 2014 at 01:14
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?
Does it help you make more money?
You can't spend open trades.
Member Since Jun 28, 2011
465 posts
Apr 09, 2014 at 00:21
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
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.
Member Since Feb 22, 2011
4862 posts
Apr 09, 2014 at 06:28
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.
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.
Member Since Jun 28, 2011
465 posts
Apr 09, 2014 at 07:01
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
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.
Member Since Feb 22, 2011
4862 posts
Apr 09, 2014 at 08:09
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
Member Since Jun 28, 2011
465 posts
Apr 09, 2014 at 08:37
'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
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.
Member Since Feb 22, 2011
4862 posts
Apr 09, 2014 at 17:01
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.
Member Since Feb 22, 2011
4862 posts
Apr 09, 2014 at 20:42
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
Member Since Jun 28, 2011
465 posts
Apr 09, 2014 at 20:54
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
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.
Member Since Feb 22, 2011
4862 posts
Apr 10, 2014 at 07:03
ForexAssistant posted:
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
I did research for one of my followers and I do not remember all of them but he choose finfx
https://www.finfx.fi/en/trading-accounts
Other I found
https://www.forexbrokerinc.com/USAPage
UPFX- www.upfx.com
Hot Forex- www.hotforex.com
Member Since Jun 28, 2011
465 posts
Apr 10, 2014 at 07:56
Wow, thanks man, I will certainly check these out. You're a good person to have as a friend, so you can add me to the friends list any time you like. Maybe you don't think that knowing 4 brokers that will still accept Americans is all that impressive but I have contacted what has to be a hundred or more brokers, without success.
So thanks again.
Bob
So thanks again.
Bob
where research touches lives.
Member Since Feb 22, 2011
4862 posts
Apr 10, 2014 at 11:05
ForexAssistant posted:
Wow, thanks man, I will certainly check these out. You're a good person to have as a friend, so you can add me to the friends list any time you like. Maybe you don't think that knowing 4 brokers that will still accept Americans is all that impressive but I have contacted what has to be a hundred or more brokers, without success.
So thanks again.
Bob
You are welcome:) I know how poor is the world of trading with lvrg like 1:50
Member Since Oct 24, 2013
268 posts
Apr 10, 2014 at 23:20
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.
How does it 'magnify' your wins?
And that's exactly my point. A 1 lot trade is a 1 lot trade no matter what the leverage. There seems to be a misconception that a 1 lot trade at 1000:1 will magically make/ loose more money than a 1 lot trade at 50:1. Its not some magic multiplier that makes the trade bigger. It's the amount of Margin that is required to place a trade. The only difference is that with 1000:1 you can hang more of your ass out in the breeze and make more 1 lot trades than with 50:1!!
Don't believe me? Open two demo accounts of $500, one with 50:1 leverage and one with 1000:1. Bang a trade on both at 1 lot and see what happens. If it's a winner, surprise surprise you'll have the same profit. If it goes to margin the real difference kicks in. The 1000:1 account will have nothing left but pocket change. The 100:1 will margin call with enough left in your account to trade on!!
I constantly see people blabbering on about not risking more than 5% of your account in one breath and then promoting high leverage soon after!!
WTF it makes no sense???
You can't spend open trades.
Member Since Oct 24, 2013
268 posts
Apr 10, 2014 at 23:26
togr posted:
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.
Absolutely. But from what I see on this forum a lot of new traders get the misconception that it allows 'Bigger Profits'. It allows Bigger Exposure for an amount of capital and that's all.
For Bob as a gridder I understand the need perfectly. If you're into Martingales you'd be nuts not to have the highest leverage you can get.
But new traders have to understand higher leverage DOES NOT make your profit bigger for the same size trade. It only allows you to make larger trades.
You can't spend open trades.
Member Since Oct 24, 2013
268 posts
Apr 11, 2014 at 00:01
ForexAssistant posted:
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
Bob you're always on the money!! :)
You can't spend open trades.
Member Since Oct 24, 2013
268 posts
Apr 11, 2014 at 00:15
(edited Apr 11, 2014 at 00:17)
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
Bob if you do a bit of research on the Brokers that offer above 1000:1 (sorry 1:1000 lets be correct here) you'll also find that they usually only offer it on cent accounts or at the most micro with heavy trading restrictions. Most also seem to offer to never allow you to withdraw!! LOL. Generally they seem to be the less than professional brokers.
Personally I generally find 100:1 is my sweet spot on most accounts.
You can't spend open trades.
Member Since Jun 28, 2011
465 posts
Apr 11, 2014 at 02:11
You know Silverthorn, I think that you pegged the leverage difference, as my systems are mostly grid based, if there ever is a margin call, it will close slowly, with my oldest trades closing first then it will quit closing trades if the price moves the right direction. With that being the case I may not need as much marginal reserve, but for me it is like taxes. I'll pay it when I have to. I would rather send in a check to make up the difference rather than to let someone else hold back my money for me. But that's just me.
But I wanted to thank you for bringing up this topic as there is a lot of confusion in the ranks about what Leverage actually means in forex.
Silverthorn; I need some help on a new project that I have in mind. It can help promote all of us traders and our services to the public, in fact it could actually change the world like the internet did. Before we break it open to everyone else maybe we could get together and talk real time. I'm on New York time, anyone else want to work with me on a project to change the world, please let me know.
Bob
PS, I only said it could happen, no guarantees.
But I wanted to thank you for bringing up this topic as there is a lot of confusion in the ranks about what Leverage actually means in forex.
Silverthorn; I need some help on a new project that I have in mind. It can help promote all of us traders and our services to the public, in fact it could actually change the world like the internet did. Before we break it open to everyone else maybe we could get together and talk real time. I'm on New York time, anyone else want to work with me on a project to change the world, please let me know.
Bob
PS, I only said it could happen, no guarantees.
where research touches lives.
Apr 11, 2014 at 08:44
Silverthorn posted:
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?
Hey, leverage is a ratio that your broker gives you. I.e. if you have $10 and have a leverage 1:10, it means you will trade with $10*10=$100. It can help you to get higher profits, but if you are making bad decisions, you will lose your money faster, so there's always a risk. All reputable brokers warn you about it and suggest to avoid a high leverage. Read some glossaries and see educational videos, a lot of brokers have them, it will be easier to understand then.
p.s. You wouldn't lose more than your initial $10 with leverage, i.e. you will not owe a broker, but you can lose the whole amount of the deposit faster, if your leverage is high.
