Leverage

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?

Let me try to explain you. Leverage means the same as you lent money and can trade with bigger amount for opening new lots. Your money increasing ratably to your chosen leverage level. For example 1:500, 1:10..etc. And this is great opportunity for trading that forex brokers give us.

Silverthorn posted:

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???

It is quite clear my friend
You indeed make same profit trading 1 lot on acc with 1:50 as well as 1:500.
However to trade on 1:50 you need much higher capital due to margin requirement.
Thus you make the same money on both account but compared to balance
you make more % profit on higher leverage

canadam posted:

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.

@canadam
that is complete piece of doodoo
do you bullshit this guy on purpose? Or you do not just understand the very basics of Forex?

togr posted:

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

I have high leveraged account, but i do not use it because. I control my risk by money management.

leaving discussion - sort of useless,

nonsenses again and again

High leverage means you will need much less capital to make same amount of money, if you are making money.

'High leverage means you will need much less capital to make same amount of money,'

Now I think we got it. Low leverage means that you have to leave money in your account that you can not use to protect open trades or to make new ones. An Aussie can make a better profit that I can as an American. Just got to live with that but if you can get 200-500:1 and don't, you are telling everyone that you don't quite understand the leveraging situation on the forex market. Well, depending on the trading system, One excellent trader limits his leverage to 100:1 because of the type of trading system used.

Personally, I would rather keep the margin money in my cash box at home, and if the broker needs it because of my poor trading, fine I'll send it to him. But the margin only protects the broker from an over draft of your account. That is all that it does.

Bob

Ka Ching!!!!!

'I have high leveraged account, but i do not use it because. I control my risk by money management.'

Perfect example of 'I have high leverage but never risk more than 5%'..... So why do you have high leverage then?

togr posted:
leaving discussion - sort of useless,

nonsenses again and again

Exactly my point and the reason I started a thread asking the most basic of questions. These guys largely have not got a clue and should get at least a basic understanding. It should be setting off alarm bells in the heads of the new traders that so many 'Helpful' people on this forum are speaking from such a shallow understanding and in many cases are simply wrong. What is even more alarming is that because there are so many of them that are so wrong but believe the same bullshyt they support each other and gain an air of wisdom through common consensus. I don't mean to be disrespectful to other members but if you've read it here and have not lived it first hand then don't repeat it because it's probably wrong so best to just shut up.

I do not recommend reading the tripe that is bandied around these forums propagated by the words of wisdom of one inexperienced trader to another. I don't even recommend taking my or any other experienced traders word for it.


If you want to trade manually you should watch the market and understand how t works. I do recommend you do your own thinking, develop your own theory test it exhaustively develop a system and trade that system. Collect the tools you need (Less IS more but you have to understand and trust the ones you use). Get a trade simulator and put in a couple of years worth of trading in a weekend. Trade on demo, then trade live.

Yes you will loose some money. Think of it as the way you pay for your education in Forex and go and do it. It's money well spent.

When you can do that you are at a level where reading and understanding somebody else's system can be useful to you and may add something to your trading. Until then you are an unthinking drone attempting to replicate something you don't even fully understand and doomed to failure.

When you've done this you can then think about trading an EA. If you can't trade manually you are not going to have success trading EAs. Like manual trading once you have taken the time to conceptualise a system learn the code (it's not hard) written and back-tested, debugged, modified, tested and traded your own EA you have the level of understanding required to be successful trading other peoples EAs. Then you will be able to differentiate between the good bad and the downright ugly. You'll be able to calculate the starting capital you should use, the correct leverage for the EAs trading style, when and if intervention should happen.

Engineers and Doctors are in professions where they are not allowed to make mistakes. They are however allowed to not know. If they do not know they say so and then they go away and find out. What is not correct is to say you know when you don't OR to repeat what you have been told or read without first qualifying and testing the results. If you don't know there is no shame in saying so. There is even less shame in saying nothing.

Please be careful guys this is other peoples money you are playing with when you try to sound knowledgeable, it's not just bragging points on a forum.

One more thing to add. 😇

Think this through CAREFULLY!!

Lets look at four friends. A Plumber, a Carpenter, a Mechanic and an Architect.

The plumbers favourite tools are his crescent wrench, a hacksaw, a drill and a hammer.
His friend the Carpenter says his favourites are a saw a chisel and a hammer.
The Mechanic says his best tools are his socket set his torque wrench and his hammer.

He then makes the observation that because everybody uses a hammer it must be the best tool and everybody should use one. He does note (because he's a deep thinker) that his hammer is different to the other two and their hammers would be next to useless to him. Because of this he tells the other two that they should be using his type of hammer because it's the best.

Then the Architect speaks up and says that he never uses a hammer at all!! Totally useless to him so they must be rubbish. Advises everybody to stop using their hammers and start using a pencil instead because EVERYBODY uses a pencil. Strangely not every Carpenter uses the same tools either. That does not make one right and the other wrong. But an Architect does not use a hammer. That would be wrong.

Catching on?

Figure out what type of trader you are and what you are good at. Select your tools carefully and don't try to cut wood or drive nails with a pencil. And be prepared to do your apprenticeship. It takes time to become a craftsman. Apprentices learn to use a hand saw before they learn to use a power saw. It's important to learn the basic tools so you can control and understand and effectively use the advanced tools. You should not need to think about how to drive a nail in, it should be second nature. When a trading situation presents you should not need to think about it, analyse it or be afraid of it. It should be second nature and you should know how to react when it starts to be profitable or when it starts to show a loss. No thinking just planed, trained second nature reactions to what the market presents. No surprises, no emotion just different outcomes. Simply like an IF, Then, Else statement in code.

'If' the market does X 'Then' it should do Y 'Else' get out of the market.

When you have trading skills you have a true Leverage over the market not just on your account.

One last thing. If you are serious about your trading (particularly manual) you may want to rethink posting your results on Forums. There's enough pressure and discipline required internally without adding the critique and insight of outsiders who know nothing about the tools you have selected or even what type of trader you are.. Stay focused.

Hear - hear, sage advice, would make Obi-Wan proud.

It just this one thing, 'When you've done this you can then think about trading an EA. If you can't trade manually you are not going to have success trading EAs.'

I hope your wrong, I have put a lot of years into developing ultra safe robots for the casual investors. If they all have to be competent traders before they can run a single EA, I'm wasting my time. But you don't have to be a mechanic to drive a car, you just have to know how to operate it. I believe that I can train investors enough to operate a program, what to watch for etc. but investors don't want to be traders. So can we say that

Learn to trade first by reading, second by trading a demo (with or without a robot assistant) then if your intent is to be a professional trader, 'written and back-tested, debugged, modified, tested and traded your own EA you have the level of understanding required to be successful trading other peoples EAs. Then you will be able to differentiate between the good bad and the downright ugly. You'll be able to calculate the starting capital you should use, the correct leverage for the EAs trading style, when and if intervention should happen.'

Investors, just get to know everything you can about your system, and go slow. The more you learn, the more you earn.

Bob

Bob you're not targeting 'Traders' with your EA you are looking for 'Investors'.

A totally different animal.

You're EA is very unique in it's implementation and desired outcomes to the trading EAs that many people here are seeking. Most will possibly dismiss it because it does not promise to make you rich in 6 months. It's core function is to create a safe income stream. Not too many EAs can say that.

The risks are much lower and the level of understanding required is proportionally reduced. You don't have to be a mechanic to drive a car but if you want to race a high powered car you need some very advanced driving skills.

For the investors who want to earn a steady income ....

What Bob said.

Pay no attention to me :) But your options are limited. I don't know of another EA like Bobs.

For aspiring Traders. Pay attention.

'but if you want to race a high powered car you need some very advanced driving skills.'

OK, good point.

Bob

Bob,

Please put the URL of your web site in your signature so people can find your EA website!!

You know...

Down here

     \/

csc2009 posted:
High leverage means you will need much less capital to make same amount of money, if you are making money.

Or if you don't make money, i.e. make unprofitable decisions, then you lose it faster.

canadam posted:

csc2009 posted:
High leverage means you will need much less capital to make same amount of money, if you are making money.

Or if you don't make money, i.e. make unprofitable decisions, then you lose it faster.

Read the posts on the previous two pages buddy before you burst into print.

for Canadam;
'Or if you don't make money, i.e. make unprofitable decisions, then you lose it faster. '

Ah, no, not exactly. Forget the leverage for a moment. Lets say that you have $1000 in your account and open 1 trade for 1 lot and the currency price temporarily heads the wrong direction. You have $1000 to protect that trade from being closed because the draw-down would have eaten up all of your money. But your broker is afraid that if you run out of money, you may not have all of your trades closed in time and will still owe him money. So he sneaks in behind you and closes your open trades and you lose all of the draw down.

This was not you closing the trade, the broker did and told you that he always closes the trade when the available funds in the account is getting low. You ask, how low. He tells you that they (brokers) are not unreasonable, they will let you decide at what point the broker will close your trade before you actually run out of money.

So the question is, How much before you actually run out of money do you want the broker to close all of your trades for you.

You say, for a one lot size trade you want the broker to close your trade for you when you get below $500. One standard lot is 100,000 units of the first currency listed in the currency pair. 100,000 / 500 = 200. That 200 is a ratio of how much you will have left after the broker close your account, to the size of the trade. This ratio of 200 to one is the leverage. You have a marginal leverage of 200:1 in America or 1:200 in the rest of the world.

Now if you have a 500:1 ratio (marginal leverage) $100,000 / 500 = $200 So if you have a higher leverage, it will allow the trade to stay open until your balance goes below $200 instead of below $500. Of course you can close the trade at any time, you just have to decide at what point you want the broker to do it for you.

If your trade wins, your profit is the same regardless of when you tell the broker to close the trades for you. The same size but not the same percentage. Why? Because you have had to add more to your account size to protect the broker. This is not trading money but it counts when you want to know what percentage of profit do you make.

The marginal leverage only determines how much you will have left in the account after the broker closes all of your trades for you in a margin call and has nothing to do with the trade, not how much you make nor how much you lose. The reserve leverage is a ratio of how much of your account you can not use to trade (or to protect open trades) to the size of the trade in lots.

A quick qualification of that last statement. A one lot standard trade will have a $10 change in profit for each 1 pip change in price. At 200:1 $500 is left in the account that we can't trade with and since we started with $1000 in the account, we only have $500 left to trade with. With a one lot trade size, a 50 pip movement in the wrong direction will be closed with a margin call. But if we had a 500:1 ratio, we would only have $200 in reserve and $800 to protect the trade to 80 pips. If the price went 65 pips in the wrong direction (spike) before it turned around and went the right direction, with the lower leverage, you would have a margin call and lost $500, with the higher leverage, you would have made a profit. In this respect, a higher leverage could make more money, but in all other cases, it is irrelevant.

Hopes this helps.

Bob

Test yourself, what is wrong with this statement.

A leverage of 200 is the ratio of $200 of margin to $1 trade size.

canadam posted:

csc2009 posted:
High leverage means you will need much less capital to make same amount of money, if you are making money.

Or if you don't make money, i.e. make unprofitable decisions, then you lose it faster.

You can always use little deposit with high leverage. Leverage itself just provide you opportunity to open order with bigger volume. You decide how to use it.

'Leverage itself just provide you opportunity to open order with bigger volume.'

This is not the stock market, your answer is fine for the stock market but wrong for forex, please re-read the previous post for a better understanding of what is meant by leverage on the forex market.

Bob