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Thread: Preferred Leverage

  1. #1
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    Question Preferred Leverage

    Hi guys and gals,

    I was wondering if you could share your thoughts on what leverage you prefer? I got started in Forex in 2007 using a system that profited on swap (boring) with a 400:1 leverage. But at least it introduced me to forex which has been my drug of choice for the last 2 years. My leverage has stayed at 400:1 on my account since. I don't place trades without stop loss and take profits and have done fine. What are the drawbacks or benefits of this? I use IBFX but read on Oanda that "professionals" never use over 50:1 leverage. I hope this is not a repeat thread but searched and could not find one similar.

    Thanks,
    humper

  2. #2

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    Personally I think that you should discount totally any leverage calculation as it's just a tool used by brokers to draw the unsuspecting punter in.

    Instead, I think that you should concentrate on what you stand to lose if your trade goes wrong.

    This is normally expressed as a percentage of your account balance and relates to the distance away of your stop-loss. It is common practice to limit the risk to no more than 3% of your account on any single trade. With large accounts this percentage may be less (1% or 2%) and it may be more (5% or 6%) with small accounts. It's not an exact science.

    As an example, suppose you want to take a position with a 100 pip stop-loss and you calculate that losing those 100 pips with a 1.0 lot trade would dent your account by 6%, then you would simply scale the position size down to 0.5 lot so as to limit your risk to 3%.

    If it's of any interest I've currently got 4 open positions risking a total of 6.88% of my account balance and using around 5% of my available margin. I really don't have a clue what leverage I'm being offered because I think it would be crazy to use it all.

    I also happen to think that any system which doesn't use a stop-loss (it can be stealth) is doomed to failure, because you're then effectively risking 100% of your balance.

  3. #3
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    Smile Thanks for the advice

    Jeezer,

    You helped confirm what I have learned on my own, thank you. When I read the statement on Oanda I started doubting what I was doing, but since I set stop loss on every trade I should be good to go. I hear people talk about crazy gaps in trading during news events where you can wind up losing more than your stop loss and possibly owing your broker money but I don't see how that could happen if your stop loss is set at 3% of your balance.

    Thanks

  4. #4
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    Cool

    Hello members,

    i agree to jezzer. I think the main purpose of the leverage is to enable the market for privat investors. A lot of traders use the leverage to hard and get finally raped by the market.

    I'm trading with a max leverage of 100:1. My total risk of margin is always around 5%, not more. And i have never more than 2 open positions at the same time (each 2.5% margin). For me, it's working fine.

    The main problem with the leverage is: THE GREED OF THE TRADERS. Too much people wan't to get rich quick and that's the problem!

    Kind regards

    Criss

  5. #5

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    yeah...I agree with the others...Leverage is just "capacity" that is there....you should never use all of it...(If your long and short in the same pair...IBFX counts it as one unit of exposure...which is even more than 400:1)

    ES
    Last edited by ElectricSavant; 03-31-2009 at 14:49.

  6. #6
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    Thumbs up Thanks all

    Quote Originally Posted by ElectricSavant View Post
    yeah...I agree with the others...Leverage is just "capacity" that is there....you should never use all of it...(If your long and short in the same pair...IBFX counts it as one unit of exposure...which is even more than 400:1)

    ES
    Thanks for the advice. I have never been long and short in the same pair but I did not realize this was the case.

  7. #7

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    yeah I know, most traders do not know......I slipped that in there and tried not to sound like a know it all...but again the other fellah's are right....gridding, martingaling, trading for swap or those no stop loss systems...just do not work, generally...they work for a while ....but there is always the day to fear...

    ES

    Quote Originally Posted by humperdinck View Post
    Thanks for the advice. I have never been long and short in the same pair but I did not realize this was the case.

  8. #8
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    Default

    Quote Originally Posted by ElectricSavant View Post
    yeah I know, most traders do not know......I slipped that in there and tried not to sound like a know it all...but again the other fellah's are right....gridding, martingaling, trading for swap or those no stop loss systems...just do not work, generally...they work for a while ....but there is always the day to fear...

    ES
    Let me tell you about it, "the day to fear" came for me last year, I was following my own gridding, martingaling, trading for swap for 2 years and then I lost 90% in one day in one of my accounts. "the day to fear" is not fun

  9. #9
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    Default

    leverage of the broker is very useful for traders, because then we will be able to trade with small capital. but we must be careful in choosing the leverage from the broker. for now I am more comfortable trading with leverage of 1: 500 of tenkofx

  10. #10

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    Leverage is good , but its good for the experienced trader, its very necessary to make use of the leverage given by the broker, if not you can get into serious trouble.

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