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Where the forex profit comes from and how much money can be leveraged?

  • Post #1
  • Quote
  • First Post: Dec 28, 2009 6:13pm Dec 28, 2009 6:13pm
1. I read that forex is a zero sum game, but 2 traders that I have contacted continue to says that is not true. If all the traders will follow the same rules (we're supposing correct rules)... Can traders win in the long run? I mean, if we understand perfectly the market, and nobody makes an error, is should be profitable?

2. How much money can be leveraged? Does depend on the broker? What is the average money that can be leveraged?
Quoting AQs
1. I read that forex is a zero sum game, but 2 traders that I have contacted continue to says that is not true. If all the traders will follow the same rules (we're supposing correct rules)... Can traders win in the long run? I mean, if we understand perfectly the market, and nobody makes an error, is should be profitable?

2. How much money can be leveraged? Does depend on the broker? What is the average money that can be leveraged?
1. You can profit trading this market and you can lose everything also, you need experience and patience and understanding of the market to trade profitably.

2. Some brokers offer leverage up to 500:1, means you can trade $500 for each $1 in your account, but I do not recommend you doing that. If at all try to stick to 100:1 maximum.

Have a good day.
Quoting X Trader
1. You can profit trading this market and you can lose everything also, you need experience and patience and understanding of the market to trade profitably.

2. Some brokers offer leverage up to 500:1, means you can trade $500 for each $1 in your account, but I do not recommend you doing that. If at all try to stick to 100:1 maximum.

Have a good day.
I asked different things...
but thanks anyway
Quoting AQs
1. I read that forex is a zero sum game, but 2 traders that I have contacted continue to says that is not true. If all the traders will follow the same rules (we're supposing correct rules)... Can traders win in the long run? I mean, if we understand perfectly the market, and nobody makes an error, is should be profitable?

2. How much money can be leveraged? Does depend on the broker? What is the average money that can be leveraged?
1. Technically because of the spread it cannot be a zero sum game. More like a negative sum game. Can traders win in the long run? Sure, given that they have patience, a reasonable statistically confirmed advantage and work with a consistent effort, in the long run they will be profitable. I have a friend who has been trading spot forex for nearly 10 years now. That is all he trades is spot forex.

2. I am not sure I understand the question completely. I know in my main account as the balance went up the amount of leverage available went down. So, although 400:1 may be available below 100k balance, 200:1 between 100k and 500k, you may only be able to get 50:1 or less above that. Not sure of the exact numbers and I am sure that this varies from broker to broker. I am sure that the reduction in leverage is to protect the broker.
This is how profit is generated in a forex market or any other financial market:

A sells to B for $ 1

B sells to C for $ 1.50

C sells to D for $ 2

D sells to E for @2.50

E cant find any buyer over $ 2.50, so he sells to F for $ 2.

A, B, C, D earned money in a profit chain but E could not earn money.

In a large group of forex traders connected through network, everybody drives the prices up by taking long position. So the game boils down to first in, first out.

The opposite also hold true when everyone shorts pushing prices down.
Quoting magnumfreak
2. I am not sure I understand the question completely. I know in my main account as the balance went up the amount of leverage available went down. So, although 400:1 may be available below 100k balance, 200:1 between 100k and 500k, you may only be able to get 50:1 or less above that. Not sure of the exact numbers and I am sure that this varies from broker to broker. I am sure that the reduction in leverage is to protect the broker.
My fault, due to my bad english.
Anyway I would know, just for curiosity, how much money or standard lots can be trade on a single position. I don't think that I can open a 1bilion $ position even if I have enough money in my account



Quoting kingfisher
This is how profit is generated in a forex market or any other financial market:

A sells to B for $ 1

B sells to C for $ 1.50

C sells to D for $ 2

D sells to E for @2.50

E cant find any buyer over $ 2.50, so he sells to F for $ 2.

A, B, C, D earned money in...
I undestand what you said...but what I can't understand is:
If all the the traders, work and win, with the same rules, who loses? Banks? Big companies?
Depending on the broker and how much available liquidity they offer I have seen orders of 200 standard lots (20,000,000) go through without hesitation. Most brokers have a per trade limitation. For bucket shops typically this is 10-20 standard lots (from what I have experienced anyway). There is nothing stopping you from firing off several 10-20 lot orders to reach your target.

I have heard of but not personally seen orders of 1000 standard lots go through on a currenex broker without issue.
At my broker (O) maximum per single trade is 100 lots. However one could have several 100 lots positions open at a given time. On another MT4 broker I was able to trade up to 25 standard lots without any noticeable change in execution. So I guess that at least that amount can be traded without problems, anyway I have read that up to 50 lots is fairly standard everywhere.

As kingfisher explained, at the end of the road (trend) there will always be someone who doesn't find a counterpart at least at the same price and has to liquidate for a loss, be it small or not. Sometimes banks or big companies do lose, most of the time small traders do, for many reasons, one of them being undercapitalization and overleverage, among other various money management flaws.

In fact losses and wins have to be evaluated over long periods of time, what is more important is that money circulates constantly allowing almost everybody involved to get their part of the transactions.
  • Post #9
  • Quote
  • Last Post: Dec 29, 2009 8:35am Dec 29, 2009 8:35am
Quoting magnumfreak
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Quoting doblece
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ty guys
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