DislikedSorry chaps, I used to be against the new leverage regulation, but now I'm in full support of it. I would never have been able to get where I am now without limiting myself to less than 5:1 leverage (2 to 1 most often).Ignored
To clarify:
Let's say you wanted to open a notional $100,000 position...
So at 100:1 you would have to set aside $1000...the market goes against you $1 you're at $999 and you get a margin call....
For the same position at 5:1, you would have to set aside $20,000....remember you CANNOT touch this money for trades that go against you....in this case if the market goes against you $1 you're at $19,999 and you get a margin call...
ABSOLUTELY SAME RISK!!!!
Practically there is no difference in terms of pure risk management whatsoever...higher margin alone does not impact your risk in any way, shape, or form...all it does is for you to put up more money to be able to open a position!
even if you go at 1:1 i.e. no margin...still you have to take care of your risk management regardless...
So please, please would you care to enlighten how 5:1 margin alone would reduce your risk?
Remember we are solely talking about MARGIN Requirement here and NOT risk management!!!
Higher Initial Margin Requirement Is Not The Same Thing As Lower Overall "Effective Leverage" and Thus Not Lower Risk!!!
Regards
Hear the music before the song is over ...