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Veteran forex traders, how much leverage do you use to trade? 20 replies

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Whats is the maximum leverage you use?

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  • First Post: Jun 4, 2010 11:05am Jun 4, 2010 11:05am
Hello,

It seems to me that only noobs use 200:1 leverage etc.

What do real traders with real accounts use?

10:1??

I know its all relatve to the person, just wondering what you personally use
Does leverage really matter? Could you also define "real accounts"?

It has a saying on how much of your margin are being used, but what is more important is your risk-percentage, depending on your strategy.

But then, I don't know squat. Im just a newbie with 13+1 posts.
Leverage btw is 100:1.
Yup, it is all about risk percentage. My stop loss is never more than 2%. That is the bottom line. If someone is trading more than 20:1 or 50:1 chances are they are trading with greater than 2% risk which is widely considered poor money management.
Quoting Rush
Does leverage really matter?
Yes, though by itself it doesn't mean much. Percentage risked doesn't mean all that much by itself either, as well all trade different timeframes with various sizes of edge.

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thEasyStey are trading with greater than 2% risk which is widely considered poor money management.
2% is a commonly thrown around figure by people who haven't done the calculations themselves, and just repeat what others have said.
Quoting Mr J
Yes, though by itself it doesn't mean much. Percentage risked doesn't mean all that much by itself either, as well all trade different timeframes with various sizes of edge.



2% is a commonly thrown around figure by people who haven't done the calculations themselves, and just repeat what others have said.
Care to enlighten us then?
Quoting EasySt
Care to enlighten us then?
Look up the Kelly Criterion. Anyone who responds "betting kelly is suicide" is overlooking its usefulness.
Quoting Mr J
Look up the Kelly Criterion. Anyone who responds "betting kelly is suicide" is overlooking its usefulness.
Before this gets flooded...

Kelly betting isn't the same as a Martingale. It's a position sizing equation, that's all. Most Kelly advocates, however, acknowledge the need for
fractional Kelly sizes. The reason is simple: In many cases it advocates a very high risk % (10%, 20%, 30%). Even on really low edges (which
are assumed to be known in advance), it suggests like 5%.

IMO, it greatly underprices the risk of ruin for investors. But that's just me. It assumes that people are capable of taking infinite drawdown. But
the idea of basing leverage off an edge % is not a bad idea.

Thoughts?
I think starting with 2% risk per trade is too much.
If you start with a loosing streak (starting with real money for the first time can cause it easily). Coming back is hard and emotions (fear) take over quickly, and it can take you to PNR (Point of No Return).
I say, if you start with $1000. start with no leverage. Trade 1000 units only.
1 pip is $0.10. for e.g SL is 20 pips i.e $2.0 which is 0.2% risk. IF gain is 40 pips i.e $4.0 So, keep trading this way until you add another $56.0. So your total is $60+. Now you have $60 to take risk with.
Now start with 1:10 leverage and trade with 10000 units. 1 Pip is $1.0 SL is 20 pips i.e $20. Gain is $40.0 You have 3 risk taking trades in your pocket. If you blow all three come back to previous stage and start again.
Or else the next stage is 1:20 leverage. Raise your asset equal to 3 risk trades or if you blow all three chances fall back to previous level of 1:10.
Maximum leverage should not exceed 1:50 which is our final stage.
There is a saying over leveraging can kill a trader i.e really true.
Bottom line is to protect our initial equity.
And if you prove you are a good trader and you attain 1:50 leverage successfully. Put more money in and trade with 1.0 lot.

I have done lot of mistakes in trading and I don't want others to do the same. If you think I am wrong, please correct me. I think this can be a quick guide for those who are starting to trade live.

I wish you all the best. What goes around comes around.
Quoting Rabid
Before this gets flooded...

Even on really low edges (which
are assumed to be known in advance), it suggests like 5%.

IMO, it greatly underprices the risk of ruin for investors. But that's just me. It assumes that people are capable of taking infinite drawdown. But
the idea of basing leverage off an edge % is not a bad idea.

Thoughts?
For trading, Kelly is more of a guideline than a tool to calculate a precise bet amount. I'm not advocating using Full Kelly, but being properly informed about risk and trade size. Any half-decent trader has a far larger edge than is needed to justify a 2% wager.

Full Kelly is almost a non-issue for any skilled trader for a variety of reasons, such as not enough margin/leverage for full kelly; our tolerance of variance limiting us long before we reach Kelly (typically to 1-2% - a conservative amount); and that we usually only have ballpark estimates of our past performance and that our performance may change in the future (so we must leave significant margin for error).

2% is fine as a recommendation, but to suggest it is too risky is absurd. Really, if a trader is profitable, 2% is usually a conservative and perfectly reasonable amount.

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IMO, it greatly underprices the risk of ruin for investors.

I would say it's the individual that makes that mistake.
If you do the math you will see the difference a single percentage point can make because it compounds as you lose money.

10% and your account is blown with one bad streak or at a minimum in a deep hole. Those deep holes are much harder to get out of compared to get into again because of compounding.

And I really don't understand why people have to make stuff so complicated. 2% and the math is simple. I doubt Kelly criterion is some sort of holy grail just like I seriously doubt pretty much ALL indicators and oscillators are of any use. Traders making this stuff complicated is the #1 killer. Besides, this isn't betting or gambling which is what the Kelly criterion is all about. I think if you are approaching this from the point of view that its like gambling then you have already lost the plot.

But that's just my opinion, I could be wrong.
Quoting Rabid
Before this gets flooded...

Kelly betting isn't the same as a Martingale. It's a position sizing equation, that's all. Most Kelly advocates, however, acknowledge the need for
fractional Kelly sizes. The reason is simple: In many cases it advocates a very high risk % (10%, 20%, 30%). Even on really low edges (which
are assumed to be known in advance), it suggests like 5%.

IMO, it greatly underprices the risk of ruin for investors. But that's just me. It assumes that people are capable of taking infinite drawdown. But
the idea of basing...
Yes, the problem with kelly and trading is that in trading, probabilities are not fixed. Just a small example: If you use kelly to the max with some obscure little-known inefficiency and then suddenly some big hedge fund finds the same edge or something else that changes the structure of what your edge was based on, you are in many cases screwed because the probabilities just changed.

In games that kelly was first developed for, the probabilities do not change.
Quoting Mr J
For trading, Kelly is more of a guideline than a tool to calculate a precise bet amount. I'm not advocating using Full Kelly, but being properly informed about risk and trade size. Any half-decent trader has a far larger edge than is needed to justify a 2% wager.
The problem, as I see it, is variance. At any point in time, you don't know whether the next trade will tend to the mean or away from the mean. For any given series of trades, you could have any sub-set of trades against you. Given enough time, the set will eventually regress to the mean, but it's hard to tell exactly when that'll happen.

My concern with taking large risk is exactly that. If I take 10% risk, and I have 5 losing trades in a row (not unheard of), then I'm down some 40%. I have to almost double my money just to break even.

Even with a 60% edge, 5 losing trades in a row is not unheard of. 0.4^5 = .01. So 1% of the time, with a 60% edge, you'll blow out like that. Any system that trades w/a large enough frequency is going to experience that risk.

So it goes to what the real question is: Edge-based risk, or just that 2% may be too conservative?

If you have a 55% edge, the odds of 10 trades against you is .03%. At 2% risk, that's a much smaller chance of having a much smaller drawdown. It's a level that's completely recoverable (less than 20%). Of course if you wanted to be aggressive, you might be able to justify a 5% risk. But personally, I'd have a hard time going above that.
Quoting mikkom
In games that kelly was first developed for, the probabilities do not change.
Well, sortof. It was extended to the world of investments by several people, not the least of whom is Edward Thorp. A lot of people have worked with it knowing that the probabilities can vary.
I trade 400:1 and if 1000:1 was offered, I would trade that in a heartbeat!! I think many people confuse leverage with risk....the amount of leverage that is used has no impact on whether it is a good trade or a bad trade. It just allows more buying power. High leverage only becomes risky if your trading style it such that the first thing you think when you get into a trade is "Let's see what happens...". People have got to spend more time developing a method in which they are confident will give them a profit and that will allow them to spend less time worried about losses. How many times has someone on FF said that people should not concentrate on how much money they can make, but how much they can lose? To me, that doesn't even make any sense....

I certainly mean no disrespect to anyone on this thread, but I think many people on forums just parrot what others have said in the hopes of sounding wise and knowing. I trade totally different than what majority of the people on FF say to trade: I trade aggressively, I use 400:1 leverage, I trade short timeframes, I use indicators on my chart, I trade 2 full lots for every $2500 (up to 20 lots), I trade for a minimum goal of 10 pips per trade, and I only set an emergency Stop Loss of 100 pips. I have never calculated a R/R ratio in my life. The only statistics that concern me are on the sports page of the newspaper.

All of this works exceptionally well for me...and may not work for everyone. So it would be foolish for me to say that THIS is the only way a person should trade....just like it is foolish for people to talk in absolutes on forums (eg. 2% max, R/R of 1.4:1 or higher, 10:1 leverage, etc.). Each person needs to determine what trading style they are comfortable with and not go blindly on what others say. If that is done, some may begin to understand that high leverage can actually be a very GOOD thing!!

Just my 2 pips......
  • Post #15
  • Quote
  • Edited 12:00pm Jun 6, 2010 11:34am | Edited 12:00pm
Quoting moneymaker2
I trade aggressively, I use 400:1 leverage, I trade short timeframes, I use indicators on my chart, I trade 2 full lots for every $2500 (up to 20 lots), I trade for a minimum goal of 10 pips per trade, and I only set an emergency Stop Loss of 100 pips.
Wow, that is aggressive.

For each 2.5K:
Two full lots = $20 per pip (on USD pair).
100 pip stop = $2000 dollar loss (+ spread)
One loss takes 80% of your account.

After 1 loss--$500 remaining.
Using same formula, you can now trade at $4 per pip.
Another loss takes you down to $100.

Just sayin.

Actually, you can find brokers who offer more than 400:1.

BTW, I'm one of the first to acknowledge that the cookie-cutter approach is very unlikely to be the best approach. I trade aggressively myself, but you--you must have the nerves of Hellboy!
Actually, I don't consider myself having nerves of steel trading this way, and I think a lot of that comes from day trading options. Trading 100 contracts at a time you actually make the floor traders take notice, especially trading the OEX. So the way I trade currency, at least in my mind, is actually a lot less stressful!!

The 100 pip Stop Loss is for emergencies only (loss of power or internet connection). I've never had a 100 pip SL hit in live trading; there is always time to get out if the trade goes against you long before you take a big hit. Plus I very seldom trade a USD pair, mainly the EUR/JPY or the GBP/JPY since I like the larger moves they make over a trading day.

Everyone has their own goals and my goal happens to be to make the most amount of money in the shortest period of time that I can do comfortably. Trading very aggressively with 10 pip moves and high leverage allow me to do that. Unfortuately, the brokers that offer greater than 400:1 are not taking US clients.

Good trading!....
Quoting EasySt
I could be wrong.
You're completely missing it's usefulness, and drawing strange conclusions from my comments

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f you do the math you will see the difference a single percentage point can make because it compounds as you lose money.
I have no idea why you thought I would not already know this.

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10% and your account is blown with one bad streak or at a minimum in a deep hole. Those deep holes are much harder to get out of compared to get into again because of compounding.
Who is suggesting 10%? I never suggested betting Full Kelly. In fact, several times in this thread I have stated that I'm not suggesting Full Kelly. This further suggests that you're not actually reading my posts.

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And I really don't understand why people have to make stuff so complicated.
Understanding Kelly is not complicated, and knowledge of Kelly is healthy for a trader. You say 2% keeps it simple, but I'm not arguing against the suggestion of 2% (it's roughly what I use myself), but the suggestion that anything greater is too risky.

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Besides, this isn't betting or gambling which is what the Kelly criterion is all about
You wouldn't think that if you knew anything about the underlying maths of "gambling". Explain why Kelly suits gambing, and why the knowledge doesn't apply to trading (I'm talking about knowledge, not direct application, though that's possible as well).

Quoting Mikkom
Yes, the problem with kelly and trading is that in trading, probabilities are not fixed.
Which is why significant margin for error would be used. Not even card counters - who can precisely calculate their edge and probability of winning - use Full Kelly.

Quoting Rabbid
My concern with taking large risk is exactly that. If I take 10% risk, and I have 5 losing trades in a row (not unheard of), then I'm down some 40%. I have to almost double my money just to break even.
I'm not suggesting people do so. The only reason I brought Kelly up is to counter the suggestion that anything more than 2% is too risky. I've already suggested that few traders would approach anything near Full Kelly, since it is usually beyond our practical betting limits, and our psychological tolerance.

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So it goes to what the real question is: Edge-based risk, or just that 2% may be too conservative?
I'm not suggesting 2% is too conservative either, I'm just suggesting that it is almost certainly mathematically conservative for a good trader, and therefore not "too risky" at all. It's fine if that is the limit for our tolerance, as we need to choose a size we can live with.

I just wanted to address the widespread and ignorant opinion that more than 1-2% is too risky. We see it all the time - people suggesting not to risk more than x% - rather than encouraging people to understand the underlying maths and decide for themselves.
Quoting Mr J
I just wanted to address the widespread and ignorant opinion that more than 1-2% is too risky. We see it all the time - people suggesting not to risk more than x% - rather than encouraging people to understand the underlying maths and decide for themselves.
Fair enough. People should be more aware of the underlying issues of money management, rather than just dogmatically following the 2% approach.
My "target limit", "risk-reward" and "entry point" is what determines my stop loss position. The essence is to stand aside when your current chart patterns are at variance with your trading plan.
I have often used a risk as high as 10% on the cheeky GBPJPY & EURJPY without having my stop loss hit even once in more than 30 trades, while trading at least 4 times per week. I often trade as tight as 1 mini lot for every $2500.00 and I am very happy with the results.
Just plan your trade and trade you plan, and you will be amazed with your performance. In my case, risk % becomes a secondary issue when a good well planned entry point results in a drawdown of just a few pips.
I'm using accounts in fxopen with max leverage of 1:500, but all capacity just will be used in martingale systems or similar systems that need high free margines.
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