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High leverage vs Low leverage 68 replies

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Is it good use high or low leverage as a beginner?

I'm a totally new trader. I have been playing with a demo account, because I'm currently learning and trying to understand the markets a bit more. Before I move on to real money trading (on a micro account) I want to build a system that works for me.

Now that my intro is out of the way I will ask my question:

I have a 50k demo account (now values at 36k). I have been using max leverage on my trades. I keep running into an issue where I have a stop loss set lower than the market value but because of a flux in the market (that I WOULD have waited out) my position was sold out for me (before hitting my stop loss). I think I understand this as a margin call. My question is, does reducing your leverage increase the amount of flux that your account can handle before being forced out? I have been playing around with some 1min charts and 1hr charts and just kind of messing around with the 1m chart trends but primarily betting the direction I feel the 1h chart is going to go, this way I can hold out if the 1m bet goes south its still in my 1h range. (probably a bad strategy, but like I said... I'm very new and just trying to learn what I can at this point.)

It seems to me, that if I'm being forced out of my positions because they are on a current loss then over using leverage is bad. I think my problems have been with this over leveraging the account.
Quoting Keltset

I have a 50k demo account (now values at 36k). I have been using max leverage on my trades. I keep running into an issue where I have a stop loss set lower than the market value but because of a flux in the market (that I WOULD have waited out) my position was sold out for me (before hitting my stop loss). I think I understand this as a margin call.
Yes, most likely so because for you to still have 36K left after a margin call clearly shows you are way, way over-leveraged.

Usually a margin call only should happen when you have $0 left or close to it like $100 or something. While I know you said you are just playing around you should lower the amount of money in the demo and trade the demo exactly like you plan to trade real money.

Because when you get ready to trade real money everything changes. Your attitude will change, your actions will likely change, you will second guess yourself and so on. Real money changes everything.... with that in mind start small not big.

If you go in big and blow it, you may never recover from it. Remember FX is the most risky investment you can make... all the disclaimers are there for good reason, do not ignore them.



Quoting Keltset
My question is, does reducing your leverage increase the amount of flux that your account can handle before being forced out?

Brokers can vary a little from the point in which their platform invokes a margin call. Some may start when Margin Level of your account hits 125% Some may not start until a dip below 100%.... some maybe 50% Margin Level. It's important for you to know what your broker does in this situation.

In MetaTrader 4 platform your margin level is displayed from the trade tab in the terminal window other platforms should be somewhat similar I think.

Reducing your account leverage will require you to need MORE money in your account to fund your trading activities. You could keep your leverage the same and reduce your trade size (position size / number of lots) or number of positions that you have open at any one time. By keeping your leverage high and reducing your trade size you reduce the chance of a margin call.

Obviously many claim lowering your leverage will somehow help you make better choices, but the claim is ignorant of the fact of the size of trading capital you have on hand vs. the lot size in which you plan to trade.

This can be calculated. Open a new dummy demo and open a position taking note of what Margin is used, Free Margin or margin you have left until margin call and margin level. All of these are displayed on trade tab in terminal window in MT4 platform.

Quoting Keltset
I have been playing around with some 1min charts and 1hr charts and just kind of messing around with the 1m chart trends but primarily betting the direction I feel the 1h chart is going to go, this way I can hold out if the 1m bet goes south its still in my 1h range. (probably a bad strategy, but like I said... I'm very new and just trying to learn what I can at this point.)

It seems to me, that if I'm being forced out of my positions because they are on a current loss then over using leverage is bad. I think my problems have been with this over...
Yes, I would say most likely you have been over leveraging your account either due to too many positions open at one time or too big of lot size. When you are new it is very important to stick with smaller lot sizes... the smaller the better.

As noted earlier you should trade a demo account with smaller funds... remember it all changes when you put real money on the line. Take your time to learn. Patience is a virtue that flees you when you are behind the eight ball... don't put yourself there just starting out.
Thank you for your advice! I think I understand the over-leveraging aspect now! I opened a new trading(demo) account at oanda where I can demo trading 100 lot sizes and easily adjust the balance of my account to be more realistic with what I would deposit when I went live.

I have been reading on fx non-stop and it has been a very large learning experience and I can see I still have a long way to go before risking any actual capital. That being said, I have also read a large amount of comments that demo vs. live is totally different. Would you advise learning with real money when done on a very small scale (i.e. a $60 deposit with 100 super-micro lot sizes)? This puts real money on the table and loosing something $60 (even if on a monthly basis) would really be no big deal as it would be no different than the cost of entertainment. This puts money on the table but doesn't expose you to any real risk... I ask this because it might shade the difference between a demo account / live account?

Or would you advise to stay away from any live trading at all, even if on such a small scale?

Again, thank you, very informative post regarding how leverage will effect trading and the risks of using it as a beginner!
Quoting Davidee
I guess I keep saying that because it's the only thing that works for me.

If you can make money countertrend trading, more power to you my friend. But I can't do it. And I will only recommend what works for me because I can't honestly recommend anything else.
Countertrend trading is risky and is really the demon of newbies, myself included. They see price is way overbought and keep shorting it, but look how long stochastics can stay overbought lol.

I use the 50 and 200 EMA to establish what the trend is, and only trade countertrend if there is divergence present in the indicators (I like RMI overall). Also if there is a lower high in an uptrend, one may be more confident to try a countertrend trade. Same with a higher low between troughs in a downtrend.
Quoting Keltset
Or would you advise to stay away from any live trading at all, even if on such a small scale?
I began a demo at Oanda and am getting a live account now to continue testing my strategy using microlots. I would suggest it over demo, as it will be real and what you would actually do. In demo, one is too likely to use big sizes and just enter at any time, but going live lets you hone your skills more I think. It is more interesting, and causes you to be more aware of what is going on. In general, I think it's a better learning experience. Just don't get burned!

.1 was too much for me. I'll probably use .01-.05 lots, so where I can set my stops a bit more loosely.
Quoting Keltset
Thank you for your advice! I think I understand the over-leveraging aspect now! I opened a new trading(demo) account at oanda where I can demo trading 100 lot sizes and easily adjust the balance of my account to be more realistic with what I would deposit when I went live.
yeah ok, but don't trade big lots like that. You should start out with no more than dime lots or preferably penny lots if you can find a broker you like that has them.

Quoting Keltset
I have been reading on fx non-stop and it has been a very large learning experience and I can see I still have a long way to go before risking any actual capital. That being said, I have also read a large amount of comments that demo vs. live is totally different. Would you advise learning with real money when done on a very small scale (i.e. a $60 deposit with 100 super-micro lot sizes)?
Yeah you should have a good sized degree of skill before you start trading live. A small live account won't kill you and give you a taste of what it is like... BUT why waste $60 if you didn't try to trade with $60 on a demo?

Sure a demo is different but it's still good to practice. I still use demos along side my live trading accounts.


Quoting Keltset
This puts real money on the table and loosing something $60 (even if on a monthly basis) would really be no big deal as it would be no different than the cost of entertainment. This puts money on the table but doesn't expose you to any real risk...
Sure you can try it like that to see if it's for you... but try it on demo first with $60 to a least try to prepare and know what your trading plan will be.

If you can build $60 into $120 in a year you're well on your way. Key is don't over leverage / over trade which is hard to do with an account that size.

Quoting Keltset
I ask this because it might shade the difference between a demo account / live account?

Or would you advise to stay away from any live trading at all, even if on such a small scale?
It will give you a taste, but I think you're better off starting with a minimum $3-5K and trade 1 dime lot or less. (10 cent a pip) This should give you plenty of room for mistakes and give you a more true experience.

But as I said before... demo trade first with the same amount so you know what you are doing before you get into a pickle. There's no sense "killing" money if you don't have to.

Quoting Keltset
Again, thank you, very informative post regarding how leverage will effect trading and the risks of using it as a beginner!
Sure, no problem. Good luck with your journey.
So many replies for a simple question. But almost all replies were useful and increased the knowledge of the person who asked it. I want to add some words.

Check different leverages on a demo account and see how sooner it wipes your account. Analyze your profit and losses. Check where your P/L graph goes by using different leverages. Lower leverages will have lower profit as well as lower loss. Similarly higher leverages will give high profit as well as high loss.
Based on your trading strategy, you can set an appropriate leverage where you are satisfied with your P/L graph.
prof ppl dont care about the leverage at all .. if you good trader you will gain money with any leverage and gain same profits on 1:100 or its 1:2000
Quoting Xaron
I use a leverage between 1:1 up to 3:1 per trade. I know, most new traders might find this boring but I can tell you it's possible to make 0.5-1% per day even with this low leverage...

BTW: My leverage at Oanda is set to 50:1, but this has nothing to do with the real leverage I use. It's more a margin thing.

I'd recommend to trade small. Always.

Regards - Xaron
To me low leverage creates trading bias. Here is why.

How many times have you entered a position and lost more then 50 points within 3 hours of your transaction order. Yes you may be trading within the overall trend. Yet your giving away points, you should be earning. High leverage forces you to focus on the entry. Your 100% correct about it being a margin thing. Because 1000:1 leverage at 100% equity. Is the same as 100:1 at 10% equity. Only difference is with lower leverage your required to WAGER more money.
Quoting Forex_people
To me low leverage creates trading bias. Here is why.

How many times have you entered a position and lost more then 50 points within 3 hours of your transaction order. Yes you may be trading within the overall trend. Yet your giving away points, you should be earning. High leverage forces you to focus on the entry. Your 100% correct about it being a margin thing. Because 1000:1 leverage at 100% equity. Is the same as 100:1 at 10% equity. Only difference is with lower leverage your required to WAGER more money.
Just because a trade moves 50 pips against you, doesn't mean you were wrong about the trend and it's not necessarily a problem, at least not with low leverage.

Now even if you're focused on the entries timing it still doesn't mean that a good trade won't go 50 pips against you. Why? Because picking tops and bottoms consistently is impossible. The best you can realistically do is pick the trends direction.
  • Post #51
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  • Edited Jul 4, 2012 4:36am Jul 3, 2012 9:31pm | Edited Jul 4, 2012 4:36am
Quoting Davidee
Just because a trade moves 50 pips against you, doesn't mean you were wrong about the trend and it's not necessarily a problem, at least not with low leverage.

Now even if you're focused on the entries timing it still doesn't mean that a good trade won't go 50 pips against you. Why? Because picking tops and bottoms consistently is impossible. The best you can realistically do is pick the trends direction.


That's where the whole leverage discussion comes from. People not understanding that a proper _intraday_ entry does not move 50 against you. Leverage is only defined by risk aka SL. If your SL is tight your leverage seems to be high with 1% risk, if you don't know shit what you are doing then of course 1% will only be 1:5 leverage. Do you have any idea how much money it needs to e.g. move EU 50 pips? If you are wrong by 50 you are .... wrong. Nothing else. Your trade was shit. Of course people just throw in 100 pip stops whatever and say oh well see after 80 it came back and i made 20... Of course for the average newbie that strategy will yield much higher win rates than proper precision trading. At the same moment they don't understand that this doesn't make the trade any better since risk/reward is laughable. Since people like to bash things that they are not capable off (correct entries) they of course state that everything > 1:3 is gambling, timebomb whatever. Well guys you don't have a single fuckin clue about trading that i can tell you. And no funds don't use 1:3 because they want to look "professional". They have to trade much different than you because of liquidity problems that arise when you don't just move a microlot but yards. Scaling in/out of trades etc. Under such circumstances you cannot shoot for 20 pips you have to think in larger ranges in order to get your liquidity in _and_ out which of course also increases your possible SL -> Risk -> decrease in leverage.
Quoting Forex_people
To me low leverage creates trading bias. Here is why.

How many times have you entered a position and lost more then 50 points within 3 hours of your transaction order. Yes you may be trading within the overall trend. Yet your giving away points, you should be earning. High leverage forces you to focus on the entry. Your 100% correct about it being a margin thing. Because 1000:1 leverage at 100% equity. Is the same as 100:1 at 10% equity. Only difference is with lower leverage your required to WAGER more money.
The leverage issue came as result of currencies are majored in pips so in order to get significant profits from forex trading. I support low leverages of 1:5 and I think that the option for 1:100 made a lot of damage to forex traders and forex reputation. Trading with 1:1 is great only if you have high amount of money in your balance…
Quoting unknown4x
TIf you are wrong by 50 you are .... wrong. Nothing else. Your trade was shit.

Well we will just have to agree to disagree about that I'm afraid. However, I will point out that what you are saying pretty much amounts to you claiming that traders should able to pick tops and bottoms and in my experience this is just not possible in Forex. Yes, it takes a lot to move the likes of the EUR/USD 50 pips. But a central bank buying without warning can do that, as can an unexpected news announcement.




Quoting unknown4x
Of course people just throw in 100 pip stops whatever and say oh well see after 80 it came back and i made 20... Of course for the average newbie that strategy will yield much higher win rates than proper precision trading.
This would be a terrible strategy, it would end up in a string of small wins all of which would be wiped out by the occasional huge loss. A better strategy would be a 100 pip stop and holding on for 200+ pips when it came back, that would be profitable even if you only won 40% of the time.
the major point FOR the high leverage is that margin becomes less! its really sugnificant stuff.
very nice, good price..!
Quoting Jose Louis
the major point FOR the high leverage is that margin becomes less! its really significant stuff.
I agree, The leverage a broker offers has a lot to do with the margin required for each trade and has little to do with the % we risk in each trade.

People often mix account leverage with trading risk.
High account leverage is good when we don't have high starting capital or we don't want to risk all our savings or we don't trust the broker.

I'm sure we've all heard of brokers going broke....
Have a nice day
any leverage is fine just make sure you maintain SL. As a beginner you will step on a lot of landmines, so SL is your best friend to save you from margin calls.
Quoting Keltset
I have been playing around with some 1min charts and 1hr charts and just kind of messing around with the 1m chart trends but primarily betting the direction I feel the 1h chart is going to go, this way I can hold out if the 1m bet goes south its still in my 1h range.
Never trade just based on feel alone unless you have ESP, then you would probably be playing the lottery .
Always have some sort of system in place even if it's very changeable. Some days you might wake up with your sense all haywire and that's not good for trading. Use a system to confirm your gut feelings then think about what could go wrong before you enter a trade.
Quoting forex killer
I would like to use 1:100 leverage but don't know which broker have such kind. fxdd is 200 and oanda max is 50:
you can use high leverage BUT use small lot size. Instaforex ,exness have 1:1000 leverage PLEASE donot use big lot sizes because you will blow your account before you can even say KABOOM
Hi
I am also a beginner n the forex world and this thread was really helpful. Can you also tell about which technical analysis methods are the best for the beginners ?
Quoting ckalan
Hi I am also a beginner n the forex world and this thread was really helpful. Can you also tell about which technical analysis methods are the best for the beginners ?
Hi Ckalan,

As a beginner I recommend that you do some reading on successful traders and the work that they put in to achieve success. Then decide if this is really what you want for yourself.
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