Quoting natediggityDislikedI think one of us has some misunderstandings. I would at first be inclined to think that were myself, given that I have exactly ZERO forex trading experience (your reference to me having a trading style is kinda funny).
However!
You seem to be equating used leverage with risk. Just because leverage is USED does not mean it is at risk of going anywhere. Case in point, my second example of a hedged trade. Notice, that original trade has a 10 pip stop. On the 60,000 units that equates to $60, or 2% of a $3000 account. Now lets say that account is set to 50:1 leverage. Yes, that would be nearly maxed out. But SURELY we both agree that this does not imply any risk on top of that $60 between my entry and my stop???
edit #1
p.s. in the interest of being complete in my recap, I should address another statement I made in my first point, that being the ability to put on additional trades given lower margin requirements. Let's say you have more than 1 system, or maybe you have a system operating on more than 1 time frame, ie longterm/shorterm. You can have a looong trade on, for 2% risk, AND (if your margin requirements are not too high) you can trade shorter time frames as well also with 2% risk. This was my point. For example, to be able to have a trade based on weekly bars, and at the same time taking advantage of 4H bars, or some such.
Further, moving on with my second example, to HEDGE the trade would infact further REDUCE what is at risk. In this case, a half position hedge would reduce the risk to 1% (right? maybe i am wrong here), while at the same time utilizing EVEN MORE LEVERAGE.
Thus I do not see what you are referring to when you talk about an account shrinking faster and faster. Leverage does not equal risk. I thought you were making this very point just moments ago, perhaps I was confused.
natediggity
Edit#2:
p.p.s.This discussion seems rather out of place in this thread.. i probably should have noticed that before getting into it.Ignored
I actually stated that there was a difference between RISK and LEVERAGE and that some other guy had the 2 definitions wrong when he said 400:1 is dangerous.
I will agree with your numbers in general...yes you CAN trade more with 400:1, but that doesn't negate any type of risk management rule regardless.
I'm merely saying it's unadvisable to max-out your leverage by taking on more trades than your risk analysis has allowed for.
As far as your hedging example, it depends on how you hedge, really...but I don't know if the 1% figure is really accurate or not. Think of it this way, if you hedged your bet on a single currency pair, as the price goes up or down your P/L doesn't do anything because your losses = gains. The only thing we definitely know is that your current LOSSES = 2 times the spread. That's the only fact in a single currency hedge.
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