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Trading Style & Leverage

  • #1
  • First Post: Oct 15, 2006 12:00pm Oct 15, 2006 12:00pm
Does the trading style determine the leverage that should be used?

OR

Does the leverage one is comfortable with determine the trading style?
  • #2
  • Oct 15, 2006 2:24pm Oct 15, 2006 2:24pm
You've got to know what sort of trader you are first. It also depends on what sort of leverage you're talking about.

Account leverage: Go for the highest leverage you can, irrespective of the size of your account. This means you can use micro-lots, giving you more flexibility in stop placement, and/or postion size, and stay within the 1% maximum risk that we are always advised to use. This advice is offered by at least two of the most respected (by me anyway) guys on the forum. One of them even states that you should stick with micros up to an account size of $25k - $30k.

True leverage:
Quote
True Leverage = Position Size / Account Size = 60,000 / 10,000 = 6:1
This level of leverage is too high if you lack experience. Better to reduce your percent risk from 2% down to 1%. That will reduce the leverage to 3:1 in this case.
I expect you've already been here, but if not...http://www.forexfactory.com/forexfor...ead.php?t=3690

Quoting RizkInvestments
Does the trading style determine the leverage that should be used?

OR

Does the leverage one is comfortable with determine the trading style?
  • #3
  • Oct 15, 2006 4:42pm Oct 15, 2006 4:42pm
Quoting PeterFM
Account leverage: Go for the highest leverage you can, irrespective of the size of your account. This means you can use micro-lots, giving you more flexibility in stop placement, and/or postion size, and stay within the 1% maximum risk that we are always advised to use. This advice is offered by at least two of the most respected (by me anyway) guys on the forum. One of them even states that you should stick with micros up to an account size of $25k - $30k.
Please explain why going for the highest leverage you can find is important to a trader. I never understood why a non-broker would advise someone to seek high leverage.
  • #4
  • Oct 15, 2006 10:24pm Oct 15, 2006 10:24pm
Quoting philmcgrew
Please explain why going for the highest leverage you can find is important to a trader. I never understood why a non-broker would advise someone to seek high leverage.
Because it yields the lowest margin requirements. There is a profitable hedging strategy that I use, that relies on 400:1 leverage to get the low margin requirements, but the true leverage used in the hedge strategy is only 2:1.
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  • #5
  • Oct 15, 2006 10:29pm Oct 15, 2006 10:29pm
If you risk up to 5% of your account you leave 95% of your money unused. Even if you have several positions on most of your account remains available. Margin really shouldn't be a concern to someone who employs some form of money management.
  • #6
  • Oct 15, 2006 11:53pm Oct 15, 2006 11:53pm
Quoting diallist
Because it yields the lowest margin requirements. There is a profitable hedging strategy that I use, that relies on 400:1 leverage to get the low margin requirements, but the true leverage used in the hedge strategy is only 2:1.
hi james

Would you please tell me a little about your hedging strategy, becouse i'm very interested in hedging so i would like to know about your profitable method. thanks in advance.
  • #7
  • Oct 16, 2006 12:12am Oct 16, 2006 12:12am
In my experience, it is better to use high leverage (at least 1:100) when you are starting out with a mini account. You don't have much to lose, but higher leverage will accelerate your profits. Once you make some decent money, tone it down a little if you don't want to risk too much.
  • #8
  • Oct 16, 2006 5:02pm Oct 16, 2006 5:02pm
Quoting artem1985il
In my experience, it is better to use high leverage (at least 1:100) when you are starting out with a mini account. You don't have much to lose, but higher leverage will accelerate your profits. Once you make some decent money, tone it down a little if you don't want to risk too much.
Ouch... 100:1 is cutting it way too close. I have allocated 5% of my entire FX portfolio to a "high risk" account. It's gotten close to 80:1 at times
  • #9
  • Oct 16, 2006 5:26pm Oct 16, 2006 5:26pm
I get 50:1 leverage and have never remotely approached anything close to a margin call. It's just not conceivable if you employ sound money management.
  • #10
  • Oct 16, 2006 8:38pm Oct 16, 2006 8:38pm
Quoting philmcgrew
If you risk up to 5% of your account you leave 95% of your money unused. Even if you have several positions on most of your account remains available. Margin really shouldn't be a concern to someone who employs some form of money management.
For normal trading I agree with you. But for the hedge strategy I'm using, it simply would not work with higher margin requirements. The strategy requires 400:1.
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  • #11
  • Oct 16, 2006 8:45pm Oct 16, 2006 8:45pm
Quoting mohsen57
hi james

Would you please tell me a little about your hedging strategy, becouse i'm very interested in hedging so i would like to know about your profitable method. thanks in advance.
It's Charles, but I'm honored to be confused with James!

I would love to share the strategy, but it was developed by a brilliant trader of my acquaintance and he shared it with me privately. Since it is his proprietary system, I cannot share it.

I only mentioned it to illustrate that there are some trading methods that can benefit from the low margin available with 400:1 leverage.

Having been burned by trading a high true leverage more times than I care to admit, I now no longer trade high at all. 90% of my trades are 2:1 true leverage or less. The other 10% go mostly to 5:1 and on rare occasion as much as 10:1, and 10:1 is my personal upper limit.

Dial
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  • #12
  • Oct 16, 2006 8:46pm Oct 16, 2006 8:46pm
Quoting diallist
For normal trading I agree with you. But for the hedge strategy I'm using, it simply would not work with higher margin requirements. The strategy requires 400:1.
That's cool. I respect that you have a unique strategy that employs have leverage and the fact that you have successfully tamed fire.

For the average bear starting out in Forex, the focus on excess leverage is highly overrated.
  • #13
  • Last Post: Oct 17, 2006 10:30pm Oct 17, 2006 10:30pm
Quoting philmcgrew
That's cool. I respect that you have a unique strategy that employs have leverage and the fact that you have successfully tamed fire.

For the average bear starting out in Forex, the focus on excess leverage is highly overrated.
I have to agree with that statement. It's so easy for everyone to forget that just as the gains are great with 100:1 leverage so are the losses.
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