Question RE: Leverages | Forex Factory

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Question RE: Leverages

  • #1
  • First Post: Aug 21, 2007 1:41pm Aug 21, 2007 1:41pm
I have been a successful trader for over a year, always having an account that was leveraged 100:1. I want to change brokers and find that mini acconts only leverage 200:1. When I ask what the difference is, the only answer I get is that I "would be able to control more currency" Yes I do know that 100:1 means that I would control $100,000 for each 1, and 200:1 means $200,00o for each 1. But what I don't know is how does that affect ME. The only thing I can figure out is that I would have double rollover interest/premiums. Exactly how does this affect MY end of the trade -- how is it more or less risky? etc.
  • #2
  • Aug 21, 2007 2:15pm Aug 21, 2007 2:15pm
Quoting TradurGurl
I have been a successful trader for over a year, always having an account that was leveraged 100:1. I want to change brokers and find that mini acconts only leverage 200:1. When I ask what the difference is, the only answer I get is that I "would be able to control more currency" Yes I do know that 100:1 means that I would control $100,000 for each 1, and 200:1 means $200,00o for each 1. But what I don't know is how does that affect ME. The only thing I can figure out is that I would have double rollover interest/premiums. Exactly how does this affect MY end of the trade -- how is it more or less risky? etc.
If you are only risking x% per trade(let's say 2%) then it won't change much for you(because 2% is 2%). The things it will change will take away less margin per trade(which means you can hold less money in your actual trading account because you have double the margin available for example---or you now have the ability to open more trades). As for the rollover, that depends on the broker, but yes a lot of them increase rollover/swap with increased leverage(which can really hurt on position trader).

It really isn't more risky unless you treat it that way. It can be a good thing or a bad thing.
  • #3
  • Aug 21, 2007 2:16pm Aug 21, 2007 2:16pm
You don't have to use all the leverage allowed.

Example, if they allow 100:1 leverage, and you have $1000 in the account, then you could trade one full contract if you chose, and use your $1000 to control $100,000.

If it's 200:1, then you could trade 2 standard contracts with just $1000 in the account.

Hopefully you know better than to do either one.
  • #4
  • Aug 21, 2007 2:21pm Aug 21, 2007 2:21pm
Quoting TradurGurl
I have been a successful trader for over a year, always having an account that was leveraged 100:1. I want to change brokers and find that mini acconts only leverage 200:1. When I ask what the difference is, the only answer I get is that I "would be able to control more currency" Yes I do know that 100:1 means that I would control $100,000 for each 1, and 200:1 means $200,00o for each 1. But what I don't know is how does that affect ME. The only thing I can figure out is that I would have double rollover interest/premiums. Exactly how does this affect MY end of the trade -- how is it more or less risky? etc.
Generally the leverage itself is not what introduces more or less risk, it's how you use it. If you are trading mini's, then you are essentially trading in lots worth about 10K. If you have 1K in your account, then your actual leverage is 10:1 . If you trade 2 lots, then your actual leverage is 20:1, etc. so on. At 100:1 leverage, with only 1K in your acount, you can bet on up to 10 lots at a time. At 200:1 leverage, you can bet on up to 20 lots at a time. The swap values and the variance of your account balance will scale directly with how many lots you trade.
If you are happy with your trading performance, usually the better idea is to allow your account to grow, and use that to guide how many lots to trade (rather than the maximum the broker offers based on maximum leverage).
  • #5
  • Aug 24, 2007 2:57am Aug 24, 2007 2:57am
Quoting TradurGurl
I have been a successful trader for over a year, always having an account that was leveraged 100:1. I want to change brokers and find that mini acconts only leverage 200:1. When I ask what the difference is, the only answer I get is that I "would be able to control more currency" Yes I do know that 100:1 means that I would control $100,000 for each 1, and 200:1 means $200,00o for each 1. But what I don't know is how does that affect ME. The only thing I can figure out is that I would have double rollover interest/premiums. Exactly how does this affect MY end of the trade -- how is it more or less risky? etc.
the only thing that changes is the margin requirement/margin call threshold....
for example, if you trade 1 10k lot usdjpy, the margin requirement is 50$ at 200:1 and 100$ at 100:1, respectively ~67 @ 200:1 and ~134 @ 100:1 for EURUSD...
more leverage actually gives you more "space" for your trades, so there's nothing wrong with it...
its bad reputation comes from the fact that many newbies are using higher leverage to increase their positions to dangerous levels instead of using it as a "buffer" for properly sized positions...
also, if you don't use stops, you get closer to zero in case of margin call...
  • #6
  • Aug 25, 2007 2:48am Aug 25, 2007 2:48am
Quoting TradurGurl
I have been a successful trader for over a year, always having an account that was leveraged 100:1. I want to change brokers and find that mini acconts only leverage 200:1. When I ask what the difference is, the only answer I get is that I "would be able to control more currency" Yes I do know that 100:1 means that I would control $100,000 for each 1, and 200:1 means $200,00o for each 1. But what I don't know is how does that affect ME. The only thing I can figure out is that I would have double rollover interest/premiums. Exactly how does this affect MY end of the trade -- how is it more or less risky? etc.
I am very surprized that u call yourself a successful trader while you are trading 100:1 leverage. I hope this is not the case and you dont trade 100:1 leverage even though you have access to it. That is a guarenteed recipe for disaster. Cause on a $1 000 account the market only needs to move less than 100 pips against you and you are dead. On a $10 000 account the market only needs to move less than 1 000 pips against you and your dead. Rather stick to 1:1 leverage. That gives you a 99% chance of being a successful trader.
  • #7
  • Last Post: Aug 25, 2007 4:20am Aug 25, 2007 4:20am
Quoting TradurGurl
I have been a successful trader for over a year, always having an account that was leveraged 100:1. I want to change brokers and find that mini acconts only leverage 200:1. When I ask what the difference is, the only answer I get is that I "would be able to control more currency" Yes I do know that 100:1 means that I would control $100,000 for each 1, and 200:1 means $200,00o for each 1. But what I don't know is how does that affect ME. The only thing I can figure out is that I would have double rollover interest/premiums. Exactly how does this affect MY end of the trade -- how is it more or less risky? etc.
The leverage you are referring to is what I call "broker leverage" or "account leverage". The only significance this has is in regards to margin requirements. I trade with a broker leverage of 400:1 simply because it provides the lowest margin requirements. This lets me keep most of my trading account in an FDIC insured account at my bank. In my brokerage account, I put only enough to cover margin and to allow room for price fluctuations during a trade.

Broker leverage is the maximum leverage available that you can trade with, but only a raw newbie or a fool would trade that high. What is important is your "true leverage" which is found by dividing your position size by your account size. If you have a position size of $3000 (3 micro lots) and your account balance is $1000, your true leverage is then 3:1 ($3000/$1000) and this is a safe and conservative leverage to trade with.

Also, if your account has less than about $35000 in it, then it is very beneficial to trade with a micro account rather than a mini account because you will actually be able to make more money with a micro account for a given series of trades. To understand why, you need to understand the granularity factor in asymmetrical leverage.

For an in depth explanation of broker leverage, true leverage, margin requirements & asymmetrical leverage, read my money management sticky in the Forex Beginner's Q&A forum.

Dial

P.S. While my broker leverage is 400:1 to give me the lowest margin requirements, I NEVER trade more than 10:1 true leverage. I recommend beginners to start with 1:1 true leverage or less, and then work their way up to 10:1 as they demonstrate consistent profitability. If one cannot make money trading at 1:1 true leverage, then the only thing trading at a higher true leverage will do is decimate one's account at a faster rate.
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