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Is Forex trading a game?

  • #1
  • First Post: Sep 26, 2007 6:11am Sep 26, 2007 6:11am
Hey all,

I happened to come across some websites that offer X400 leverage on Forex trades, which got me thinking - can you really have any control over your trades with such leverage ?

Forex trading is complex and requires a lot research, and while most traders should be able to tell if they predict that the USD/EUR will reach .5 or 1.3 in the upcoming weeks, I believe that no one can guarantee that during the fluctuations it won't drop 1/400 ( 0.0025% ) and cause you to close your trade due to full stop loss.

so, what sense is there in using such leverage? doesn't it turn Forex trading into a game?

I'd love if someone could explain that point to me,
Thanks

traderight
  • #2
  • Sep 26, 2007 6:34am Sep 26, 2007 6:34am
yeah, I think the whole idea behind the high leverage offer is just to entice and people to the site as any layman would, with the attraction that they can trade very big lot sizes, being unmindful or ignorant of the fact that utilizing such high leverages unduly overexposes their accounts.
  • #3
  • Sep 26, 2007 7:40am Sep 26, 2007 7:40am
Quoting traderight
Hey all,

I happened to come across some websites that offer X400 leverage on Forex trades, which got me thinking - can you really have any control over your trades with such leverage ?

Forex trading is complex and requires a lot research, and while most traders should be able to tell if they predict that the USD/EUR will reach .5 or 1.3 in the upcoming weeks, I believe that no one can guarantee that during the fluctuations it won't drop 1/400 ( 0.0025% ) and cause you to close your trade due to full stop loss.

so, what sense is there in using such leverage? doesn't it turn Forex trading into a game?

I'd love if someone could explain that point to me,
Thanks

traderight
Leverage is way overrated if you trade responsibly. It's not something a good trader thinks about. Here's an example:

Let's say you risk 3% of your $10,000 account on a position and that you use stoplosses. You have 97% of your account in cash and you're trading the GBPUSD. At 400:1 your broker holds $300 and at 100:1 he holds $1200. You have $9700 in reserve so why would you really care if the broker temporarily holds 12% of your account? You weren't using it anyway.

Leverage should never be a factor when chosing brokers.

With regards to complex and requires research...only if you want to make it difficult. Some people feel that it isn't trading unless they work hard and others have to know "why" the market moved or will move. I spent more time replying to you here than I do in a day analyzing the market.
  • #4
  • Sep 26, 2007 10:22pm Sep 26, 2007 10:22pm
The more leverage, the less capital you need to keep at a broker that could go possibly out of business. As the previous post mentioned...It shouldn't be a concern to a trader because you shouldn't risk 1-3% per trade.

ThinAir
  • #5
  • Oct 2, 2007 7:22am Oct 2, 2007 7:22am
Quoting ThinAir
The more leverage, the less capital you need to keep at a broker that could go possibly out of business. As the previous post mentioned...It shouldn't be a concern to a trader because you shouldn't risk 1-3% per trade.

ThinAir
Still, when you determine a stop loss, when using a X400 leverage you reach your stop loss a lot faster.
so even if you risked 20$ in X100 instead of 100$ in X20 the chances of reaching your stop loss increase rapidly.
  • #6
  • Oct 2, 2007 7:34am Oct 2, 2007 7:34am
Quoting traderight
Still, when you determine a stop loss, when using a X400 leverage you reach your stop loss a lot faster.
so even if you risked 20$ in X100 instead of 100$ in X20 the chances of reaching your stop loss increase rapidly.

Your stoploss is set in pips. Your risk is in dollars (or whatever you use). The market does not move faster or slower based on leverage nor does it care how much margin you have remaining.

A 30 pip loss at 100:1 is the same as a 30 pip loss at 400:1. It's still 30 pips and if a pip was worth $10 it's still $300 either way.
  • #7
  • Oct 2, 2007 7:36am Oct 2, 2007 7:36am
I concur; leverage has nothing to do with gambling or something like that. It is the way you use it what matters!

iiivb

Quoting philmcgrew
Leverage is way overrated if you trade responsibly. It's not something a good trader thinks about. Here's an example:

Let's say you risk 3% of your $10,000 account on a position and that you use stoplosses. You have 97% of your account in cash and you're trading the GBPUSD. At 400:1 your broker holds $300 and at 100:1 he holds $1200. You have $9700 in reserve so why would you really care if the broker temporarily holds 12% of your account? You weren't using it anyway.

Leverage should never be a factor when chosing brokers.

With regards to complex and requires research...only if you want to make it difficult. Some people feel that it isn't trading unless they work hard and others have to know "why" the market moved or will move. I spent more time replying to you here than I do in a day analyzing the market.
  • #8
  • Last Post: Oct 2, 2007 8:57am Oct 2, 2007 8:57am
Quoting traderight
Hey all,

I happened to come across some websites that offer X400 leverage on Forex trades, which got me thinking - can you really have any control over your trades with such leverage ?

Forex trading is complex and requires a lot research, and while most traders should be able to tell if they predict that the USD/EUR will reach .5 or 1.3 in the upcoming weeks, I believe that no one can guarantee that during the fluctuations it won't drop 1/400 ( 0.0025% ) and cause you to close your trade due to full stop loss.

so, what sense is there in using such leverage? doesn't it turn Forex trading into a game?

I'd love if someone could explain that point to me,
Thanks

traderight
High leverage can have many advantages. Personally I love carry trades. Say I am long on TRY/JPY with 400:1 leverage, it means the margin requirement for the trade is massively less than if my account leverage was 40:1. I could leave this capital in a bank for a guaranteed return.


Higher leverage sometimes allows you to leave more of your funds in the bank, whilst essentially trading the same way. You just have to be sure you have enough margin in your trading account to cover your potential losses.
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