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Anyone using high leverage successfully?

  • #21
  • Jan 25, 2007 3:40am Jan 25, 2007 3:40am
I would use leverage as high as my system allows it. Currently the ideal level for me is 1:100. Why ? Read on.

In each trade, my max loss is 1%. If I have 100k account, its 1k.
My stop loss is never greater than 100 pip for GBP/USD.

Let's say the stop loss is 50 pips.
The max position size that I can purchase is 1000/50/0.0001 = 200,000
With leverage 1:100, broker will lock USD2k from my account. If the trade fail, USD1k will be deducted from my account.

What happens if the stop loss is 150 pips.
The max position size that I can purchase is 1000/150/0.0001 = 66,666
Broker will keep USD 666 from my account
What will happen now ? Chances are the stop loss will never reach 150 pips, position will be closed by broker immediately when the position's value decrease by USD 666. I exitted wayyyy too early. That's bad.

Higher/lower leverage doesnt matter. It's the MM that one need to watch.
  • #22
  • Edited 8:44am Jan 25, 2007 8:42am | Edited 8:44am
Quoting luqmanz
I would use leverage as high as my system allows it. Currently the ideal level for me is 1:100. Why ? Read on.

In each trade, my max loss is 1%. If I have 100k account, its 1k.
My stop loss is never greater than 100 pip for GBP/USD.

Let's say the stop loss is 50 pips.
The max position size that I can purchase is 1000/50/0.0001 = 200,000
With leverage 1:100, broker will lock USD2k from my account. If the trade fail, USD1k will be deducted from my account.

What happens if the stop loss is 150 pips.
The max position size that I can purchase is 1000/150/0.0001 = 66,666
Broker will keep USD 666 from my account
What will happen now ? Chances are the stop loss will never reach 150 pips, position will be closed by broker immediately when the position's value decrease by USD 666. I exitted wayyyy too early. That's bad.

Higher/lower leverage doesnt matter. It's the MM that one need to watch.
A good post based on MM.
Too many are melodramatic with leverage. Leverage is your friend to be utilised. Though, understand what your risk is.
Find LOW risk setups and entries then protect your positions - simple.
  • #23
  • Jan 25, 2007 9:36am Jan 25, 2007 9:36am
I would not dream of exeding 20:1 leverage. The though in general make me all queezy. I trade a EMA cross on the daily with up 19 piars at a time with 1:1 leverage. My accounts is always on the green because I spread my risk at low leverage.

FJ
Stacking pips since 2002
  • #24
  • Edited 4:52am Jan 26, 2007 3:33am | Edited 4:52am
  •  Trader#0000
  • | Status: Unregistered Trader
I've found that high leverage is very useful if you are trading the longer time frames. I use weekly and daily charts combined with some fundamentals, trading mini lots only. I managed to turn my $2,000 to $4,000 in about 4 months. Not a huge thing but it's a nice way to start with forex I think...
  • #25
  • Feb 1, 2007 9:15pm Feb 1, 2007 9:15pm
Quoting eagle4x
In the BWILC book, the author states that if you use high leverage,
such as 100:1 or more that you WILL fail and that you should use at
most 4:1 leverage. Is anyone in the FF forum trading successfully
using very high leverage?
The leverage I use is 400:1. The purpose is to reduce my used margin. I place the same trades (not 400 more) as I would at 1:1. Less used margin = more usable margin.
Some say "The sky is the limit". I say "I own the sky".
  • #26
  • Feb 1, 2007 9:25pm Feb 1, 2007 9:25pm
I personally risk a fixed 2% of my account per trade, and my historical win/loss percentage is around 50% (thanks God I only enter trades with an expected risk/reward of 2:1 or better). However, if my historical records showed that I've been scoring, say, a 65%+ over the last 100 trades, I would have no problem bumping my leverage up. Why not if statistics are backing me up at the end of the day?
  • #27
  • Feb 1, 2007 9:26pm Feb 1, 2007 9:26pm
What?
  • #28
  • Feb 1, 2007 9:27pm Feb 1, 2007 9:27pm
what "what"? LOL
  • #29
  • Feb 1, 2007 10:03pm Feb 1, 2007 10:03pm
Look at both edges of the double edged (leverage) sword.
Some say "The sky is the limit". I say "I own the sky".
  • #30
  • Feb 1, 2007 10:49pm Feb 1, 2007 10:49pm
Quoting luqmanz
I would use leverage as high as my system allows it. Currently the ideal level for me is 1:100. Why ? Read on.

In each trade, my max loss is 1%. If I have 100k account, its 1k.
My stop loss is never greater than 100 pip for GBP/USD.

Let's say the stop loss is 50 pips.
The max position size that I can purchase is 1000/50/0.0001 = 200,000
With leverage 1:100, broker will lock USD2k from my account. If the trade fail, USD1k will be deducted from my account.

What happens if the stop loss is 150 pips.
The max position size that I can purchase is 1000/150/0.0001 = 66,666
Broker will keep USD 666 from my account
What will happen now ? Chances are the stop loss will never reach 150 pips, position will be closed by broker immediately when the position's value decrease by USD 666. I exitted wayyyy too early. That's bad.

Higher/lower leverage doesnt matter. It's the MM that one need to watch.
You've almost got it,but not quite. Allow me to clarify if you will.

You are confusing the two types of leverage. First, there is broker leverage, which can be as high as 400:1. This is the maximum amount of leverage available to you. My micro account is set to 400:1. I will never use that much so why do I have it? Simply to minimize my margin requirements. That is all.

The other type of leverage is called true leverage. True leverage is just a portion of the broker leverage. True leverage is calculated by dividing your position size by your account size.

In your first example, your position size was 200,000 on a 100,000 account, so your true leverage is 200,000/100,000 = 2:1. A very low, safe and conservative amount.

Your second example is even more conservative:
66,666/100,000 = 0.667:1 true leverage. Very low.

Finally when your broker locks away the $666 margin, that is how much of your account that is protected by your broker, the remaining $99,334 would have to be lost before you would get a margin call.

I explain broker leverage, true leverage, margin, and risk in great detail in the Money Management sticky in the Beginner's forum. Enjoy!

Dial
sxaxlxvxaxtxixoxnxbxyxgxrxaxcxexdxoxtxoxrxgx
  • #31
  • Feb 1, 2007 11:07pm Feb 1, 2007 11:07pm
Quoting diallist
You've almost got it,but not quite. Allow me to clarify if you will.

You are confusing the two types of leverage. First, there is broker leverage, which can be as high as 400:1. This is the maximum amount of leverage available to you. My micro account is set to 400:1. I will never use that much so why do I have it? Simply to minimize my margin requirements. That is all.

The other type of leverage is called true leverage. True leverage is just a portion of the broker leverage. True leverage is calculated by dividing your position size by your account size.

In your first example, your position size was 200,000 on a 100,000 account, so your true leverage is 200,000/100,000 = 2:1. A very low, safe and conservative amount.

Your second example is even more conservative:
66,666/100,000 = 0.667:1 true leverage. Very low.

Finally when your broker locks away the $666 margin, that is how much of your account that is protected by your broker, the remaining $99,334 would have to be lost before you would get a margin call.

I explain broker leverage, true leverage, margin, and risk in great detail in the Money Management sticky in the Beginner's forum. Enjoy!

Dial
EEK! According to that math I am frequently as high as 40:1. I guess I'm living on the edge...

It's kind of a shabby way to look at risk though. Percentage at risk is far more relevant of a number. A scalper risking 1% of his balance may run leverage as high as 100:1 but I wouldn't consider his position any more risky then a trend trader at 2:1 risking 1%. If they were both at 20:1 true leverage, the scalper would be starving and the trend trader would perpetually blow accounts.

Better to just forget about leverage all together.
  • #32
  • Feb 2, 2007 12:51am Feb 2, 2007 12:51am
Reading some posts here on FF reminds me sometimes like when I am watching an oldie but goodie movie This is Spinal Tap. And I 'll leave it at that, but this is in reference to a certain particular post a few back.
  • #33
  • Feb 2, 2007 2:51am Feb 2, 2007 2:51am
hi...


Now I understand there is many differences between a demo and a real account....but forgetting all of the personal traits and fear factors and such of changing to a real account....does a demo account with whatever leverage it runs at...usually 100:1 or higher for most I think...reflect the true situation of the money gained or lost with a trade..and the account balance.
  • #34
  • Feb 2, 2007 12:28pm Feb 2, 2007 12:28pm
Quoting Darkstar
EEK! According to that math I am frequently as high as 40:1. I guess I'm living on the edge...

It's kind of a shabby way to look at risk though. Percentage at risk is far more relevant of a number. A scalper risking 1% of his balance may run leverage as high as 100:1 but I wouldn't consider his position any more risky then a trend trader at 2:1 risking 1%. If they were both at 20:1 true leverage, the scalper would be starving and the trend trader would perpetually blow accounts.

Better to just forget about leverage all together.
Hi Darkstar,

40:1!!! You're gonna crash and burn!!

Seriously though, what you said above is quite correct. Scalpers of necessity use higher leverage for a given % risk simply because their stops are smaller. This goes with the scalping territory and is perfectly acceptable in my views on leverage and risk.

I am not a scalper, but I respect those that are. My money management posts in the beginners forum are directed at beginners with the intention of protecting them while they learn to trade. I think scalping is a viable way to trade, but it is a difficult way that requires a great deal of successful experience on the part of the trader. Beginners lack this experience. For that reason, I disuade beginners from following their natural, but ignorant desire to trade short timeframes with higher leverage. Instead, I encourage them to start off trading longer time frames and to use larger stops and lower leverage, using compounding to build their accounts. Once they've become accomplished at that, then and only then should they advance to the shorter timeframes with higher leverage.

Still shabby sir?

Dial
sxaxlxvxaxtxixoxnxbxyxgxrxaxcxexdxoxtxoxrxgx
  • #35
  • Feb 2, 2007 12:30pm Feb 2, 2007 12:30pm
Quoting SunTrader
Reading some posts here on FF reminds me sometimes like when I am watching an oldie but goodie movie This is Spinal Tap. And I 'll leave it at that, but this is in reference to a certain particular post a few back.
Which post?
sxaxlxvxaxtxixoxnxbxyxgxrxaxcxexdxoxtxoxrxgx
  • #36
  • Feb 2, 2007 12:56pm Feb 2, 2007 12:56pm
Quoting diallist
Which post?
Oh I forget that for some posters here english is a second language and rather than asking them to explain themselves better, had that to say. Its probably better not to point fingers.


The other bigger problem is with so many having such unrealistic trading practices, but I don't want to get off on a rant with the weekend coming - stress downtime.
  • #37
  • Feb 2, 2007 2:25pm Feb 2, 2007 2:25pm
Quoting diallist
Still shabby sir?

Dial
Nope, I get what your saying. Placing the restriction on true leverage forces them into higher timeframes and or wider stops. Which I agree is probably a good thing for new traders. Though I still would stand by my opinion that true leverage isn't the best measure of risk.
  • #38
  • Feb 3, 2007 12:39am Feb 3, 2007 12:39am
Quote
Finally when your broker locks away the $666 margin, that is how much of your account that is protected by your broker, the remaining $99,334 would have to be lost before you would get a margin call.

I explain broker leverage, true leverage, margin, and risk in great detail in the Money Management sticky in the Beginner's forum. Enjoy!

Dial
Thanks for the info, Dial. That's new to me.
  • #39
  • Feb 3, 2007 10:22am Feb 3, 2007 10:22am
Quoting diallist
You've almost got it,but not quite. Allow me to clarify if you will...My micro account is set to 400:1. I will never use that much so why do I have it? Simply to minimize my margin requirements. That is all.

The other type of leverage is called true leverage. True leverage is just a portion of the broker leverage. True leverage is calculated by dividing your position size by your account size...
Dial
Dialist, thank you for your MM info in the beginner section, and the post from which the quote above is from was very informative. I have been struggling with this concept for some time and am now comfortable with what i'm currently being instructed to do from one of my successful mentors. . . you and he are telling the same story . . just in differnt words.

I almost croked when i was instructed to go out and find a brokerage that would allow 400:1 leverage. Thinking nievely that i was then to trade in such a was as to place trades at 400:1 i freaked out...then i read the rest of the story/instructions...and realized that true leverage was rarely over 5:1 or thereabouts.

Thanks again for your contributions and insights.
: ) Thom
  • #40
  • Feb 3, 2007 12:16pm Feb 3, 2007 12:16pm
Guys..as Dial already pointed out, high broker leverage can be used for normal trading with lower margin requirements /normal trading includes having Stoplosses and some fancy MM/
Lot of people are against high leveraged accounts, because they think about it in a misunderstood way. If you have 400:1 account, it doesnt mean, that you should use it to its "full power". With that account you can still trade smart, but with lower margin requirements. As for the part with true leverage, well...that's another story

Happy Trading

Bluefish
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