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Anyone using high leverage successfully?

  • #41
  • Feb 3, 2007 12:34pm Feb 3, 2007 12:34pm
I think that leverage depends on trading style and abilities of a trader. If I trade with 400:1 leverage it doesnt mean I have open a position with all funds which I have. If you trade with high leverage you can still risk 2% or less. The most important is to know limits or use MM.
  • #42
  • Feb 3, 2007 1:16pm Feb 3, 2007 1:16pm
Quoting bluefish
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

i agree, i use 400:1 but sometimes only trade with 1,2,3,4, mini lots. so for 400:1 leverage one standard lot for me is $250 margin out of the account, and each pip is worth $10, for euro/usd and gbp/usd. each 1 standard lot is comprised of 10 mini lots. so 1 minilot trade would be $25 worth of margin, and each pip would be worth $1. i base each individual trade amount between 1 minilot and 3 standard lots, using between a $25-$750 margin, and yeilding (or losing!) between $1 and $30 per pip. it depends on personal feel, and the charts and indicators, for me to determine how big each trade will be.
  • #43
  • Feb 3, 2007 1:55pm Feb 3, 2007 1:55pm
Hi Diallist,

I have read what you have written about using high leverage. I'm inclined to disagree as a very experienced trader. Don't take offense because i am just asking you why, not questioning your judgement.

One of the main advantages of forex is the ability to use leverage. If you take that away completely or use very low leverage you may as well just trade stocks. It's certainly true that you will not burn out quickly, even if you make poor trading decisions. So for a beginner, I agree this might be a valid strategy. But you should not depend on low leverage to save you from making uninformed decisions. I believe its okay to use 50 or even 100 to 1 leverage if you use the proper risk managment. I have done this for years and find the use of leverage very important to my bottom line.

I can understand why you don't want your clients to burn out early. If they trade for a long time it certainly is in your best interest. Limiting your clients to only making small profits seems to fit your needs, but does not necessary theirs. Advising a client with 10k to trade micro lots seems like a waste of time. Figure in the number of hours and subscription fees and they are making little to nothing for lots of effort.

Please tell me if i misunderstood what you were trying to say.

Thanks in advance,

Ro
  • #44
  • Feb 3, 2007 2:01pm Feb 3, 2007 2:01pm
I hear everyone saying 1:1 leverage or 1:10 leverage, but I imgine most traders, myself included use much higher. Is this correct? I cannot afford to trade 1:1 leverage, so do you guys feel that if you cant trade 1:1 or 1:10 leverage you should NOT trade FOREX?
  • #45
  • Feb 3, 2007 2:43pm Feb 3, 2007 2:43pm
I was trading mini lots last week, and misunderstood how the margin actually works in the account. I either forgot or didn't know that my original amount to buy the lot was locked away, and I get the money back when the marginable money goes to $0. Lesson learned. It's not so bad anymore, I like the safeguard of not being able to lose 100% at all, ever, with a protective forex margined account.

Now if I were to trade 1:1, with $10,000 dollars, with no margin, there is absolutely no point in doing forex. With the margin, at least I would have a few hundred locked away and a buffer for my account. With Spending $10,000 of my own money for $1/pip gain, I'd rather go back to the corrupt world of equalities with the hundreds of useless rules that hold you back. The gains would be much higher. That's the point of these other markets...leverage.
I didn't realize until right now that with a $250 mini, you're only doing 40:1 to get one mini lot. Technically, for one mini I spend 25 dollars, and then I have a 225 pip buffer before I go to zero in my usable margin leverage. How come I don't see a negative problem with it?
* Your broker requirements per lot varies. Some are $25, some are $50 per mini lot in a mini account.
  • #46
  • Feb 3, 2007 3:49pm Feb 3, 2007 3:49pm
Quoting Rolandlc33
Hi Diallist,

I can understand why you don't want your clients to burn out early. If they trade for a long time it certainly is in your best interest. Limiting your clients to only making small profits seems to fit your needs, but does not necessary theirs. Advising a client with 10k to trade micro lots seems like a waste of time. Figure in the number of hours and subscription fees and they are making little to nothing for lots of effort.

Please tell me if i misunderstood what you were trying to say.

Thanks in advance,

Ro
Just for the record Dial is not selling anything, nor is he providing a signal service. In case you are refering to the Private Forum, again there is information supplied by Jim, Fijitrader and Dial designed to enable new traders to gather knowledge in a gradual way. It's fair to say that a person could join for a month and grasp all the basic info by saving the pages to their harddrive then cancel their subs.
They would lose the benefit of the ongoing general advice given there, but in no way could I class myself as a 'client'. I'm more a student, and grateful for the help they've given me.
Without the advice to trade on a micro account there is no possibility that, as a newcomer to any sort of trading, I wouuld have survived so long as I have.
  • #47
  • Feb 4, 2007 11:32am Feb 4, 2007 11:32am
Some people over complicate trading!
O.K. most people.
Some say "The sky is the limit". I say "I own the sky".
  • #48
  • Feb 4, 2007 11:41am Feb 4, 2007 11:41am
Quoting diallist

By the way, anyone who can't get 200 pips every 37 days shouldn't be trading in my opinion.

Dial
What if you only trade one pair? I believe a lot of people specialize in just one. Depending on your strategy on higher time frames, this may not always work out.

Jason
  • #49
  • Feb 4, 2007 12:38pm Feb 4, 2007 12:38pm
Quote
One of the main advantages of forex is the ability to use leverage.
It is equally the greatest danger. But it is not treated equally by newbies. They focus on what leverage will give them, and ignore what it will take from them.

Quote
If you take that away completely or use very low leverage you may as well just trade stocks.
And have the requisite $25,000 in your account, and comply with the daytrading rules, and put up with up-tick rule. No thanks. If I choose to trade 2:1 leverage, I'll stay with forex instead of going to stocks and putting up with the other negatives as well.

Quote
It's certainly true that you will not burn out quickly, even if you make poor trading decisions. So for a beginner, I agree this might be a valid strategy. But you should not depend on low leverage to save you from making uninformed decisions.
I have never said use of low leverage will protect you from uninformed decisions. But, it will keep a newbie in the game longer until they learn to make informed decisions. The number one objective in trading is to protect one's account. Making money is secondary.

Quote
I believe its okay to use 50 or even 100 to 1 leverage if you use the proper risk managment. I have done this for years and find the use of leverage very important to my bottom line.
Risk management involves far more than just calculating percent of account risked per trade. It also includes evaluating the proper minimum size for a stop for a given time frame and for the volatility of the currency pair being traded. For a given percent risk, using higher leverage forces the use of a smaller stop. If the stop size is too small for the timeframe/volatility combination, the trader's account will die the death of a thousand stops. One can get around this problem by using the smaller stop on a much shorter timeframe (scalping), but this requires great experience and discipline; attributes which newbies lack. Please understand, that my objections to using high leverage are directed at beginners, and not to all traders.



Quote
I can understand why you don't want your clients to burn out early. If they trade for a long time it certainly is in your best interest.
Clients? I assume you are referring to subscribers of James16. It makes no difference whether a newbie trader is a subscriber or not. I don't want to see any trader blow out their account before they've had a chance to learn how to trade. Yes, I want all newbies to be able to trade for a long time by conserving their accounts. It doesn't matter whether that newbie is a member of the PF or not. If you will note, all my posts regarding use of leverage are here in the public forum. Your implication that I am somehow manipulating PF subscribers for my benefit is untrue and insulting.

Quote
Limiting your clients to only making small profits seems to fit your needs, but does not necessary theirs.
Okay, I'll let PF subscribers reply to this! Okay PF'ers, name ONE restriction or limitation that has been placed on you as a requirement of being in the PF.

Quote
Advising a client with 10k to trade micro lots seems like a waste of time.
Then you know nothing of asymmetrical leverage. If you did, you would know that for any account under $30,000, using micro lots instead of mini lots will actually make you more money on a given series of trades. This topic is covered in the Beginner's forum.

Quote
Figure in the number of hours and subscription fees and they are making little to nothing for lots of effort.
Really? LOL! Again, I'll let the PF'ers answer this for themselves.
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  • #50
  • Feb 4, 2007 12:51pm Feb 4, 2007 12:51pm
Quoting diallist
Really? LOL! Again, I'll let the PF'ers answer this for themselves.
I couldn't wait to try and set the record straight, Dial, glad you called in (see above)
  • #51
  • Feb 4, 2007 8:14pm Feb 4, 2007 8:14pm
Did someone mentioned true leverage shouldnt exceed 1:10 ? I've a slightly different opinion on this. Consider this situation.

The account is 100k. Leverage is 1:100.
Risk per trade is 2% which is 2000.

Buy 200,000 units. True leverage is now 1:2. (100k : 200k)

Let's say the trader trades 10 uncorrelated pairs. He entered a position in each of the pairs.

Buy 200,000 x 10 pairs= 2 Mil.

True leverage is now 1:20 ( 100k : 2 Mil ). You achieve this without increasing your risk of 2% per trade because the pairs are uncorrelated and the decision you make in one pairs does not affect others. 1:20 is still a good ratio.

Comments, Dial or anyone ?
  • #52
  • Feb 4, 2007 11:07pm Feb 4, 2007 11:07pm
anybody use high leverage so as to maintain a smaller account while putting the rest of your funds in some other liquid investment ? maybe make sense for someone in profit to divert somewhere else that earns a return but could be called on if necessary during some atypical drawdown ?
  • #53
  • Feb 5, 2007 12:01am Feb 5, 2007 12:01am
luq, my comment would be that the correlation between the 10 pairs would then be the trader, so he must be a little cautious... perhaps he's better off just trading the one pair that gives him the greatest single expectancy. the advantage in many pairs would exist only if the 'true' expectancies arent known, which maybe they really arent since they are affected every time a trade is entered (and we dont what the outcome of the next trade is). maybe we're only as good as our last 10 trades.


Quoting luqmanz
Did someone mentioned true leverage shouldnt exceed 1:10 ? I've a slightly different opinion on this. Consider this situation.

The account is 100k. Leverage is 1:100.
Risk per trade is 2% which is 2000.

Buy 200,000 units. True leverage is now 1:2. (100k : 200k)

Let's say the trader trades 10 uncorrelated pairs. He entered a position in each of the pairs.

Buy 200,000 x 10 pairs= 2 Mil.

True leverage is now 1:20 ( 100k : 2 Mil ). You achieve this without increasing your risk of 2% per trade because the pairs are uncorrelated and the decision you make in one pairs does not affect others. 1:20 is still a good ratio.

Comments, Dial or anyone ?
  • #54
  • Feb 5, 2007 12:59am Feb 5, 2007 12:59am
Quoting luqmanz
Did someone mentioned true leverage shouldnt exceed 1:10 ? I've a slightly different opinion on this. Consider this situation.

The account is 100k. Leverage is 1:100.
Risk per trade is 2% which is 2000.

Buy 200,000 units. True leverage is now 1:2. (100k : 200k)

Let's say the trader trades 10 uncorrelated pairs. He entered a position in each of the pairs.

Buy 200,000 x 10 pairs= 2 Mil.

True leverage is now 1:20 ( 100k : 2 Mil ). You achieve this without increasing your risk of 2% per trade because the pairs are uncorrelated and the decision you make in one pairs does not affect others. 1:20 is still a good ratio.

Comments, Dial or anyone ?

Finding 10 truly uncorrelated markets as in your assumption is more difficult than you might think. If you stick only with currencies and trade 10 pairs your risk profile with a single 2% position risk over 10 pairs based on correlations is probably going to be more like 3-6%, with the high end determining portfolio risk. That's still not bad really. However, just as LTCM had correlation assumptions that went down the tubes when fundamental forces combined against its positions in a "perfect storm" you have to assume that historic correlations could also break down and your portfolio might face a worse drawdown than you estimate if conditions deviate substantially from historic norms. LTCM made some other mistakes to be sure but the point I'm trying to make is that even the best laid plans can go wrong (including historic correlations falling apart), and the higher the leverage, the more wrong they can go so having a plan for all contingencies is important. To your credit, you're taking a thoughtful approach to the subject, one that many don't even consider.
  • #55
  • Feb 5, 2007 3:57am Feb 5, 2007 3:57am
Quoting FXEZ
Finding 10 truly uncorrelated markets as in your assumption is more difficult than you might think. If you stick only with currencies and trade 10 pairs your risk profile with a single 2% position risk over 10 pairs based on correlations is probably going to be more like 3-6%, with the high end determining portfolio risk. That's still not bad really. However, just as LTCM had correlation assumptions that went down the tubes when fundamental forces combined against its positions in a "perfect storm" you have to assume that historic correlations could also break down and your portfolio might face a worse drawdown than you estimate if conditions deviate substantially from historic norms. LTCM made some other mistakes to be sure but the point I'm trying to make is that even the best laid plans can go wrong (including historic correlations falling apart), and the higher the leverage, the more wrong they can go so having a plan for all contingencies is important. To your credit, you're taking a thoughtful approach to the subject, one that many don't even consider.
Ah, LTCM. I heard but I forgot to read the book about it. Thanks for comments. That's an eye-opener. Even geniuses can fail.
  • #56
  • Mar 16, 2007 4:20pm Mar 16, 2007 4:20pm
Quoting diallist
Yes. I have been quite successful in the past using high leverage to consistently lose money. It is really an amazing and powerful tool. I now keep my high leverage locked away in a glass display case along with a collection of useless indicators, worthless trading "secrets" and a bottle of arsenic.

Dial
VERY well put!!!
Proper Prior Planning Prevents Piss Poor Performance
  • #57
  • Edited 6:12pm Mar 16, 2007 5:57pm | Edited 6:12pm
Quoting diallist
Can you get 100 pips per Quarter (3 months)? Do that four quarters in a row and you have an annual return of 46%. With a compounding period of three months, it only takes 49 of them, or 147 months to take $10,000 to over a million dollars. Want to take that $10,000 to a million in five years? Then do the 100 pips every 37 days. Think you can do 100 pips a week? If you can, then you'll hit that million in 49 weeks.

See? It DOES NOT take high leverage to get rich. It only takes 100 pips per compounding period at 10:1 leverage.
Not so fast, if you system goes through a 1000 pip or more drawdown for instance, then you can kiss those sweet "easy" millions goodbye.

You are right, but only if you experience very little or zero drawdown, while still making 100 pips a week for 49 consecutive weeks, an extremely unlikely trading scenario indeed.
  • #58
  • Mar 17, 2007 8:46am Mar 17, 2007 8:46am
I use high leverage very successfully. 400:1 and would like to know if a higher is available.
Some say "The sky is the limit". I say "I own the sky".
  • #59
  • Mar 17, 2007 8:50am Mar 17, 2007 8:50am
Some people realy quack me up.
Some say "The sky is the limit". I say "I own the sky".
  • #60
  • Mar 17, 2007 9:19am Mar 17, 2007 9:19am
Quoting PipGod
I use high leverage very successfully. 400:1 and would like to know if a higher is available.

...what's the trick in using that high of a leverage?
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