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Leverage in Jeopardy

  • #21
  • Feb 21, 2009 6:40pm Feb 21, 2009 6:40pm
I can open more positions (and absorb more red pips before a margin call) w/ higher leverage.

It WILL make a difference to some people's trading methods/styles. (Me, for one)

Quoting Tjpld
Example:

10.000 USD Balance
3% Risk = 300 USD
Pips at Risk 100 Pips.
=> Lotsize 0.3 Standard Lots or 30.000 Units
Margin Requirement with 1:25 = 30.0000/25 = 1200 USD
See how that is easily possible with 10000 USD?

Now with 1:500 leverage it's 30.000/500 = 60 USD.
What is the risk? 3%!! Is there a difference between
1:500 and 1:25? NO! Why? Because the RISK is the same.

You could also risk 20% on 100 Pips of your account this
would require 8000 USD of margin.
Now please say 20% risk per trade is not enough and I'll laugh my ass off.
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  • #22
  • Feb 21, 2009 6:42pm Feb 21, 2009 6:42pm
My concern is that although there may be tens or hundreds of thousands of people against the law, that the resistance will not be well organized.

In war, you need leadership. And it would be nice to have a well defined organization fighting against this. Alas, with a few thousand petitions and no strategy, I don't see it being nearly as effective.

Quoting Ironball
I would say that everyone who reads this thread should keep note of the issue and check back to see when the SEC comment period arises. At which point a serious mobilisation should take place by as many traders as possible to submit extensive, reasoned, detailed arguments to the SEC against this ill thought-out proposed rule. The acceptance of such a rule by one regulator could open the floodgates.

I remember when the SEC opened a comment period regarding the Silver Users Association proposals against the registration of the first silver ETF....
  • #23
  • Feb 21, 2009 6:53pm Feb 21, 2009 6:53pm
A 10 pip loss on 1 lot is $100, no matter what leverage you're using.

Problem lies with the abuse of high leverage.

$1,000 and 500:1 leverage means you can trade 5 lots at a time. 20 pips against you and your account is gone.
  • #24
  • Feb 21, 2009 6:56pm Feb 21, 2009 6:56pm
Nope.... if it is 10:1 vs. 100:1, the margin requirement would be $15000 vs. $1500 to control 1 lot.

That means you have $13500 additional "red pip absorbtion" dollars in the account, or the equivalent of 135 pips.

Quoting NuckingFuts
A 10 pip loss on 1 lot is $100, no matter what leverage you're using.

Problem lies with the abuse of high leverage.

$1,000 and 500:1 leverage means you can trade 5 lots at a time. 20 pips against you and your account is gone.
  • #25
  • Feb 21, 2009 7:07pm Feb 21, 2009 7:07pm
Quoting tdion
Nope.... if it is 10:1 vs. 100:1, the margin requirement would be $15000 vs. $1500 to control 1 lot.

That means you have $13500 additional "red pip absorbtion" dollars in the account, or the equivalent of 135 pips.
Yes that is correct, but 10 pips with 1 lot = $100 no matter what.

I understand the risk is greater having your money backing the trade (as per your other thread, a gap against sending you into a negative balance for example).
  • #26
  • Last Post: Feb 21, 2009 7:27pm Feb 21, 2009 7:27pm
Sorry, hit submit instead of preview.

The example you posted td with lower leverage, is still blatant abuse of leverage.

It is the traders responsibility to be aware of such risks in this game - i.e. gaping past your stop.

If you traded 0.1 of a lot on an account balance of $15k, that means a 15,000 pip loss has to occur to wipe you out. I may be missing something, but I have never seen a gap of this magnitude.

Abuse it, you risk losing it. Plain and simple.
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