Veteran forex traders, how much leverage do you use to trade? | Forex Factory

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Veteran forex traders, how much leverage do you use to trade?

  • #1
  • First Post: Edited 11:36am Jul 24, 2009 10:47am | Edited 11:36am
For the active forex traders with consistent profitable record over a year or longer period, I wondered how much leverage you usually use for intraday trading or for overnight positions? Do you use 2x, 5x, 10x, over 50x of your margin, or no leverage at all?

Your feedback is highly appreciated.
  • #2
  • Jul 24, 2009 11:18am Jul 24, 2009 11:18am
A risk of 1%-2% of trading capital, leverage used is a pointless calculation really.
  • #3
  • Jul 24, 2009 11:32am Jul 24, 2009 11:32am
My broker offers 400:1 leverage, yet I use maybe 50:1 ... if not that much.

I could never see myself using 100% of the leverage given. Those who do use 100% are Vegas-Betting (gambling) their positions.
  • #4
  • Jul 24, 2009 11:46am Jul 24, 2009 11:46am
Thanks for the feedback.

I have traded stocks for over 10 years and recently started to trade Forex. I feel 5x leverage is already very big, even though I try to do my best in TA to time my entries and risk control etc.

Good to hear what you veterans have to say.
  • #5
  • Jul 24, 2009 12:01pm Jul 24, 2009 12:01pm
If not I apologise in advance.

There is a difference between Borker Leverage and True Leverage. As a new trader you should not exceed a ratio of 2:1 and 1:1 is better. In % terms that effectively equates to 1% - 2%. So, although your borker may offer 400:1 that's simply an easy way of controlling your risk without putting your account under pressure.

If you scroll down to Post #19 in this thread http://www.forexfactory.com/showthread.php?t=39514 I have posted a clearer explanation of how it works.

Again if I'm 'teaching my grandmother to suck eggs' I apologise.

BTW, I rarely exceed 5:1 and normally it's 2:1.
  • #6
  • Jul 24, 2009 12:38pm Jul 24, 2009 12:38pm
Quoting ridingwaves2
I feel 5x leverage is already very big
I think you're missing the point slightly, leverage used shouldn't be a calculation to decide trade size, it's a by-product calculation if you like and it's irrelevant.

5:1, 10:1, 20:1, even 50:1.....they can all be fine.

You don't think to yourself "I'm going to use 5:1 for my trades", it's going to be meaningless. If you have a 10 pip stop you're probably underleveraging, if you have a 100 pip stop you're probably overleveraging.

Simply work out where you're going to place your stop, calculate the number of pips between entry and stop (let's say 35 pips for this example), calculate 1 or 2% of capital (let's say 1% of $10k equity, $100), then divide $100 by 35 pips to give you a value per pip, in this case $2.86. Trade size on something like Eur/Usd or Gbp/Usd is going to be 28,600 units, $2.86 per pip. Nowhere in that calculation did you need to work out the leverage you used.

The leverage your broker offers and sets your account at only affects margin requirement.

If your account balance changes, and/or your stop loss changes, and/or the risk you want to take changes then adjust accordingly, it won't always be the same X:1 that you use.
  • #7
  • Jul 24, 2009 4:38pm Jul 24, 2009 4:38pm
Thanks Peter,

Similar to your trading size, I also normally use 1:1 or 2:1. 5:1 is the maximum I use so far. When I use 5:1, I have to cut loss very quick in order to control risk.

Hi pipmutt,

I understand each trade should risk no more than 1 or 2% of trading capital. That’s what I’m doing as well.

But when people are talking about using 50:1 leverage for example, I think they are using 50 x of their account value to make a trade (For example, a trader has $10,000 in his account, when he longs EUR.USD using 50x leverage, he buys $500,000 of this forex pair to make the trade). Isn’t that what they are talking about? If so, 4 or 5 pips move in the wrong direction would exceed 2% of the trading capital, risk control is hard to apply in that case.
  • #8
  • Jul 24, 2009 5:00pm Jul 24, 2009 5:00pm
Quoting pipmutt
A risk of 1%-2% of trading capital, leverage used is a pointless calculation really.
Well said pipmutt, exactly what I was going to say.

Leverage is pointless, just calculate your total risk exposure.
  • #9
  • Jul 24, 2009 5:16pm Jul 24, 2009 5:16pm
Quoting ridingwaves2
But when people are talking about using 50:1 leverage for example, I think they are using 50 x of their account value to make a trade (For example, a trader has $10,000 in his account, when he longs EUR.USD using 50x leverage, he buys $500,000 of this forex pair to make the trade). Isn’t that what they are talking about? If so, 4 or 5 pips move in the wrong direction would exceed 2% of the trading capital, risk control is hard to apply in that case.
Is it important what other people use, they could be scalpers with <10 pip stops or positional traders with >250 pip stops, you couldn't use the same leverage for both. Even on this thread you've got people saying anything between 1:1 and 50:1

My point was there's really no need to calculate the amount of leverage used, not only is it unimportant it serves no useful purpose to calculate it.
  • #10
  • Jul 24, 2009 5:18pm Jul 24, 2009 5:18pm
Quoting mikkom
Well said pipmutt, exactly what I was going to say.

Leverage is pointless, just calculate your total risk exposure.
Tada! I thought I was losing the plot there for a minute
  • #11
  • Jul 24, 2009 5:32pm Jul 24, 2009 5:32pm
Quoting pipmutt
Is it important what other people use, they could be scalpers with <10 pip stops or positional traders with >250 pip stops, you couldn't use the same leverage for both. Even on this thread you've got people saying anything between 1:1 and 50:1

My point was there's really no need to calculate the amount of leverage used, not only is it unimportant it serves no useful purpose to calculate it.
My point was that new traders often don't understand the difference between borker leverage and true leverage, so I was simply answering his question in the same terms he posed it.

I agree that of course it's simpler to calculate risk in % terms.
  • #12
  • Jul 24, 2009 5:52pm Jul 24, 2009 5:52pm
Quoting PeterFM
My point was that new traders often don't understand the difference between borker leverage and true leverage, so I was simply answering his question in the same terms he posed it.

I agree that of course it's simpler to calculate risk in % terms.

I wasn't aiming my remarks at you or anyone in particular, sorry I've just read what I wrote and I see how it could have come across that way, definitely no offence intended!
  • #13
  • Jul 24, 2009 6:12pm Jul 24, 2009 6:12pm
Quoting pipmutt
I wasn't aiming my remarks at you or anyone in particular, sorry I've just read what I wrote and I see how it could have come across that way, definitely no offence intended!
I never take offence as I know how hard it is to translate what's in one's mind and transfer those thoughts into text .
  • #14
  • Jul 24, 2009 7:09pm Jul 24, 2009 7:09pm
Thanks Peter and pipmutt. Your info is helpful, I appreciate it. And I want to clarify my question a bit and put it in another way here:

What's your normal trading size in each trade if you have, say, $100,000 in your forex trading account.

I like to continue to hear from veteran traders on this.

Have a nice weekend everyone.
  • #15
  • Jul 24, 2009 8:08pm Jul 24, 2009 8:08pm
Quoting ridingwaves2
Thanks Peter and pipmutt. Your info is helpful, I appreciate it. And I want to clarify my question a bit and put it in another way here:

What's your normal trading size in each trade if you have, say, $100,000 in your forex trading account.

I like to continue to hear from veteran traders on this.

Have a nice weekend everyone.
100,000 X .01 = 1000

1000/stop loss = ?

Let's say stop is 50 PIPS.

1000/50 = 20/PIP

Each pip would be worth $20.

I wouldn't trade a dime until you are profitable for 3 months with a demo account.
  • #16
  • Jul 24, 2009 8:33pm Jul 24, 2009 8:33pm
Quoting ridingwaves2
What's your normal trading size in each trade if you have, say, $100,000 in your forex trading account.
The maximum I use is a 1.66:1 true leverage = $166,000 (or 1.66 lots) on your above example as maximum trade size, with a top of of 6 simultaneous trades for a total 10% global max risk (1 pip = $16.60).

I evaluate risk as 100 pips per trade (1.66% of equity) although the real risk incurred per trade is at about 16 pips (0.27% of equity).
  • #17
  • Jul 25, 2009 7:09am Jul 25, 2009 7:09am
Thanks Acumen and Doblece.

I have been through with demo trading and have been in real Forex account over 9 months (plus multiple years experience in stock trading before). Hopefully I will learn more about Forex here.

Doblece’s approach certainly looks methodical and good to me. Thanks!
  • #18
  • Apr 16, 2014 11:11am Apr 16, 2014 11:11am
Quoting pipmutt
{quote}The leverage your broker offers and sets your account at only affects margin requirement.
I agree.
For example: if you change leverage from 1:100 to 1:500 BUT you keep the same lot size, this only affects margin requirement.
  • #19
  • Mar 16, 2016 11:33pm Mar 16, 2016 11:33pm
it depends on the win rate and roc, for a strategy that wins 75% or more, you can risk a bit more,
the reason is obvious, for such method, it is very unlikely you would see a long losing streak, even though not impossible.
I use between 1% to 4% depending on what I trade.
Bulls are stupid Animals!especially when Im short!
  • #20
  • Mar 16, 2016 11:54pm Mar 16, 2016 11:54pm
I do know that a hedge fund company in Toronto uses 1:50 for low risk strategy, 1:200 for medium risk strategy and 1:300 for high risk strategy.

In my personal experience I would trade with 1:200 leverage, hope this helps.
Sometimes it takes a whole tankful of fuel before you can think straight.
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