Invest 10 billion dollar with 1:500 leverage, possible or not? | Forex Factory

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Invest 10 billion dollar with 1:500 leverage, possible or not?

  • #1
  • First Post: Mar 4, 2010 7:44am Mar 4, 2010 7:44am
hi,
I wanted to know if leverage can be limited for certain investors. For example, if a financial organisation invests 10 billion dollars into the forex market using a cyprus based broker with a leverage of 1.500 then the 10 billion dollar translate into 5 trillion dollar.

5 trillion dollar is above the daily forex volume. So how can an organisation invest 10 billion dollar into a forex market using the 1 to 500 leverage? does this mean leverage is limited and not everyone can make use of it?
  • #2
  • Mar 4, 2010 9:15am Mar 4, 2010 9:15am
As far as I know, the higher you invest, the lower you get from leverage.
  • #3
  • Mar 4, 2010 11:28am Mar 4, 2010 11:28am
Leverage is definitely capped.

1 billion gets maybe 2:1 leverage, and that's being generous
  • #4
  • Mar 4, 2010 2:29pm Mar 4, 2010 2:29pm
Quoting Ronald Raygun
Leverage is definitely capped.

1 billion gets maybe 2:1 leverage, and that's being generous

Yep, I wonder how big you can go on 100:1 Leverage.
  • #5
  • Mar 4, 2010 3:04pm Mar 4, 2010 3:04pm
no way are you getting that leverage. 2 is the highest you can expect, but that is also rare
Twitter: @forexpokerpro
  • #6
  • Mar 4, 2010 4:16pm Mar 4, 2010 4:16pm
You can easily get 500:1 leverage with $1 Billion. It happens to me all the time on my demo accounts.
  • #7
  • Mar 5, 2010 4:03am Mar 5, 2010 4:03am
Last year long A/U at an average price of 0.65

Long A/U at 0.65

Sell it at 0.90

Total profit = 2500 pips

2500 pips X 100 standard lots = 2.5 million US dollars

I am sick of gaining/loosing 40-50 pips in day trading set up

Try something big...First target a ford car, then a 3 bedroom flat and then a business all financed by forex profits.
  • #8
  • Mar 5, 2010 9:28am Mar 5, 2010 9:28am
Quoting kingfisher
Last year long A/U at an average price of 0.65

Long A/U at 0.65

Sell it at 0.90

Total profit = 2500 pips

2500 pips X 100 standard lots = 2.5 million US dollars

I am sick of gaining/loosing 40-50 pips in day trading set up

Try something big...First target a ford car, then a 3 bedroom flat and then a business all financed by forex profits.
Hindsight is 20/40. What was the average ATR last year - about 160? How much of your account would you risk on that trade? If you risked 10% with 160 pip stop, then your 2500 pips would earn about 1.56x your account size. So you'd need $1.6MM to get your $2.5MM.

And you'd lose $160,000 if you were wrong. Not to mention you'd have periods where you would be $300,000 or more off your high - would you really hold through those down periods, or take your profit?
  • #9
  • Mar 5, 2010 9:37pm Mar 5, 2010 9:37pm
Quoting freak11
hi,
I wanted to know if leverage can be limited for certain investors. For example, if a financial organisation invests 10 billion dollars into the forex market using a cyprus based broker with a leverage of 1.500 then the 10 billion dollar translate into 5 trillion dollar.

5 trillion dollar is above the daily forex volume. So how can an organisation invest 10 billion dollar into a forex market using the 1 to 500 leverage? does this mean leverage is limited and not everyone can make use of it?
It's probably limited, the Firm that you trade with must be able to acquire those funds from somewhere, and that amount of money pretty huge for smaller firms to acquire and lend to you. Besides I think you'll run into serious liquidity problems with that size.
  • #10
  • Mar 6, 2010 3:48am Mar 6, 2010 3:48am
Quote
Hindsight is 20/40. What was the average ATR last year - about 160? How much of your account would you risk on that trade? If you risked 10% with 160 pip stop, then your 2500 pips would earn about 1.56x your account size. So you'd need $1.6MM to get your $2.5MM.

And you'd lose $160,000 if you were wrong. Not to mention you'd have periods where you would be $300,000 or more off your high - would you really hold through those down periods, or take your profit?

To buy 100 standard lots, you need $ 40,000 as a margin in your account (leverage 1:250 in FXCM)

If you apply MM rules of risking 1% of account size on each trade, then your account size should be $ 400,000 so that you can pay $ 40,000 as a margin to load A/U longs.

One can srew up MM if one is dead sure about the movement. But screwing up MM should be taken when one is dead sure about the move and the position is profitable so as to add imaginary gains in the account.

When A/U started to move from bottom at 0.60, E/U started its journey from 1.24, G/U started its journey at the same time from bottom at 1.36, G/J started its journey from 118, A/J started its journey from 46.

So, you will notice correlation can give you fair amount of idea that all the pairs have hit the bottom and now rising.

One could have start building long positions from 0.60-0.65 and then hold them for next 7-8 months towards 0.90 levels.

There was not much retracement in A/U bullish move last year. Small amount of retracement at 0.70, 0.80, 0.90 + levels would have not wiped off the account.

It is quite tough to capture these kind of big moments. I have not done it till yet because i started trading in oct 09 but early in my trading career, i am now working on this research about capturing big moments.
  • #11
  • Mar 6, 2010 9:33am Mar 6, 2010 9:33am
Quoting kingfisher
To buy 100 standard lots, you need $ 40,000 as a margin in your account (leverage 1:250 in FXCM)

If you apply MM rules of risking 1% of account size on each trade, then your account size should be $ 400,000 so that you can pay $ 40,000 as a margin to load A/U longs.

One can srew up MM if one is dead sure about the movement. But screwing up MM should be taken when one is dead sure about the move and the position is profitable so as to add imaginary gains in the account.

When A/U started to move from bottom at 0.60, E/U started its journey from...

100 standard lots is $1000 per pip. At 1% risk on a $400,000 account, this gives you a 4 pip stop loss. I don't think anyone can pick bottoms that well.

Are you sure you would have stayed in the trading during those retracements? How would you know that price hadn't reached a top?

I do agree that taking a longer view is helpful. You might could have caught that bottom with less than a 160 pip SL if you drilled down to hourly candles and watched price action.

After that, the retracements would make good times to add to your winner. But I think that it's unreasonable to expect to pick a 3500 pip winner with a 4 pip SL.
  • #12
  • Mar 7, 2010 5:53am Mar 7, 2010 5:53am
Quoting kingfisher
To buy 100 standard lots, you need $ 40,000 as a margin in your account (leverage 1:250 in FXCM)
I don't think your broker would accept an order of that size.

Quote
There is one more limitation that differentiates real trading from testing or trading on a demo account. It is the maximum value of the lot price. No dealing center, whether it be a bank, a bookmaker's office or a financial institution, can practically operate with very large amounts of money.

If orders cost about US$10 000 to 20 000 (please note that there is a leverage, which is usually equal to 100), the dealing center will sell/buy as good as US$1 000 000. This is a really large amount, but dealers have learned how to work with such great...

from http://articles.mql4.com/163
  • #13
  • Mar 7, 2010 12:17pm Mar 7, 2010 12:17pm
Quoting freak11
hi,
I wanted to know if leverage can be limited for certain investors. For example, if a financial organisation invests 10 billion dollars into the forex market using a cyprus based broker with a leverage of 1.500 then the 10 billion dollar translate into 5 trillion dollar.
Once you get out of the little kids sandbox or retail forex, margin becomes a factor of collateral. You could in theory borrow that 5 trillion, but you would have to have ~7.5 trillion in assets to pledge as collateral to back up the loan.

This is all just mental masterbation though. The likelyhood of you ever having even $50 million is in the fractions of a percent catagory. The idea that you would want to trade it at 500:1 makes it a guaranteed 0%.
  • #14
  • Aug 27, 2010 5:52pm Aug 27, 2010 5:52pm
Was wondering would a transaction of a few million dollars move the fx market to the point that it would sabatoge ones trade?

I represent institutions and we hsvnt gotten into forex yet. We re interested to because of the liquidity. But are wondering what size orders would drive prices enough to negate our strategy....
  • #15
  • Edited 5:27am Aug 28, 2010 5:11am | Edited 5:27am
Quoting Darkstar
Once you get out of the little kids sandbox or retail forex, margin becomes a factor of collateral. You could in theory borrow that 5 trillion, but you would have to have ~7.5 trillion in assets to pledge as collateral to back up the loan.

This is all just mental masterbation though. The likelyhood of you ever having even $50 million is in the fractions of a percent category. The idea that you would want to trade it at 500:1 makes it a guaranteed 0%.
Thats not correct Darkstar....I will tell you why in a minute.

Leverage offered in retail forex is a twist of the fractional system, banks are allowed to use. And yes it is inversely proportional to your account size because the bigger your account the more gain (or losses) small fluctuations in currencies will be generated.

As an example, lets take the E/U from 07/15/2008 through 10/27/2008 one of the fastest movements on the pair. In this short period it moved around 40 cents. So what this gargantuan movement for forex standards would translate in your account with out leverage ?

In a 20 grand account it would give you 8000. Compared to your starting account it is awesome but in real life it will pay you around 80 bucks per day or little over 2.5 grand per month in those 3 months.

Can you live out of it? And I'm considering a perfect trade here selling at the perfect top and covering at the perfect bottom.

Now from 10/01/2000 through 07/01/2008. The pair gained a whopping 80 cents, you almost doubled your account 16 thousand dollars out a perfect trade but .....it took you 8 years.

Can you live out of 200 bucks per month?

Now try the same percentages on 200 thousand, 2 million, 20 million

See how leverage starts to loose its crucial importance.

So if you go to a bank and negotiate leverage for a 10M account they will probably give you 3 or 4 to 1. It all depends how good you are in convincing them to let you use their money and the interest they will charge you.

Now to Darkstar.......

When you make a deal based in leverage with a bank your capital in hand is the collateral. So in this hypothetical 10 billion 500:1 the hypothetical bank will still execute your trillion dollar order until it goes to -10B ( based on pips or sub-pip standards) when you will have a good old margin call and become penny-less.

Off course this is all hypothetical. Spot transactions can't have leverage after a certain amount, and even if it was possible who will take the other side of a trillion dollar single position? what bank will handle this? The liquidity will disappear, the market will shut down and your 10B will evaporate. instantaneously
  • #16
  • Aug 28, 2010 9:55am Aug 28, 2010 9:55am
Yes it's possible : that's what LTCM did, in fact their leverage was thousands and they did cause the stock market crash of 1998
  • #17
  • Aug 28, 2010 10:02am Aug 28, 2010 10:02am
No broker, bank, or government would give you leverage on a 10 Billion account. The collateral on that loan would be huge, and unnecessary. Leverage does have a cap. With that amount of money you'd be lucky to get 1:1 leverage from a reputable bank/broker.
  • #18
  • Aug 29, 2010 4:29am Aug 29, 2010 4:29am
Quoting Jhig
No broker, bank, or government would give you leverage on a 10 Billion account. The collateral on that loan would be huge, and unnecessary. Leverage does have a cap. With that amount of money you'd be lucky to get 1:1 leverage from a reputable bank/broker.
What collateral do you need if you're the reputable bank itself who finance the fund such as LTCM ... oops you're right ... there is a collateral that is gov tax on people
  • #19
  • Aug 29, 2010 7:40am Aug 29, 2010 7:40am
Quoting forexgenuine
Yes it's possible : that's what LTCM did, in fact their leverage was thousands and they did cause the stock market crash of 1998
LTCM and others like AIG more recently manage to have leverage because they work with esoteric stuff, like derivatives etc. Spot forex works differently, nobody will give you leverage after a certain amount.
  • #20
  • Sep 1, 2010 4:07pm Sep 1, 2010 4:07pm
Quoting dr_zeus
You can easily get 500:1 leverage with $1 Billion. It happens to me all the time on my demo accounts.
LOL me too definitely possible!
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