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Is high leverage really bad for traders?

  • #41
  • Mar 22, 2007 3:44pm Mar 22, 2007 3:44pm
what the heck happened to my post???!
  • #42
  • Mar 22, 2007 3:49pm Mar 22, 2007 3:49pm
Quoting FXTerminator
Did I say that Hidethereal? :

By the way, funding/depositing money (to your FX account) by credit card costs nothing, zero, there are no fees involved.
You didn't state this exact scenario, but the concept is the same.
  • #43
  • Mar 22, 2007 3:50pm Mar 22, 2007 3:50pm
I rather be the one with $10,000 cause then I could open new ($100) positions while the other positions are still in play. While the other guy can only do one position at a time. Since more opportunities translates to better returns (provided you have the edge).

so i guess in reality, both traders are not equal. They may risk equal $ amount, but the one trader has a higher chance of success.

plus doesn't it take at least couple of hours if not days for account balances to be updated even if you do credit card deposit? Then the trader who keeps depositing will end up wasting time and miss good trades along the way..
  • #44
  • Mar 22, 2007 4:19pm Mar 22, 2007 4:19pm
Quoting hilmy83
I rather be the one with $10,000 cause then I could open new ($100) positions while the other positions are still in play. While the other guy can only do one position at a time. Since more opportunities translates to better returns (provided you have the edge).
Well we don't know for sure if "more opportunities translates to better returns" in the long run Hilmy83. What is true however is that it will certainly decrease the maximum drawdown and give you a much smoother equity curve.

But MORE profits I am not sure about that.

Quoting hilmy83
Then the trader who keeps depositing will end up wasting time and miss good trades along the way..
True, but he will also avoid a lot of losing trades too, while waiting for his deposit to clear so in the long run things will even out.
  • #45
  • Mar 22, 2007 4:23pm Mar 22, 2007 4:23pm
Quoting FXTerminator
Well we don't know for sure if "more opportunities translates to better returns" in the long run Hilmy83. What is true however is that it will certainly decrease the maximum drawdown and give you a much smoother equity curve.

But MORE profits I am not sure about that.



True, but he will also avoid a lot of losing trades too, while waiting for his deposit to clear so in the long run things will even out.
you're assuming his system has only a 50% success rate and that his profit trades and losing trades are the same size.
  • #46
  • Mar 22, 2007 4:26pm Mar 22, 2007 4:26pm
Quoting FXTerminator
True, but he will also avoid a lot of losing trades too, while waiting for his deposit to clear so in the long run things will even out.
If you have a solid system with certain entry and exit rules you need to take every signal. You never know which trades will be profitable and which will be unprofitable. You could easily miss the "big winner" or the "big loser", leaving it up to deposit time to determine which trades you miss turns your system into gambling.
  • #47
  • Mar 22, 2007 4:27pm Mar 22, 2007 4:27pm
Quoting FXTerminator
It should be extremely obvious by now darkstart: this so called "high-leverage-is-bad" myth is simply that, a myth, as the preceding examples show.
okay.....not that I buy your whole premise, but so what if it's a myth? That's his point. Are you going to tell us next that if we have 2 accounts, one with $100 and one with $10,000 and if we use the same system on both, that we'll make more money by maxing out our account on each trade? If not, then there is no point.
  • #48
  • Mar 22, 2007 4:30pm Mar 22, 2007 4:30pm
Quoting FXTerminator
It should be extremely obvious by now darkstart: this so called "high-leverage-is-bad" myth is simply that, a myth, as the preceding examples show.
Finding a hypothetical situation in which you incur outrageous transaction costs and gain zero tangible benefit hardly qualifies as justification for a blanket statement about something being generally good or bad.

Make your point about how someone can benefit from your arguement.
  • #49
  • Mar 22, 2007 4:32pm Mar 22, 2007 4:32pm
Quoting aicccia
you're assuming his system has only a 50% success rate and that his profit trades and losing trades are the same size.
It all depends on your take profit and your stop, not your winning percentage.

Also please keep in mind that I would not have to deposit $100 forever in my FX account, at the second or third deposit the profits would start to grow by themselves and the system would not need any more deposits.
  • #50
  • Mar 22, 2007 4:41pm Mar 22, 2007 4:41pm
Quoting Darkstar
Make your point about how someone can benefit from your arguement.
This post is NOT (NOT!) about how to trade or not to trade on the FX. I am simply exposing my views about this high leverage myth, period. How traders use their money or intend to use their money is not my problem and has nothing to do with this thread.
  • #51
  • Mar 22, 2007 4:48pm Mar 22, 2007 4:48pm
Quoting aicccia
okay.....not that I buy your whole premise, but so what if it's a myth? That's his point. Are you going to tell us next that if we have 2 accounts, one with $100 and one with $10,000 and if we use the same system on both, that we'll make more money by maxing out our account on each trade? If not, then there is no point.
No, all I said was that those 2 accounts would end up making the same amount of money, even though in the second account it would appear we are using "too much leverage" and in the first account we are using "safe" leverage.

This "safe" leverage is of course only an illusion, both accounts are making the same exact profits and are experiencing the same exact drawdown.
  • #52
  • Mar 22, 2007 5:58pm Mar 22, 2007 5:58pm
Quoting FXTerminator
No, all I said was that those 2 accounts would end up making the same amount of money, even though in the second account it would appear we are using "too much leverage" and in the first account we are using "safe" leverage.

This "safe" leverage is of course only an illusion, both accounts are making the same exact profits and are experiencing the same exact drawdown.
i dont see how this is possible
  • #53
  • Mar 22, 2007 7:27pm Mar 22, 2007 7:27pm
Quoting don perry
i dont see how this is possible
Why is that?

Remember, a pip is a pip, no matter what leverage you are using.

But hey, don't even take my word for it, just try the experiment for a week and see for yourself Don Perry.
  • #54
  • Mar 22, 2007 8:03pm Mar 22, 2007 8:03pm
Quote
This "safe" leverage is of course only an illusion, both accounts are making the same exact profits and are experiencing the same exact drawdown.

Ok, both are making the same drawdown and profits assuming the wire transfer costs are negligible and no good/bad trade missed while waiting for wire transfer.

Why bother discussing this in the first place is what I don't understand.
  • #55
  • Mar 22, 2007 8:07pm Mar 22, 2007 8:07pm
High leverage isn't the problem. It only becomes a problem when it is misused. It isn't just the novices that misuse it; a lot of pros do all the time.
  • #56
  • Mar 22, 2007 8:24pm Mar 22, 2007 8:24pm
Quoting luqmanz
Ok, both are making the same drawdown and profits assuming the wire transfer costs are negligible and no good/bad trade missed while waiting for wire transfer.

Why bother discussing this in the first place is what I don't understand.

Well if both accounts are making the same profits even though one account is using a very "conservative" leverage and the other account is using a "scary" 400:1 leverage then we must conclude that this "high leverage is bad" idea is simply a myth.

This is what I am trying to explain from the start.

Ok folks, that's it for me as far as this thread is concerned, I cannot add anymore comments. Thank you all for your input.
  • #57
  • Edited Apr 16, 2011 2:43pm Apr 15, 2011 4:43pm | Edited Apr 16, 2011 2:43pm
Quoting FXTerminator
Well if both accounts are making the same profits even though one account is using a very "conservative" leverage and the other account is using a "scary" 400:1 leverage then we must conclude that this "high leverage is bad" idea is simply a myth.

This is what I am trying to explain from the start.

Ok folks, that's it for me as far as this thread is concerned, I cannot add anymore comments. Thank you all for your input.

I know im late to the party here but I have to agree with you FXTerminator about your overall view of "leverage" as it pertains to forex trading. Ive been trading using the highest leverages possible and have been very profitable. What makes it work for me is the fact that I have a HUGE amount in my trading account but still only trade a low lot amount and here's the kicker, I dont use stop losses. Yeah I know, alot of you are rolling your eyes but it works for me as it allows me a WIDE window of draw down while also having the added affect of my broker not being able to stop hunt against me. Also in any given day a pair doesnt flux more than 1%. My guesses usually end up right, evenutally. Sure ive taken losses before and manually gotten out of a trade but alot of times ill just roll with it until it veers back around my way. High leverage when trading low lot sizes allows you to just "let it ride" sometimes for 2 or 3 days until eventually (barring some kind of sudden swing based on breaking news) things come back around your way. Over the last 5 years doing things this way i am FAR more up than down overall.

Since this thread started, those stupid CFTC rules tooke affect and of course I promptly pulled my cash out of my U.S. based broker and moved it overseas. FX, I am interested to know how you handled this bills**t regulation change. Did it slow you down much or did you also move your account overseas? I dont even have to ask what the other guys on this thread did. They probably applauded that move and enjoy 50:1 or less leverage lol. What limited and restrictive thinking that is. I am a grown man. Everyone in the market are grown men and women. I dont believe I should be restricted because other grown men and women cant manage THEIR money. Bring back high leverage in the U.S. and let us GROWN MEN AND WOMEN decide for ourselves how we want to manage OUR money.
  • #58
  • May 3, 2011 1:06pm May 3, 2011 1:06pm
If money management is the key to making forex profitable, what level of margin vs equity would be good, especially if you want to be a long term trader. Thanks for any input.
  • #59
  • May 4, 2011 11:24am May 4, 2011 11:24am
If you use EA high leverage can help
  • #60
  • May 4, 2011 4:07pm May 4, 2011 4:07pm
For me, balance between leverage and amount of pips a trade can turn against me is the key (pain threshold I call it). There is another member here on FF that does same thing and does it very well. Others say the R:R is bad, but the key in my method is lower leverage, and positive results per trade. Everyone has a different approach, but it is how you find and use a balanace to your method as an advantage.
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