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Is high leverage really bad for traders?

  • #61
  • May 5, 2011 12:04am May 5, 2011 12:04am
Quoting ThorsHammer
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.
it is not the key, just one of many ingredients.
  • #62
  • May 26, 2011 12:04pm May 26, 2011 12:04pm
high leverage is bad for newbies

reason
they think they can make more... but you need to find a system that work for you.

but for profitable trader is good adventage. yes same as newbie reason, make more money.
  • #63
  • Jul 1, 2011 3:48pm Jul 1, 2011 3:48pm
ONLY if you don't handle it properly or abuse it. Then, regardless whether you are a newbie or an oldbie, it's equally bad.
Make your losses in demo. Earn your profits live.
  • #64
  • Jul 2, 2011 4:35pm Jul 2, 2011 4:35pm
Quoting mrmikal
Wall,

I think this is a very insightful post.

The problem with leverage is and has always been about temptation. Personally, I see no problem with having 400:1 or even 1000:1 leverage, but that's because I've learned to control the urge to use the leverage.

Whether or not this is a good thing is a very individual decision, BUT the recommendations for NOT using higher leverage are very sound. I personally, have the common 50:1 or 100:1 leverage or even 200:1 leverage with my mini accounts, but I don't actually max out my leverage. I trade according...
That is a fantastic post,and I hope others will learn from it,and I totally agree with everything you've said
  • #65
  • Jul 2, 2011 7:24pm Jul 2, 2011 7:24pm
Quoting kendeb57
That is a fantastic post,and I hope others will learn from it,and I totally agree with everything you've said
Same here. Especially
Quoting mrmikal
I trade according to my risk profile, and that is what I recommend for anyone.
Leverage is merely a tool. If you know how to use it wisely, then it can be useful. If you don't, then you'll hurt yourself.
To me, it's easiest to equate leverage with #pips one's (mental) SL is, to define one's risk. Thus, say, with 12 pips SL at 400:1, one would have to have good enough TA to match that #. From this, one'd likely reduce the leverage further to increase the chance of survival if more than one loss occurs.1
  • #66
  • Jul 2, 2011 11:19pm Jul 2, 2011 11:19pm
cloggie says it best, YOU IDIOTSS!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
  • #67
  • Jul 3, 2011 7:33am Jul 3, 2011 7:33am
However much leverage you use, as long as you can be able to control your own trades, it will have no any negative impact.
  • #68
  • Jul 3, 2011 8:05am Jul 3, 2011 8:05am
Quoting Robot
cloggie says it best, YOU IDIOTSS!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
There's nothing wrong with my post, it's simply math, boiling down mm stats to readily-applicable terms.
However, I do get your overall message, even if it was probably directed at this type of attitude, and not at what I said:
Quoting mrmikal
Whether or not this is a good thing is a very individual decision, BUT the recommendations for NOT using higher leverage are very sound....leverage is and always has been a personal decision...for me, the math works out whether I have 1:1 leverage or 1000:1...I can't say the same for anyone else.
This is absurd. There's eons of difference between the two.
It's not a "personal decision", it's what
(your trading ability
minus
the random factor of how important what you missed in the market is)
equals
(how many times you can lose and still keep trading
times
how much you can lose each trade),
or something like this.


I am in the process of studying the work of this successful trader you noted, because I've been stuck losing almost from day one.
  • #69
  • Jul 3, 2011 9:37am Jul 3, 2011 9:37am
Quoting ha-pattern
There's nothing wrong with my post, it's simply math, boiling down mm stats to readily-applicable terms.
However, I do get your overall message, even if it was probably directed at this type of attitude, and not at what I said:
This is absurd. There's eons of difference between the two.
It's not a "personal decision", it's what
(your trading ability
minus
the random factor of how important what you missed in the market is)
equals
(how many times you can lose and still keep trading
times
how much you can lose each trade),
or something like this.


I...

i'm convinced you know nothing about trading. your little mm spiel seems to be using the word leverage in place of lot size, and makes no sense whatsoever.

LEVERAGE RELATES TO MARGIN! not lot sizes. not trading ability. not any other random trading term someone wants to throw around.

if you don't understand leverage then you don't understand margin. if you don't understand margin then you don't understand leverage! it's not hard stuff to get the head around.

some of you guys should really do yourselves a favor and just stop.... everything.

>/
Congratulations ScalaFX for coming out of the closet!
  • #70
  • Jul 3, 2011 1:18pm Jul 3, 2011 1:18pm
If one is a good experienced trader with a complete trading strategy and solid trader psychology the only difference the leverage should make is the amount of many she/he has to keep on the brokers account - that is to say, how big a portion of the trading capital the person must keep on the broker's account in order to be able to trade without worrying about liquidity.
  • #71
  • Edited 7:08pm Jul 3, 2011 1:29pm | Edited 7:08pm
Quoting nubcake
i'm convinced you know nothing about trading. your little mm spiel seems to be using the word leverage in place of lot size, and makes no sense whatsoever.

LEVERAGE RELATES TO MARGIN! not lot sizes. not trading ability. not any other random trading term someone wants to throw around.

if you don't understand leverage then you don't understand margin. if you don't understand margin then you don't understand leverage! it's not hard stuff to get the head around.

some of you guys should really do yourselves a favor and just stop.... everything.

>/...
I only have two to three months of real trading experience (which ended about three years ago, before joining ff) with leverage 4:1 or over, where using leverage gets really serious,
but I have ten years (mostly 2:1) before and below that.

Here are the basics to trading with leverage, as I get it --

 

  1. Account size * leverage = lot size. Get rid of or add some lots at the same price (minus commission, spread), and leverage drops or increases respectively; otherwise, during a trade, it's price, or the number of pips from one's entry, that matters.
  2. Leverage applies to margin,
  3. distance to margin call applies indirectly to number of pips before stopped out,
  4. and number of pips before stopped out applies to trading ability.
  5. Thus, be more able to survive price's dips against one's trade direction, and one can trade higher leverage. Or, as I put it earlier, 'it's easiest to equate leverage with #pips one's (mental) SL is, to define one's risk.'.

The rules for where and when margin calls and margin-call warnings happen varies for different broke rs.


That's cool if you want to correct my understanding of the terms, just please lay off the generalizations. Lot size and leverage have little to do with each other, since they both depend on account size to mean anything, and I didn't include account size in my post. I misused the term "margin", yes; I meant, "leverage". Anyway, the full version of my understanding is above.

  • #72
  • Jul 3, 2011 2:01pm Jul 3, 2011 2:01pm
In the practice, there are many traders benefit from their max leverage but they don't use their max risk that can be benefited from the leverage (nearly margin call level). It's because they can only tolerate a very small losses.


Quoting ha-pattern
I only have two to three months of real trading experience (which ended about three years ago, before joining ff) with leverage 4:1 or over, where using leverage gets really serious,
but I have ten years (mostly 2:1) before and below that.

Here are the basics to trading with leverage, as I get it --


Account size * leverage = lot size. Get rid of or add some lots at the same price (minus commission, spread), and leverage drops or increases respectively; otherwise, during a trade, it's price, or the number of pips from one's entry, that matters.
Leverage...
  • #73
  • Jul 3, 2011 7:02pm Jul 3, 2011 7:02pm
Quoting 100m
In the practice, there are many traders benefit from their max leverage but they don't use their max risk that can be benefited from the leverage (nearly margin call level). It's because they can only tolerate a very small losses.
I know this;
in fact, I've said this before in several posts over the years. (I hope lots of beginners were helped from this.)
In fact, there was a thread made a few days ago, which I posted in and said the same thing.
In fact, not only did I say the same thing in that post, I improved on what you said by agreeing with that thread's starter about one very good reason why many only take small losses.
In fact, I repeated in this thread, only two posts ago, that reason.

on a related topic, if in the wrong thread --
Maybe ff should index all these threads that repeat the same topics ad infinitum; yes, the search function works okay, only cross-referencing more important topics, such as this thread's, would promote good will and enhance the purpose of each sub-forum.

Finally, if it seems as if I don't know anything -- which is wrong -- it's because I'm trying to clear my mind enough to accept my losses of the past and move on away from them; thus, the statement about studying successful traders. So, it's not because I don't know, it's because I want to see leverage and other trading-only (i.e., not chart study, which I'm good at) topics in a new light of profit.

-- Sorry to get personal, it's just that the last few posts were off base about my general knowledge.
Otherwise, it's good that forex rookies read such valuable information as the last two posters who quoted me gave.
  • #74
  • Jul 3, 2011 7:42pm Jul 3, 2011 7:42pm
Quoting ha-pattern
I only have two to three months of real trading experience (which ended about three years ago, before joining ff) with leverage 4:1 or over, where using leverage gets really serious,
but I have ten years (mostly 2:1) before and below that.
what you just said are not words with meaning. it's fluff. you might get away with speaking like that to people who know nothing about trading and so impress them, but it's meaningless words.

Quote
Here are the basics to trading with leverage, as I get it --

Account size * leverage = lot size. Get rid of or add some lots at the same price (minus commission, spread), and leverage drops or increases respectively;
. ugh... lot size = lot size!!!! account size = account size!!!! leverage = leverage!!!! account size in combination with leverage and margin cuttoff = MAX lot size AVAILABLE! no one is forcing anyone to trade any specific lot size. leverage doesn't change what you MUST trade at, it changes what you CAN trade at. BIG DIFFERENCE!

Quote
otherwise, during a trade, it's price, or the number of pips from one's entry, that matters.
Leverage applies to margin,
distance to margin call applies indirectly to number of pips before stopped out,
and number of pips before stopped out applies to trading ability.
Thus, be more able to survive price's dips against one's trade direction, and one can trade higher leverage. Or, as I put it earlier, 'it's easiest to equate leverage with #pips one's (mental) SL is, to define one's risk.'.
this is just full of nonsense. i'm sure in some backwards way this makes sense to you, but it's just pure fluff and more words without meaning.

Quote
The rules for where and when margin calls and margin-call warnings happen varies for different broke rs.

That's cool if you want to correct my understanding of the terms, just please lay off the generalizations.
you have no idea.

Quote
Lot size and leverage have little to do with each other, since they both depend on account size to mean anything, and I didn't include account size in my post. I misused the term "margin", yes; I meant, "leverage". Anyway, the full version of my understanding is above.
you just said above , and i quote, " Account size * leverage = lot size.". you just equated them to each other along with account size! you said this!!! now you say that lot size and leverage have little to do with each other? which is it?

let me hold everyone's hand and walk you through this (please, someone correct me if a balls this up)....

Margin is a token amount of money put forth by a trader to enable them to trade size larger than the margin amount. it's money the broker can claim as their own when a trader loses money in a trade. it's a bit like taking a loan from a bank and putting your house as collateral... the house is like margin and you either repay the loan or they take your house. when you open a trade you don't have to have the size of money in your account that you want to trade at, you only need a small slice of money (margin) compared to the size of the trade you want to open. it needs to be enough that as the market moves for and against your position that the amount of margin you have available in your account is greater than the potential floating loss of the currently opened trade. if the trade you opened has a floating loss eroding too much of the margin you put forth to your broker then the broker closes your position (margin call).

Leverage is the loan by a broker that enables a trader to trade size greater than the size of their account. again it's like a bank lending you money... this DOES NOT mean that you have to go and blow the whole amount of money you are being lent. you can use only a small amount of what was lent to you and therefore only risk losing a small amount.

Margin call is a level of floating loss where your broker closes a trade that has chewed through a certain percentage of the margin. they don't want you to lose your entire account and therefore put themselves at risk of not being repaid the full amount of the loan they gave to you.

If big-shot trader has 100k in his account and wants to open a trade of 100k in size then the leverage REQUIRED to do this is 1:1, or literally NO leverage is REQUIRED to be able to do this. if little-noob trader has 10k in his account and wants to open a trade of 100k in size then.... oh wait there isn't enough money... but, the broker says to little-noob "hey we allow trades of up to 10:1 leverage so you CAN open this trade"... and so the trade opens.

now if the price moves x pips and big-shot trader has a floating loss of $100 how much loss does little-noob trader have with his 10:1 leverage??? THE SAME EXACT AMOUNT! little-noob has a floating loss of $100. leverage has no bearing on the question and was mentioned purely to confuse you.

the only difference between the two is that little-noob trader has less money in the account in general and therefore will bust-out, or rather, receive a margin call, before big-shot trader if they both maintain the exact same losing trade.... obviously. again, leverage doesn't mean anything, it's all due to the SIZE TRADED by CHOICE of the trader.

what if big-shot trader only wants to move 10k in size, and again little-noob wants to move 10k in size? how much leverage does big-shot have on this trade? how much leverage does little-noob have on this trade? THEY ARE BOTH 1:1. big-shot has 100k in the account so doesn't need a loan from the broker and can afford to move 10k in size, and little-noob also has 10k in the account so can also open a trade without requiring any loans from the broker.

little-noob will still bust-out / margin call before big-shot trader since big shot has 10x more money backing him compared to little-noob. big-shot has more money available to lose overall.

leverage by itself means NOTHING. it's only an offered POTENTIAL of size to trade at compared to the account size / margin. giving all traders a billion to one leverage won't matter a damn to people who have a clue as to what they are doing. they won't all instantly bust-out if they use common sense and trade appropriate size and not go FULL IN. at no point does leverage have anything to do with a traders trading ability! leverage is a tool. leverage is a loan. leverage is NOT a MUST. if a trader trades the biggest size available to them and it happens to bust them out in 2 seconds flat then that is their fault for trading too large a size and not having enough margin.

so, is high leverage really bad for traders as the thread title asks? NOT AT ALL. traders are really bad for themselves because they are retarded and don't know a damn thing about anything! BET IT ALL ON RED AND GO HOME.
Congratulations ScalaFX for coming out of the closet!
  • #75
  • Jul 3, 2011 7:54pm Jul 3, 2011 7:54pm
Quoting nubcake
Margin is a token amount of money put forth by a trader to enable them to trade size larger than the margin amount. it's money the broker can claim as their own when a trader loses money in a trade. it's a bit like taking a loan from a bank and putting your house as collateral... the house is like margin and you either repay the loan or they take your house. when you open a trade you don't have to have the size of money in your account that you want to trade at, you only need a small slice of money (margin) compared to the size of the trade you...
IMHO, a sticky.
  • #76
  • Jul 3, 2011 8:19pm Jul 3, 2011 8:19pm
I have NEVER seen or known of a LONG TERM successful retail trader that trades with lots of leverage. I have however seen and known LOTS of traders who have busted their accounts frequently ( and STILL DO after many years ) in hopes that they will be rich over night. Most of these people who use lots of leverage can make substantial amounts of money and you will read about there gains on every forum. But truth betold is, one day they will be here, and the next day they will not. NOT becuz they turned a few 000's in 000,000's

If you make ridiculous amounts of money quickly... too quickly. Great! but you are doing something wrong and thus you will not last at all. Perhaps only the next trade!

Use low leverage! The larger your account gets the less you should use.

LESS IS BETTER

* I once traded with high leverage of 400:1 ( back in 2005-6 I think) During the NFP release. I also traded the GBP/USD. I was short before the release, like a noob, and lucky me, the pair started dropping. So I shorted more, and it kept dropping as the news release came out. So I shorted A LOT more, and I kept shorting it with every new spec of equity I had. Eventually the pair was +100 pips in profit if i remember correctly. then it started to consolidate for a few minutes, and I remember seeing my EQUITY which before NFP was about $250, and now I sat at a mighty $1100. The pair broke a new low very quickly and I jumped in short with the last remaining few dollars I had. Now The pips are really stating to earn me some serious money!!! WOOHOOO, $1,100 all in!!! it must have dropped a few pips more and I was almost at $1,200 in under 30 minutes of trading. ~~~~THEN,..... Price spiked up, way up. Would have been a quick margin call, but instead I had a broker who closes out your orders to give you more trading margin. Well, it just so happens that the pair had completely reversed almost 100% of the initial move and I was left with an account balance of less then $50. RESULTS = almost 30 minutes i turned $250 into $1200, and in less then 10 minutes I lost $1150.

Take this story with a grain of salt, but moral being, through experience ~ Leverage will make or break you. And it can make you $ quick, but break you A LOT quicker. Why ? How? LEVERAGE, the double edge sword of death and glory.

Be careful, trading IS a business. Right now I use 10:1 with Oanda, ONLY becuz this is the lowest they offer.
  • #77
  • Jul 3, 2011 8:48pm Jul 3, 2011 8:48pm
Quoting MidasFX
I have NEVER seen or known of a LONG TERM successful retail trader that trades with lots of leverage. I have however seen and known LOTS of traders who have busted their accounts frequently ( and STILL DO after many years ) in hopes that they will be rich over night. Most of these people who use lots of leverage can make substantial amounts of money and you will read about there gains on every forum. But truth betold is, one day they will be here, and the next day they will not. NOT becuz they turned a few 000's in 000,000's

If you make ridiculous...
"blah blah blah... idiots bet everything they have on one call and are surprised when they lose everything. ignore that they are stupid and don't know how to trade, it's all the fault of evil leverage which i don't even understand myself and therefore my words are totally valid".

Quote
* I once traded with high leverage of 400:1 ( back in 2005-6 I think) During the NFP release. I also traded the GBP/USD. I was short before the release, like a noob, and lucky me, the pair started dropping. So I shorted more, and it kept dropping as the news release came out. So I shorted A LOT more, and I kept shorting it with every new spec of equity I had. Eventually the pair was +100 pips in profit if i remember correctly. then it started to consolidate for a few minutes, and I remember seeing my EQUITY which before NFP was about $250, and...
"blah blah blah... i wasn't smart enough to trail a stoploss while i was in mad profits and manage my risk with intelligence, therefore, because i have no clue as to what i'm doing and lost due to my own stupidity no one else should have the ability to trade with leverage. leverage is bad, stupidity is good".
Congratulations ScalaFX for coming out of the closet!
  • #78
  • Jul 4, 2011 2:07am Jul 4, 2011 2:07am
Brokers know well: more than 50% traders lose their money, and they do everything that they lose their money faster. They give you 30% bonus, so you can trade with bigger lot size, they give you 1:500 leverage, so you can blow up your account faster. They will teach you, they will tell you a lot of useful information, they will do everything to help you lose all your money as fast as possible. WHY?

Your losses are their gain. Who wants to earn more money - everyone!!!

And yes, high leverage is bad for traders!

Josef
  • #79
  • Edited 3:07am Jul 4, 2011 2:54am | Edited 3:07am
Quoting josef
Brokers know well: more than 50% traders lose their money, and they do everything that they lose their money faster. They give you 30% bonus, so you can trade with bigger lot size, they give you 1:500 leverage, so you can blow up your account faster. They will teach you, they will tell you a lot of useful information, they will do everything to help you lose all your money as fast as possible. WHY?

Your losses are their gain. Who wants to earn more money - everyone!!!

And yes, high leverage is bad for traders!

Josef
of all people on this forum you tempt me the most out of all of them to finally put someone on ignore. your posts are just that intellectually offensive!

you get a whole bunch of disclosure from brokers when you first open an account with them. part of this usually talks about the dangers of over-leveraging your trades and you generally have to SIGN a form that says YOU UNDERSTAND THE POTENTIAL DANGERS OF LEVERAGE! if you are too dumb to understand how to use leverage appropriately then you shouldn't have signed the forms and should get out of the market and go away.

if someone wants to open an account with a broker without knowing what trading is all about and not understanding how it all works then THAT IS THEIR OWN FAULT AND RESPONSIBILITY. no one elses. i'm so sick of all the ridiculous questions i see posted on the forum from muppets who don't even know how things work or what things mean at the most BASIC LEVEL! and then they complain and cry when their account blows-up and start blaming brokers and blah blah blah. no personal responsibility, ever!

i guess master traders like yourself only trade with 1:1 leverage at all times. you must have a pretty large account to make those miniscule price movements at 1:1 mean something significant, right?

it's IDIOTS who are a danger to themselves that RUIN THINGS FOR EVERYONE ELSE!

yeah let's all hold hands, sing songs, and ban all leverage. let's also ban sharp knives and replace all cutlery with plastic kids cutlery. let's make speed limits a maximum of 10 mph. let's make running illegal since falling over is dangerous. blah blah blah. put the world in a padded room and tie our hands behind our backs.

SMART STUFF, RIGHT?

i'm so sick and tired of the rubbish people post. oooh big bad brokers give leverage so clients can hang themselves with it.... YEAH TOTALLY! it's the brokers fault that a clown can't trade and loses all of their money through pure stupidity. let's blame the brokers for all bad trades. what a cop out!

BAD TRADERS TRADE BADLY, AND NO AMOUNT OF RESTRICTIONS WILL STOP THEM FROM LOSING THEIR ACCOUNT EVENTUALLY! IF SOMEONE WANTS TO TRADE RECKLESSLY AND WITHOUT ANY SKILLS, KNOWLEDGE, OR EDGE, THEN THEY ABSOLUTELY DESERVE TO LOSE THEIR ACCOUNT.

this isn't play-group for babies, it's trading to make MONEY! if you don't know how to make money then it's your own damn fault for losing money. GET SOME EDUCATION AND PERSONAL RESPONSIBILITY!

so let's play this out to it's logical conclusion (and again, correct me if i get this wrong).... let's say that all leverage is banned / illegal. therefore, for someone to open a 0.01 lot size they MUST have $1000 in their account. then after say half and hour or so an active trade is 30 pips in profit... on eur/usd the trader just made $2 or so give or take. WOW!!! TWO BUX! thank goodness the trader wasn't allowed to leverage this trade and actually make more than peanuts. 1:1 LEVERAGE IS AWESOME!

in this case anyone who actually knows how to trade for real profits first MUST have a large account to even bother opening a position in the expectation of making some money... THAT SOUNDS TOTALLY FAIR AND JUST, ALL BECAUSE IDIOTS WHO CAN'T TRADE WILL LOSE MONEY NO MATTER WHAT LEVERAGE THEY ARE GIVEN. LET THE IDIOTS PROVE HOW LEVERAGE IS BAD WHILE THE SMART USE IT PROFESSIONALLY FOR PROFITS.

leverage isn't the problem. IDIOTS are the problem!

IF YOU WANT TO REMOVE ALL LEVERAGE THEN YOU MUST ALSO BAN BANKS FROM LENDING MONEY TO CUSTOMERS... IT'S EXACTLY THE SAME THING!!! so good luck buying your first home, muppets!

oh, but wait... when you take a loan from a bank you have every opportunity to lose every single dollar lent to you and end-up unable to repay the loan and you become bankrupt! that doesn't sound very good does it? so what about the leverage brokers afford to their customers? well would you take a look at that? a broker won't let you lose all of the money! they actually only let you lose the amount of money you put up as collateral and are kind enough to NOT LET YOU BANKRUPT YOURSELF AND OWE THEM MORE MONEY THAN YOU STARTED WITH. does a bank do this? do they monitor every transaction you make with THEIR money? no, you can happily burn the lot of it in your backyard bonfire if you want and end-up owing them more money then you will ever be able to repay them PLUS INTEREST. does your broker do this? HELL NO. they monitor exactly what you are doing with THEIR money they loaned to you if you CHOSE to use the leverage they offer, and if it gets to the point where the money you gave them as collateral on this loan is getting close to not being enough to repay what you have lost then they STOP YOU FROM OWING THEM MONEY!

seems to me that brokers are doing a lot of you guys the biggest favor you will NEVER KNOW OR APPRECIATE! take some personal responsibility and stop blaming others for your own ignorance!
Congratulations ScalaFX for coming out of the closet!
  • #80
  • Jul 4, 2011 4:26am Jul 4, 2011 4:26am
Quote
yeah let's all hold hands, sing songs, and ban all leverage. let's also ban sharp knives and replace all cutlery with plastic kids cutlery. let's make speed limits a maximum of 10 mph. let's make running illegal since falling over is dangerous. blah blah blah. put the world in a padded room and tie our hands behind our backs.

Nubcake, I respect you opinion. And I think that high leverage makes more troubles for traders. You want to trade with high leverage - come on, you can do this. But I like slow and steady.
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