Is high leverage really bad for traders?

you still don't get it. read my last few paragraphs again and again.

"slow and steady" has NOTHING AT ALL to do with LEVERAGE. just because you CAN jump off a bridge doesn't mean you MUST jump off a bridge... and you know what? some people jump off a bridge knowing what they are doing and pull a parachute and glide along until finally landing... it's called BASE jumping, NOT SUICIDE!

lemmings.

Psychology aside, what the leverage has to do with not being able to trade slow and steadily?
You don't have to squeeze every single lot out of your available margin, do you?
It's like you'd said if you had a sports car you couldn't drive below 120 kph

I think leverage is a very pyschological thing. Some can use a high leverage to their advantage. They use restraint when it comes to opening various trades and merely use Leverage as a tool that it was originally meant to be.

Others can't restrain themselves. If I go to a bar, I will drink and black out get into a car and kill someone. If this was the mentality of everyone then bars would be illegal.

Just because the leverage is there doesn't mean you have to use it... it is merely a tool to complete an objective. If you have trouble pychologically with leverage, I think at some point you will run into other problems.

Trading is emotional, if you can't control your emotions then sooner or later they will likely do you in. You can always blame leverage or the lack thereof as an excuse for your outcome.

People make excuses everyday for everything.

Leverage (400:1 or 2:1) has nothing to do with the actual trade...it just dictates the number of lots you are able to purchase based on your account size. Lots of people think that the amount of leverage used is "good" or "bad", but in and of itself, it means nothing. If you are a good trader making good trades, the higher leverage allows you to make much more money than the lower leverages with the same account balance.

But if you get into a trade and your initial thoughts includes the words "hopefully", "maybe" or "come on, baby".....higher leverage is not for you. And in reality, trading probably isn't, either.

Just my two pips....

Now what?

Go live!

LOL, I've been live... but I choose not to divulge live acct info.

I guess it depends who you ask but when you see advertised on a web site 100:1 or 1000:1 leverage or whatever it may be it is what you are calling margin utilization. Why is that? Because you are leveraging 100:1.

Anyways on the topic of leverage since it was brought up and I will probably get criticized to no end but the best way (if you have a winning system or method or whatever) is higher leverage. Well this would be the case but there is only one problem. Your psychology probably won't be able to take it. To prove my point take any combination of a winning system and put it into a spreadsheet. In other words if you have a system that has a winning percentage of 50% and has a RR of 1:1.5 then make a list of losses and wins with each time there is a win the account will go up 1.5 times the risk and with each loss the account will obviously lose the amount of the risk. Now I don't care how you slice it up, when you risk more you win more over time. Some people will say that if I risk 20% (this is extreme) that after 5 losing trades I have lost my account balance. This is completely untrue. Matter of fact even after 10 or 15 losing trades in a row you still would not lose all of your account because each time you will be risking 20%. Seriously try it. Simulate 100 trades in a spreadsheet. You don't have to worry about pairs or spreads and stuff like that. We are just worried about gains and losses. Make sure that somewhere in the list of wins an losses there is a losing streak of at least 10 and make sure that the amount of wins is equal to the amount of losses because that's the system we are testing. Try it with a high risk and try it with a low risk and you will see that while the ups and downs of the high risk are rather extreme, that the result is much better with high risk. It goes against everything that you have ever read about sane forex trading. The reason that no one does it is because it's very difficult to control your emotions. It means after a loss that you must put on another trade but for less risk (in actual lots. % risk stays the same. IMHO not many people can do this but if you can then you will have more money than you will know what to do with. It has to be because the math says so. However you will see that when the losses pile up you probbaly won't be able to take it. Also you have to have such a system and I question that there are many people that actually have such a system worthy of trying such a thing.

To prove my point I have written a small program that randomly decides if you win or lose. You input your winning percentage. It picks a number between 0 and 99. If the number is less than your winning percentage then you win that trade. If not then you lost. It allows you to decide RR as well as also to run the test multiple times. When you run it on 100 trades sometimes i comes up as a loss at the end but it is very rare (actually I never saw it happen) after 1000 trades to be losing. This is even in cases of 20% risk. I found the best results were about 10% risk. I am attaching the program. I make no guarantees and you can really see the power of standard deviation here. Also I am not advocating such a high risk since I also believe there are tremendous psychological hurdles to jump over in order to successfully implement such a high risk strategy. Have fun with this. There are things I want to add to this but basically this gives a lot of valuable information.

Hello Everyone

I am new to the forum, and new to Forex Trading. My first outing into the world of Forex was a complete disaster. This time I am developing a sensible system that is starting to work for me.

I have read parts of this thread but would like to test my understanding.
The higher the leverage on the account the higher the value per pip would go up on the same volume size?

So lets say 0.20 volume at 50:1 was $5 per pip, then 0.20 volume at 100:1 was $10 per pip? Is that a fair assumption. (hypathetical)

So what I really have to consider what leverage would suit my starting balance in terms of pips I am willing to risk per trade. Therefore it would be silly to open a small account with max leverage because if I wanted to risk say 5% per trade, on max leverage this may only allow me a stop loss of 3 pips. Which would be quite rediculous.

Does this make sense?

Thanks in Advance.
niXon

Unfortunately no it doesn't, you're kinda confused about leverage, margin, lot (trade) size, and risk.

My advice would be to scoot on over to http://www.babypips.com/school/ and spend some time reading some of the lessons, things may become clearer.

In the meantime stick with your demo account, you're not quite ready to risk cold hard cash just yet.

I used to think high leverage wasn't a problem if I just stick to the rule of 2% money management, but since I'm not 100% disciplined yet high leverage gives you the opportunity to screw up big.
e.g
when you are trading against the trend and expecting a bounce to come and keep adding on to your losing positions. Often the bounce might come and you will be saved(perhaps with profits too) or if it keeps going against you, your account is gone. I guess having a low leverage will act as a circuit breaker during these times.

Another thing is, if a pip value is quite high compared to your account size, your emotion/mind is going to go against you.
e.g
account size of $1000 and a pip value of $5
normally you wont trade this size, but you might be revenge trading.


Overall, I think if you are disciplined, I don't think leverage should be a problem, but for people who cant handle their emotions yet, high leverage can wipe you clean.

Yes, but with high leverage you have the temptation to open larger lots, and this is how I have blown many accounts, greed is in the human nature.

Do you people need speed limiters on your cars as well, just so you can't drive too fast and risk killing yourselves?

Seriously, if you don't have the knowledge, understanding, and discipline to be able to manage something as basic as risk then how on earth do you expect to survive in this business let alone turn a profit?

Sheesh folks I know this is the rookie section but get a grip will ya!

Is high leverage really bad for traders?
It's bad when a trader loses money, but it's good when he takes profit))

video on leverage

fast foward to 10:50

https://www.tastytrade.com/video.jsp...=1335617650425

Pipmutt! Talk to me!
You guys need to read this post and then reread it until it sinks in.
Way to go Pipmutt! Yours should have been the first post in this thread, then all the others would not have been necessary.

There's no right answer to this one but bottom line, pip mutt says it better than I ever could..it really comes down to how effective you are when it comes to managing risk?

its not that hard to understand leverage is bad for bad trades. but leverage is the ultimate wealth creation vehicle.

On one of my real accounts i changed the margin-leverage from
400 to 200 thinking some newbie logic it would lessen my risk and improve my overall performance. Of course that was all wrong.

It really is about correct position sizing, and if your funds are sorta limited, do not also limit your margin, that is just fooling yourself.

Leverage of 200:1 is still very high. That means that you can buy 200 times what you have in your account. If you reduced your leverage to 10:1 (which Oanda allows which shows they are not complete thieves) you would likely not get into any serious trouble. You also probably wouldn't benefit from any good day trading strategy since they usually require high leverage with small stop losses. That is to say if you have a 20 pip sl with a 2% risk, each pip should be .1%. On a $1000 account, this will mean that each pip will be $1. That means that you must buy 0.1 standard lots or 1 mini lot which has a value of $10,000. Ok so you still would barely be able to do it with 10:1 leverage but if you wanted to place another trade on another pair you couldn't.