Is it good use high or low leverage as a beginner?

Everyone has a strategy, that strategy fits them. Your strategy is not my strategy. If you're comfortable and happy with low leverage, then you're happy and comfortable with it.

I, for one, like a little higher leverage.

I put my stoplosses beyond recent S&R, levels that if broken usually translate into a more substantial move. 40 to 70 pips is a typical risk. I risk 2% of my account each trade. So let's say I have $10,000 in the account, that's $200 risk. 200/70= $2.85/pip. A mini lot, $10000 USD, assuming a USD base pair, equates to $1/pip. So we're looking at a trade of $28500, a 70 pip SL and a trade account of $10,000. Now that's a 2.85:1 leverage on that single trade, right? On a 50 pip SL that''s $40,000 or a 4:1 leverage.

Now what happens if I want to take a 2nd or 3rd trade at the same time? we quite quickly get to 10:1 leverage very easily. Add in trade management and moving an SL to breakeven, stacking trades, etc, and it's quite easy to get past 10:1 and do so safely.

Now factor in organizational risk. See, I might have $100,000 in an account to trade with, but only want $10000 of it exposed to the possibility of broker failure. In that case, I might be looking to trade 2% of the $100,000 account, but only expose $10,000 to broker risk. In that case I'd be looking for a $2000 per trade risk. With that we're looking at 30:1 and 40:1 leverage.

This is why the "high leverage is risky" myth is just that, a myth. Leverage is a tool. Improperly used it can blow an account, but then again improper trading can blow your account with or without leverage. Properly used leverage improves your gains while actually decreasing your net risk.

But... you might not trade that way. You might like to trade on larger TFs and go for 200 pip SLs. You might not like moving money between accounts. Your strategy might not be my strategy. Both are okay, both are fine, but that says nothing of the tools upon which either are based.

Xaron, is right. The best advice is to find a strategy first. One that works and is profitable. Then determine what leverage to use to trade the strategy safely.

If you start with 10:1, 50:1 you're confined to a small zone and window of opportunity and required to operate with the precision of a fine surgeon.

Something even a professional has trouble with. The market is anything but precise. What looks like a good entry one hour ends up suffering DD or worse yet a loss.

10:1 is not worth anything if you're working with less than 100,000 account size. The more you put in the acct the more that is at risk to lose.

There's no magical "good" or "bad" amount of leverage. It all depends on risk management. We work mainly at the institutional level with different FX money managers. We do not allow any to go above 12:1 leverage and hardly any ever come close to that figure. If the risk per trade and holding period are lower, a trader could typically use a bit more leverage if he steers clear of unpredictable periods, like news and economic releases.

Nevertheless, I've never seen a successful trader that uses extreme levels of leverage (e.g., 50:1, etc.). It may work for a few weeks or months, but eventually it leads to a blowup.

I totally agree, if someone really knows what they are doing they may choose to use higher leverage also and make a big gain, maybe risk up to 15% of the account once in a while. There is no reason why you should lose 3 trades in a row... Some traders are better than others. That should be our choice anyway.

Well, 15% might be a bit much, lol. But yeh, it should be our choice. Even if it blows an account in the process, it's worth nothing if you can't make the choice.

I think a beginner should use 1 to 1 leverage until they have things worked out. Such small leverage is possible at firms like Oanda that let you trade in 1 dollar increments.

You are right. Leverage alone is not as important compared to the risk (where your stop loss is in any given trade - is the risk exceeding 2 or 3%?). It's very possible to a use higher leverage given your stop loss is tight for example when trading on M1 time frame.

Also one other thing to keep in mind is most people trade more than one pair. Even if you use less leverage per a trade, if you have multiple trades open your chances of exceeding the leverage and getting the dreaded margin call go higher. My 2 cents.

my account leverage is set at 50:1

I trade between 3:1 and 5:1 per trade


so if i have a 10k account, my account could be leveraged to 500k
but i will only put 30k to 50k into any one trade.

Interesting, this thread was quiet for 3 years and then comes back to life. I have a whole different view of leverage for a beginner. It is this, how much are you willing to pay for your education. If you use 1:1 you need a lot of money 10,000 or more) to get started. However if you use 400:1 on a penny account you can use 200 dollars. Now what is your risk 200 dollars versus 10,000. From a learning stand point a beginner is apt to lose money so lets keep that at a minimum. 200 bucks and high leverage gets you learning the trade. So you blow a 200 dollar account, so what. You can decide to keep going or quitting. 10,000 now thats a lot of money to lose. Use small amounts, high leverage, micro lots, and count that as your tuition to getting your BA in Forex trading. Tieing up 2-500 dollars is nothing. tieing up 10K or more is a lot. High leverage is excellent to learn from, Low leverage is when you are ready to make serious money. Why pay 10K for your tuition when 500 is more than enough for learning? Just remember this point, at 400:1 and 500 dollars at .01 lot it will take you -100 pips to lose a dollar -1000 pips to lost 10 dollars, -10,000 pips to lose 100 dollars, 50,000 pips to lose to lose your 500 bucks. That is a lot of practice. If you cant make money and havent learned how to trade after 50,000 pips then you need to find another source of income. So beginners trade small, use small sums and use high leverage. It is the best way to learn this business. If you can take your 500 dollars and make it to 6 or 700 dollars, thats 10-20,000 pips you have gained an then you can take all these other guys advice about leverage and go for a sizable income. If you cant grow 500 dollars to 600 dollars at a .01 a pip, it wont make any difference if you have 1000, 10,000, or 100,000 in your account. However, it does make a difference in what your tuition costs to learn forex trading. That's my point. Have a field day with this guys. Oh by the way I do make money almost every month (I had 2 losing months last year) but now I have grown my account to use 100:1 leverage. As it grows I will lessen my leverage. Never had to risk that big money but it did take a lot of lost .01 pips to get there.

When I just started trading I had ideas about making 2% per day and using very high leverage to do it. The result was I just lost all the money I deposited, then I topped up the account with some more money, and lost that too. This went on for a couple of years...

Once the market broke me I came to the conclusion that I had to make my trading system fit the market, not the other way round. If the market was to random to give 2% a day then I'd only lose by trying to get it and had to adjust my ideas.

Here's what I have come to believe.

1. The only way to make money is with the trend, you need the market to be going in the direction of your trade to make a profit.
2. There is a lot of randomness, the shorter the time frame the more random the market is.
3. Forex is a negative sum 'casino type' game, your winnings are someone else losses minus the spread. It's impossible to make money in a random negative sum market, the edge you use therefore has to be greater than the spread.

So simple isn't it? Well, trading kinda is once your goals fit in with what the market will actually give.

The logical conclusion of what I have come to believe is that high leverage is generally bad for the following reason. If short time frames are generally bad then I need to trade on longer time frames. It's almost impossible on a longer time frame to buy at the very, very bottom, and sell within a few pips of the top; this means I need a decent sized stop (usually around 2.5% of the markets value). With leverage of 10:1 this would lose me a quarter of my account if I were wrong. The other thing I mentioned was to make money your edge had to be greater than the spread, the spread isn't constant, it might be a fixed number of pips but you need to see it as a percentage of your risk/reward. For example, on a thread on this forum about the new rules limiting accounts in the USA to 10:1, someone told me that I needed to get educated and that they sometimes used leverage as high as 900:1 and that they can do this without risking much of their account by using a 3 or 4 pip stop loss. Lets think about what the spread means with a 3 pip stop loss. If the spread was 1 pip then a 3 pip win would equal 2 pips, but a 3 pip loss would really cost 4 pips after the cost of trading. A 2 pip difference doesn't sound a lot but in this case that's a 100% increase per trade on the cost of trading. To win the edge would have to be greater than this 100% cost of trading. I think it's almost impossible to have an edge this great on such a random time frame, but if someone says they can do this then I take my hat off to them.

I try to make money by determining the direction of the long term trend. Then waiting for a decent price to enter at. And then leaving the trade on until I see a decent profit which I then take. I also slowly add to my position on further dips if the trade continues to go my way - this is where leverage comes in for me.

Basically, in order to not blow a large chunk of your account with a single loss you need to balance leverage with the size of the stop loss. It really comes down to a decent stop loss vs. high leverage. Since I can only tell the general direction of the market, and can't actually pick the exact tops and bottoms, I'd have to go with the large stop losses over the high leverage everytime. Leverage only comes into play for me when an existing trade is in profit and I want to add to it.

People keep saying follow the trend, follow the trend, yet the vast majority 75% or more lose money. I found out that I make money by countertrend trading, why?? That is because the market is always reversing that is the one thing it is 100% guaranteed to do. I take those bounces off of S/R levels all day long and have been a consistent winner now for over a year. If 75% or more are losing money trying to chase a trend then countertrend, much easier to do.

I guess I keep saying that because it's the only thing that works for me.

If you can make money countertrend trading, more power to you my friend. But I can't do it. And I will only recommend what works for me because I can't honestly recommend anything else.

I think a lot of people keep saying what I am saying because they're had those experiences too.

May i chime in here I agree with the saying follow the trend, But it Don't always go your way like for example when i first entered Live trading. i opened a account with Alpari a $1000 account my leverage was 100:1 by default. the account was gone in a week. I now trade with Oanda my leverage is 40:1 Trading 1% per Trades my draw-down Is 2%. And my Account value Has Tripled. When using a Small leverage and a Sound strategy. your almost Always guaranteed to win.

Use as high as possible leverage you can get if you can be able to provide a positive balance consistently. Because it will compound your account more faster.

If you can't, it's better to decrease your leverage to ensure you can stay trading As you will get more and more experiences.

Except, you are ready to inject into your account again.

If you are not consistently profitable you should not use any leverage.

When I was a newbie I was also attracted by the high leverage. Trade 100.000 with only 1000 sounds pretty cool. But the market will draw you back to reality very soon if you use such high leverage.

Today I have still a 100:1 leverage, but my real leverage is 5:1. So, with 1000 $ in the account I never have more than 5 micro lots open.

Small risk capital = High Leverage.

Big risk capital = Low Leverage.


The less money you have to trade with will require higher leverage than MORE money. (to avoid margin call)

The more money you have to trade with doesn't require as much leverage. (to avoid margin call)

The more money you have in your account the more you better trust your broker.

NAME YOUR POISON >

I would recommend you to use small leverage.
Larger lev will cause larger profits or loss, but first you need to understand money management rules.

Absolutely agree.

I never meet serious trader, which use more than 1:2 or 1:3 leverage.
I also meet some realy aggressive traders, and they never cross 1:5 lev.

But I can tell you from my own experience, that you must try with big leverage 1:100 or 1:500 to lose money, otherwise you won't belive me.

It is how our mind works, and every life scool cost money.

So good luck my friend.