Is it impossible for American traders to get rich in forex? | Forex Factory

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Is it impossible for American traders to get rich in forex?

  • #1
  • First Post: Nov 18, 2014 12:00pm Nov 18, 2014 12:00pm
The below is a post I made at another thread (except I added a little more to it here). Nobody responded to it and so I decided to make it into its own thread. The reason I made the post into this thread is because the subject matter is SO important to those of us that have a goal of getting rich in forex (I assume all of us would like our forex trading to make us rich). Even though I've been involved in forex trading since 2005 (and a member here since 2006), I have only dabbled in it during all this time and taken demo trades only - but even then only every once in a while and not on any consistent basis during these past 9 years. Therefore please understand I spent all that time focusing on trading systems and trading strategies. I spent ZERO time on the financial details of forex, such as "margin requirements" and "leverage". So, now, after all these years I'm finally getting serious about trading with actual money because I feel confident enough in my trading system. Anyways, below is the post I made in another thread and I felt it was important enough to re-post it here into its own thread:

I've been lately thinking about this whole "margin requirement" mess. So let me get this straight: If I compounded my profits to, say, about $25,000.... wouldn't the margin requirement be SO huge that it would be very difficult for most people - including me - to be able to afford the margin requirement? In my situation, a possibly exists that my EA might take as many as 10 trades at one time. Therefore, my guess is that I would need an additional $25K - $50k in my trading account just to cover my margin requirement! And the larger your account grows, the more additional money you will need to cover your margin requirement? Am I basically correct in my assessment?

With the above in mind, then how in the world can most people hope to get rich in forex if the margin requirement will be VERY huge... assuming the trader is skillful enough to grow his account substantially? Am I correct in saying that no matter how much you grow your account, you will always need access to a substantial amount of money in order to cover the larger margin requirement as your account grows? Unless a person is already rich, then they most likely don't have an extra $25K, $50k, or whatever amount to cover their margin requirement when their account grows (assuming the person is able to grow his account to a large amount of money).

Due to the fact that the United States brokers are limited to 50:1 leverage, does that cause the margin requirements to be higher for us American citizens? Do citizens in countries outside the U.S. have it easier in regards to margin requirements ... due to the luxury of having 200:1 and 400:1 leverage ratios? Or does the leverage not affect the margin requirement whatsoever? I have a hunch that the limit of 50:1 leverage is the REAL culprit here. Is leverage actually the MAIN problem for U.S. traders and not the margin requirement itself?

Is everything I say above basically true - meaning it will be impossible for most people to afford the margin requirement at some point (once they build their account to a large amount of money)? Or, am I just confused about this entire issue of margin requirement for large trading accounts?

Can anyone confirm my fears of what I have written above? Or at least give your opinion about the possible difficulty of trading an account with a large margin requirement / low leverage?
"Trading is a mental sport." - Ziad Masri
  • #2
  • Nov 18, 2014 1:10pm Nov 18, 2014 1:10pm
You don't NEED anymore than 50:1 to accomplish the "goal". Not saying you cant trade with more leverage because many do and succeed, far more however blow their accounts because of it. Your thinking to much about things that wont change. Besides margin required is relative to the current price, account balance and position size,,, meaning if a position takes 200 to open one 10x the size takes 2000 and a 10x bigger account give or take and you can only open what the account balance will afford,, to keep it simple, so no your assumption isn't correct and shows you should not be playing with 500:1 accounts.
  • #3
  • Nov 18, 2014 1:38pm Nov 18, 2014 1:38pm
Quote
Due to the fact that the United States brokers are limited to 50:1 leverage, does that cause the margin requirements to be higher for us American citizens? Do citizens in countries outside the U.S. have it easier in regards to margin requirements ... due to the luxury of having 200:1 and 400:1 leverage ratios? Or does the leverage not affect the margin requirement whatsoever? I have a hunch that the limit of 50:1 leverage is the REAL culprit here. Is leverage actually the MAIN problem for U.S. traders and not the margin requirement itself?
has nothing much to write but let do the math. leverage is a loan given from brokers to it's clients, naturally the bigger the loan, the better, as side effect it bears more risk for bigger leverage. this why most expert said leverage are double edged knife.
assume we trade with eurusd, for 1:50 margin requirement for 1 lot are 2000 EUR, while with 1:500 only need 200 margin requirement.
Attached Image (click to enlarge)
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well, simply is to trade with lower leverage more margin are required than the higher one.
i'm not us citizen but i have experience trade with us based client account before, it's on oanda. leverage is not the only thing limitation here, while actually leverage are not affect your trading result, you just need to recalculate the lot size/risk management plan. one I found difficult is the no hedging rule and FIFO rule, it affect many trading strategies, while most traders are already used to with hedge and no fifo standard.
  • #4
  • Nov 18, 2014 1:44pm Nov 18, 2014 1:44pm
First of all if you're looking to "get rich" in forex then chances are you'll lose that money anyway. That's the wrong mindset.

Now that's out of the way... In order to be successful in forex you don't need more than 50:1 ..
  • #5
  • Nov 18, 2014 1:47pm Nov 18, 2014 1:47pm
Hi all i wish i was american .my sister got the green card lately but i am really afriad of the 30% tax they have .
I think getting so rich what you mean being rich from trading dervitivies if you use 50:1 leverage can be .as my previous fellow said more than that will increase the possibility of blowing your account but compines do offer it to make you trademore make them more commisions or just blow your account when you have a 1000:1 account take a one lot 100000 with 300$ you pay at least 30$ so 10% of your account for the position
So you may get away with it make some pips and run you will not hold and then to take same position or positions in different pairs you will be under thebsame pressure you will end blowing your account what matter you do .
That is the real purpose of leverage higher commisions or your money
USA is doing a good job protecting her nation but i think 50:1 is also high you can become rich with less than that
Just value the things you have
All have a nice day
focus while relaxed to see better
  • #6
  • Nov 18, 2014 1:50pm Nov 18, 2014 1:50pm
according to the Lord - one should n't use anywhere nr 50:1 anyway
(from about 10minutes in)

Inserted Video


you'd of thought though with all his money he'd have a better hair cut
  • #7
  • Nov 18, 2014 1:53pm Nov 18, 2014 1:53pm
quickdraw
i think you are confusing margin requirement of stock (Reg T 2:1 margin) where you need $100 already in your account to buy $200 worth of stock and if the value of the stock goes down you need to deposit more to bring your account up to margin required.
forex margin is different $100 at 50:1 gives you buying power of $5000, so your $25000 gets you $1.25 million buying power
  • #8
  • Nov 18, 2014 2:06pm Nov 18, 2014 2:06pm
Quoting Quickdraw
The below is a post I made at another thread (except I added a little more to it here). Nobody responded to it and so I decided to make it into its own thread. The reason I made the post into this thread is because the subject matter is SO important to those of us that have a goal of getting rich in forex (I assume all of us would like our forex trading to make us rich). Even though I've been involved in forex trading since 2005 (and a member here since 2006), I have only dabbled in it during all this time and taken demo trades only - but even then...

The ridiculousness of this thread and the first post is beyond comprehension. If you are trading with the assumption that you will constantly be covering margin calls then you have no business trading. Getting rich quick in FOREX is a fallacy. Consistent and reasonable risk trading is a path to long term gains. Beware of trading so large that you may encounter a margin call. This is the path to multiple blown accounts. Get real
  • #9
  • Nov 18, 2014 3:22pm Nov 18, 2014 3:22pm
Quoting fxindikator
{quote} has nothing much to write but let do the math. leverage is a loan given from brokers to it's clients, naturally the bigger the loan, the better, as side effect it bears more risk for bigger leverage. this why most expert said leverage are double edged knife. assume we trade with eurusd, for 1:50 margin requirement for 1 lot are 2000 EUR, while with 1:500 only need 200 margin requirement. {image} well, simply is to trade with lower leverage more margin are required than the higher one. i'm not us citizen but i have experience trade with us...
Hedging and FIFO at the big O used to be easily overcome, and likely still is,,,, FIFO,(big investment here to check) open a 1 unit trade then 3 minutes later open a 2 unit trade in the same direction and the same currency,,, a few moments later close the latest trade (the 2 unit trade) if it closes then you can still beat FIFO at the O, if you get the warning then things have changed since I traded there and your out a penny or three,, the "loophole" use to be the trade size, as long as no trades are the same size you use to be able to close and defeat FIFO at will,, hedging at O also use to be easy, open a sub account to your main and internally transfer funds from the main to the sub and hedge till your eyes fall out.
  • #10
  • Edited 4:26pm Nov 18, 2014 4:15pm | Edited 4:26pm
Quoting cenetti
In order to be successful in forex you don't need more than 50:1.

Today I found another thread here at Forex Factory that had to do with the 50:1 leverage limits for U.S. traders. A member named "Pip Seeker" had this to say:

"The bottom line is the less leverage you have the MORE money you need to avoid a margin call to trade a system developed for 100:1 or higher leverage.

If you have to use more money, you stand a greater risk of losing more not less.

It cuts out the small time trader or causes them to blow more accounts due to being under-capitalized."

Pip Seeker is spot on. Some systems, by their nature, have been developed to use high leverage - such as 100:1, 200:1, or 400:1. Therefore, a 50:1 leverage ratio will force us to come up with a larger amount of money to put into our trading account. As Pip Seeker said, the more money we use, the greater risk of losing more not less. An account with 200:1 or 400:1 leverage will make it possible for us to have much less money in our trading account than does a 50:1 account requires. And that of of course is a good thing.

As I said previously, my system often requires I take many trades at once. I often will have 6 - 8 trades going at one time, and with the possibility of up to 10 at a time (though rarely). Under the 50:1 leverage rule, this will cost me a lot of money for the margin requirement - ESPECIALLY if I am able to compound my money to 5 figures or more ($10,000 and up - especially more than $10K because the margin will cost a lot of money!). Therefore if someone has a lot of money to cover the margin that a 50:1 ratio will require, then to those people that have a lot of money, a 50:1 ratio is not a big deal, because you can open position sizes safely without fear of a margin call looming on the horizon.

I just don't understand why so many here on this thread can't understand all the above basic truths.
"Trading is a mental sport." - Ziad Masri
  • #11
  • Nov 18, 2014 4:45pm Nov 18, 2014 4:45pm
In theory and with an experienced trader the supposition is correct, however with an unexperienced noob its just the opposite, usually resulting in a blown account many times with just one trade they cant cut.
  • #12
  • Nov 18, 2014 4:51pm Nov 18, 2014 4:51pm
YOU ARE WRONG... because 25,000$ margin requirement is only for SEC regulated equities like day trading stocks, Commodiites, etc...

FOrex is not FEC regulated.. there fore the 25,000 Thingymagig or whatever, getting lazy of typing at this point, does not apply.. with forex some brokers are totally cool with 10,000 to open a margin account, and than keep it above 2,000$ to maintain your margin priveleges some others might not even have a minimum for opening a margin account....

basically what i think is you're mixing up FEC regulated securities, with FOREX.. one is regulated and has a stupid law passed after the 2000 bubble popped.. that requires 25,000 to day trade.... and FOREX is not FEX for SEX SEC whatever regulated.. so no such rule applies, exists, wahts ever word u wanna use
  • #13
  • Nov 18, 2014 10:00pm Nov 18, 2014 10:00pm
Quoting Quickdraw
"The bottom line is the less leverage you have the MORE money you need to avoid a margin call to trade a system developed for 100:1 or higher leverage. .........

More leverage means ; less money to maintain margin... more appealing to general public because it's cheap to join the game... which leads to more idiots playin and losing and then crying 'booo! forex is gambling, forex is scam.."

It eliminates the under capitalized and unserious traders (to a degree)
  • #14
  • Nov 18, 2014 11:12pm Nov 18, 2014 11:12pm
Quoting Pooks
YOU ARE WRONG... because 25,000$ margin requirement is only for SEC regulated equities like day trading stocks, Commodiites, etc... FOrex is not FEC regulated.. there fore the 25,000 Thingymagig or whatever, getting lazy of typing at this point, does not apply.. with forex some brokers are totally cool with 10,000 to open a margin account, and than keep it above 2,000$ to maintain your margin priveleges some others might not even have a minimum for opening a margin account.... basically what i think is you're mixing up FEC regulated securities,...

Pooks, I think you misunderstood my original post of this thread. I never said forex brokers have a $25,000 margin requirement.
"Trading is a mental sport." - Ziad Masri
  • #15
  • Nov 18, 2014 11:30pm Nov 18, 2014 11:30pm
Just to let everyone know about where I currently stand:

My system - an EA - has been averaging 114 pips per week for the past 5 months. I haven't had more than one losing week in a row during the entire 5 months. My stop loss has never been larger than 40 pips (more times than not, it is usually less; it depends on the currency). My point is not to brag on myself but instead it is to show that it is indeed worth the "risk" for me to use higher leverage - such as 200:1 or even 400:1. The leverage of 50:1 is just not going to cut it for my situation.

If a person has a winning system - with a relatively low stop loss - then doesn't it become worth it to try a higher leverage than 50:1? Doesn't it become silly at some point to be SO scared of failure that it keeps you from taking ANY WORTHWHILE chance, to the point that you are afraid to go beyond 50:1 leverage ... even though you have a winning system? Just as with anything in life, there is no guarantees. There is no guarantee that I will continue having the success I've been having. But as some point you have to factor everything in and say, "Yes, my situation says it is worth giving a higher leverage a shot!". In general, trying to play everything "safe" all your life will just give you an average life. When signs point in your favor, that is the time to step out and take at least a bit of risk - instead of trying to avoid it. Warren Buffett said: "Risk comes from not knowing what you're doing". In regards to my trading system, it has been very consistent for the 5 months I've been trading it and I do feel I know what I am doing. Some people here may prefer at least a full year of results instead of just 5 months, but I do feel confident in it and I can't keep waiting forever for more & more results.

Please don't ask me to give you my system, because, at this point in time I prefer for specific reasons to keep it to myself (I don't want to go into detail as to why). I will at some point give the details to anyone of whom wants to know about it. And no I am not planning on selling it. I will give the info for free at the appropriate time - IF anyone wants to know what it is at that time.

But getting back to the main point of this post, what I am saying is that my situation tells me I am ready for a higher leverage. My question now is: What about brokers outside the United States that use 100:1, 200:1, and 400:1 leverage? Is that the way to go for us American citizens that need higher leverage?
"Trading is a mental sport." - Ziad Masri
  • #16
  • Nov 18, 2014 11:38pm Nov 18, 2014 11:38pm
Quoting Quickdraw
Just to let everyone know about where I currently stand: My system - an EA - has been averaging 114 pips per week for the past 5 months. I haven't had more than one losing week in a row during the entire 5 months. My stop loss has never been larger than 40 pips (more times than not, it is usually less; it depends on the currency). My point is not to brag on myself but instead it is to show that it is indeed worth the "risk" for me to use higher leverage - such as 200:1 or even 400:1. The leverage of 50:1 is just not going to cut it for my situation....
Honestly, in every situation for a retail trader 50:1 is useless. Unless you large capital looking to diversify risk and not try to profit from volatility then you need leverage. By the size of movements it wouldn't only make sense to accommodate with more appropriate leverage.
All posts are my personal opinion
  • #17
  • Nov 19, 2014 1:05am Nov 19, 2014 1:05am
Stupid question asked by a stupid person


Your main worry shouldn't be if American traders have enough leverage. It should be surviving in this market
  • #18
  • Nov 19, 2014 1:44am Nov 19, 2014 1:44am
Margin requerirement? You mean you want more levarege to get rich? Big guys use 1:20 leverage, even lower, you think you are new Warrent Buffet.lol
  • #19
  • Edited 2:30pm Nov 19, 2014 2:14pm | Edited 2:30pm
Quoting Abcxyz77
Margin requerirement? You mean you want more levarege to get rich? Big guys use 1:20 leverage, even lower, you think you are new Warrent Buffet.lol

Abcxyz77, I guess you totally avoided reading my posts. I already explained in post #10 of this thread that the big guys are able to use lower leverage due to the fact that they have a lot of money (hence, that is the reason they are the "big guys"). Therefore, since they have a lot of money to trade with, then they can open position sizes safely without little - if any - fear of a margin call.

If I had their amount of money then I also would have no problem trading with a small amount of leverage. But the fact is, I don't have the large amounts of money they have - and I very much doubt if many other traders here at FF have the same amount of money that the "big guys" have either.
"Trading is a mental sport." - Ziad Masri
  • #20
  • Nov 19, 2014 2:30pm Nov 19, 2014 2:30pm
Quoting Rtm
{quote} Honestly, in every situation for a retail trader 50:1 is useless. Unless you large capital looking to diversify risk and not try to profit from volatility then you need leverage. By the size of movements it wouldn't only make sense to accommodate with more appropriate leverage.
Rtm, thank you very much for your comment and providing a dose of reality for others here. I was beginning to think I was the only one here at FF that understood the uselessness of 50:1 leverage for the retail trader. Yes, 50:1 leverage is good for those people that have a lot of money for capitalization, but that low leverage is not good for the retail trader (unless that retail trader has abundant capital to trade with, just like the "big boys" do).
"Trading is a mental sport." - Ziad Masri
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