Leverage....

All I hear is to stay away from anything higher than 100:1. What does it matter? I know my bank roll and I know for every 10k traded it is worth approx 1$ a pip (depending on the currecy pair) and that I am responsible good or bad of that. What does it matter that you have to reserve approx $25 to trade 10k worth of the EUR/USD with 400:1 or that you have to reserve approx $100 to trade 10k worth of the EUR/USD with 100:1? The only concern I see is if you didnt understand the consequences and didn't have the money managment skills to control the equity left in your account thats avaliable to use when you are in a trade. I personally use 400:1 and love the extra flexability.

Howdy neighbor,

I agree with your assessment. Leverage and risk are separate issues. The amount of leverage you take on increases your ability to take on more risk...it doesn't make a trade any more/less risky.

On the other hand, position size is directly correlated to risk. The larger your position to account size ratio, the higher your risk.

Simple as that.

Now, you could be extreme your interpretation. Thus, if you didn't have "control" over your tendency to take on more risk, having higher leverage makes you susceptible to abuse...as with any thing, whether it be alcohol, food, sex...whatever...

Point is, you wouldn't give a recovering alcoholic alcohol if you wanted to help him...would you? So merely having the leverage could entice risk-takers to take more risk than they should. This is usually where the argument gets a little blurred.

Obviously the trades have similar risks whatever leverage you are using. One thing is independent of the other. However (as mrmikal says) the size of your position is correlated with the risk. With a 400:1 leverage the risk of reaching your margin is higher than with a lower leverage, the same kind of happens with mini-accounts. You cannot hold your position if you are trading close to your margin, the risk of having your position automatically closed is too big.<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" /><o></o>

The simple solution is this. By using the highest margin (400:1) possible, you
conserve your trading capitol.

If you also RESTRICT your trading to a specific percentage of your available
equity ... to a couple of sound amounts of either 1 Lot (at the $10,000 Lot
size) or 5% to 8% MAXIMUM ... you get the best of all worlds.

This gives you lots of "room" for a trade(s) to move against you and create
"draw down" (unrealized loss as the trade moves the opposite direction of
your position), where your available margin "shrinks" until the trade goes back
in your direction and puts you into profit.

I use 400:1 simply because it does allow me to place more lots into trade
with my available account balance, but within the parameters mentioned.

A way to know if you're "safe" ... take the number of lots you have in play
and divide that number into your AVAILABLE MARGIN.

Example: $2500 available margin divided by 10 lots (at the $10k lot size)
and you have 250 PIPS OF MOVEMENT before you would be margined out.

Is that safe? It is if you can say the market you're trading cannot move
250 pips AGAINST YOU in the trade you're in, before coming back to where
you need it to go to put your trade in profit.

Less than 200 pips of "room" ... you're trading too deep.

Have a great trading life ....

Jim