Quote:
Originally Posted by HAUGHT007
NOW THE DARK SIDE.....
With 100:1, let's say you have the same 10 lots.....
$1000 margin of lots divided by $10,000 account balance = 10% of your account is held on margin.
At 400:1, same 10 lots......
$250 margin of lots divided by $10,000 account balance = 2.5% of your account held in margin.
WHAT THIS MEANS FOR THE DARK SIDE......
Let's say that you're at 10% margin on a 100:1 leverage account... you can withstand a $9000 drop in unrealized profit aka 900 pips...
(10 lots * $100/lot = $1000 = 10% margin aka 10% of account balance)
(10 lots * $100/lot * 900 pips = $9000 draw down before lots start closing)
Let's say you're at 10% margin on a 400:1 leverage account.... you can withstand a $9750 drop in unrealized profits BUT.... at 10% on a 400:1 leverage account you would have 40 lots instead of 10 like on the 100:1 so you can only withstand a 243 pip drop.
(40 lots * $25/lot = $1000 = 10% margin aka 10% of account balance )
(40 lots * $25/lot * 243 pips = $9000 draw down before lots start closing)
JIST OF IT ALL....
High leverage sounds great when talking about your margin requirements but when it comes to actual drawdown, you can drawdown a whole lot farther at 10% on 100:1 than you can on 10% at 400:1.
Hope this makes sense.
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Here you are basically saying your draw is dependent more so on how many lots opened not leverage.
The leverage is just the deposit needed for the open position.
there is
no darkside
At the 100:1 if you only have
10 positions(mini lots = pip value $1) open, you can afford 9000 pip fall (
900pips for each of the 10 position).
At 400:1 you have
40 positions open, therefore you can afford same 9000 pip fall but only
244 pips for eachof the 40 positionposition
Big Difference:
The draw down is equal on all open positions as lot size is same and pip value same....only difference is deposit for the position.
say You have choosen to have 10 positions opened at 400:1, the only difference to the 100:1 being the deposit difference of 1000-250=750
So you are $ 750 better off and only using 2.5% of margin at 400:1 to open the same amount of positions at 100:1 which is using 10%.
There is no darkside to that
So at 400:1 then you have got an extra $750 of available margin to use in draw down if required.
Max Draw down 400:1 would be = 9750 pips for 10 positions 975 (100%margin used)
Max Draw down 100:1 would be = 9000 pips for 10 positions (100% margin used)
the margin% is floating once we open the position. Each pip is the same value. why have only 10 positions when you can play with 40 positions with the same margin. It is logical that you would make money or lose money quicker with 40 postions opposed to 10 positions. Leverage nothing to do with how many postions you choose to open..... i would prefer to open 10 at 400:1 then 10 at 100:1 as you have more margin available, and you will profit the same on the same 10 positions regardless of the leverage used.
If you had
40 lots opened at
100:1 then your margin used would be $4000 deposit for the positions, therfore you would have $6000 available margin. ie 6000pips, 600/position.
if you had 40 lots open at 400:1 then your margin used would be $1000 ($25/position *40) ....So have $9000 margin left, so can afford a 9000 pip fall.
900/position.
No magic to that. it is just the way it is.
Finally i could be at 10% margin used with one position open at 400:1 with one position open. it would be negative 1000pips could afford to drop another 9000 pips on that position.
It is not confusuing and there is no darkside!
it is just your deposit % for your position.....Thats it!