Leverage the Killer

[dpaterso]

Come to think of it this is where leverage comes into play i.e. based on my thoughts above the lower the leverage, the more capital can be used on a trade, and the more 'room' there is for the trade to move against you before being stopped out.

Just thinking 'aloud'.

[rhodytrader]

Originally Posted by dpaterso

Actually - now that I'm typing this and reading it back - it's starting to NOT make sense to me ...

Come to think of it this is where leverage comes into play i.e. based on my thoughts above the lower the leverage, the more capital can be used on a trade, and the more 'room' there is for the trade to move against you before being stopped out.

Ding, ding, ding! We have a winner!

[flickabix]

Come to think of it this is where leverage comes into play i.e. based on my thoughts above the lower the leverage, the more capital can be used on a trade, and the more 'room' there is for the trade to move against you before being stopped out.

Sure but that doesn't mean what you said doesn't make sense. You can play it the way you describe - some compare scalping to gambling, and some make a living out of it.. one could argue that if you can click fast enough and are setting your stops appropriately you're just playing the game faster

[rhodytrader]

Let's walk through the math. If you have a $1000 account with 100:1 permissible leverage and max yourself out you can trade a $100,000 position. If we assume that your broker will do a margin call at $500 down and automatically close you out when that happens then you can basically only stand up to a 1/2% adverse price movement. At 109 in USD/JPY that means about 55 pips. If the market goes against you by that much, you lose half your account.

Scalpers are about the only ones who max out their leverage because they are dealing with tiny price movements.

[flickabix]

Indeed, with a $1000 account, if you're willing to risk 5% "setting your stops appropriately" would mean 5-6 pips.
(Maybe I was a little subtle in my previous post)