A few questions

[rhodytrader]

The so-called riskiness of leverage is totally in the ability it provides the user to take on large positions relative to their account balance. It's these large positions which create risk.

Let's make sure we aren't using the same term for different things. While 100:1 might be the available leverage for your account, the 1:1 leverage of a $100k trade done on a $100k account is the effective or real leverage (or gearing), the actual leverage being employed.

Having a higher available leverage allows you to do two things. You can take larger positions (more leverage used per trade) or you can have more positions active. Either way, it's the same net result - larger total market exposure relative to your account balance.

As has been noted in this thread, the size of the positions you enter should be based on the risk you are looking to take. Leverage then gets used if that position size is larger than your available capital. It matters not at all whether your available leverage is 50:1 or 400:1 if you're only going to use 10:1. True, your required margin would be smaller for the higher leverage ratios, but you should not think that the margin requirement has anything at all to do with the risk you are taking on a position.

[shadow]

Ok wait, for some reason I just woke up today and Lost my mind to this leverage thing, I thought I had it down and then reviewing this thread, I just got really confused. in the case of leverage is this true?

On a $10,000
400:1 - pip value = $40
200:1 - pip value = $20
100:1 - pip value = $10
etc.

basicaly you would think that this is really all you need to know, but all this talk about less margin used with higher leverage makes me think that it works the opposite way around. In fact after reading this it makes it sound like the above pip values should be switched around to

400:1 pip value = 10,
200:1 pip value = 20,
100:1 pip value = 40
^
l that can't be right. or does less margin used for higher leverage less because you are borrowing more? Anyways your help on this would be appreciated.

[rhodytrader]

Originally Posted by shadow

Ok wait, for some reason I just woke up today and Lost my mind to this leverage thing, I thought I had it down and then reviewing this thread, I just got really confused. in the case of leverage is this true?

On a $10,000
400:1 - pip value = $40
200:1 - pip value = $20
100:1 - pip value = $10
etc.

Pip values are based on position size. They are only related to leverage to the extent that leverage determines the size of the positions you can take (or the number of them). Therefore:

400,000 EUR/USD position pip value = $40
200,000 EUR/USD position pip value = $20
100,000 EUR/USD position pip value = $10

If EUR/USD is valued at $1.30, and you have $1300 in your account (1000 EUR x $1.30/EUR), it would require 400:1 leverage to have a $40/pip position, 200:1 for $20/pip, and 100:1 for $10/pip.

Originally Posted by shadow

... or does less margin used for higher leverage less because you are borrowing more?

Exactly. If you are taking on a $100,000 position, your margin requirement is lower at higher leverage:

400:1 = $250 margin
200:1 = $500
100:1 = $1000 margin

[shadow]

Thanks John, I understand it now, I am very thankful for your post!

[mamutot]

Hello

i am new - i addmit..

someone emailed me today about an Expert Advisor thing - that runs on autopilot and makes constant 1% earning each and every single day - he showed me on an account - demo, that it is working for real, what is it exactly? should i believe him? what is the risk??

help me out


M

[mamutot]

hello

would someone please explain why a 1:100 L ratio is less risky than 1:200?


thanks

[shadow]

Yeah I had trouble with this one too, but what leverage does is that the higher it is, the more lots you can trade. That is all. It is not riskier to trade 10K lots on 50:1 leverage or 10K lots on 100:1 leverage with the same amount of money in the , since it is the same but with 100:1 leverage you need $100 minimum to enter a 10K lot and with 50:1 you need $200. But of course, that is assuming that there is no spread. I'll give you better example. Say you deposit $1000 into two mini accounts. 1 has 50:1 and the other has 200:1. Now when you trade with the 200:1 leverage, you can trade at every level of the amount of lots they give you (100K), but with 50:1you can only trade around 40K lots if I'm not mistaken. The only thing that leverage does is the greater the leverage, the less money you need to trade with. The leverage itself isn't risky, but increasing the lots is, when you have such high leverage. If you still don't understand, what I had to do to fully grasp the concept was open two different mini accounts with different leverages, and play around with the amount of lots you can trade. Have a good one eh!