Leverage Question- Is It Me The One Who Idiot Or Everyone Else ?
Hell everyone and first excuse my English since its not my main language.
There's something that I still don't get even though I've been years in here, maybe I'm the one who is idiot or maybe everyone else is the one who idiot...
And its about leverage as double edged sword that everyone else always says which never makes sense to me even from the first time I read about Forex and I've been years in here
Honestly I felt hilarious when I read the lesson on babypips about leverage and how dangerous it is with long, useless, and over complicated... I don't feel newbies need to read such a thing...
How can huge leverage give danger to us while it only helps us... ?
Its always the lot size or type that matters, why make things more complicated by saying its because we have too big leverage so we should use lower one etc...
Here's my example:
I have 1000 $, I want to risk 2 % per trade with 20 pips stop loss, then that means 1 pip should be worth of 1 $ and we need to open 0,1 lot size right ?
And that's it... its enough if we can count that, it has nothing to do with leverage as long as its not too small, the bigger is the better...
It doesn't matter your leverage is 1:100 or 1:1000. If I get offered 1:1.000.000 leverage then yes I'll still use it as it cuts down the margin we need, all we need to care is our lot should be 0,1 and we'll be fine... why distract peoples attention by saying its leverage fault etc... ???
Its the lot size or type that always matters, the bigger the leverage the more positive it is because the less margin we need and the less chance we'll get stopped out.
My approach and suggestion to newbies is to be careful on the lot size instead of leverage ( as long as its not too small ), while babypips gives that far far far consideration which is unnecessary and only makes newbies confused more...
What are your comments about this ?
Last edited by ProInternetBeggar; 01-27-2014 at 10:33 PM.
Lot size controls leverage. Just as you mentioned in the $1000 account, if you were risking 2% and that 2% was 20 pips at $1 each, even though your account leverage is 100:1, you are actually only using 10:1.
I do agree with your post. Leverage is only dangerous when it's pushed to the boundaries. If you are responsible and have a good head for math, it gives you many more options than it gives problems. The issues come in when you have 200:1 or more leverage. You can set lot sizes so high that it depletes your account in just a few pips. The people that abuse it generally don't deserve much in the way of sympathy.
i think you can also think of it in terms of margin call. if you set your leverage to 50:1 compared to someone setting their leverage 1000:1, your 50:1 leveraged losing trade will be stopped out earlier so the trade will be closed off by the broker. this could restrict blowing up your whole account. although a significant portion of it is gone, you could have perhaps 80% or 70% of your capital left compared to if you used 1000:1 leverage and then got stopped out. you could end up with just 5% of your capital left.