L.E.V.E.R.A.G.E.? 😕

[roli_andini]

let’s make it simple…
how leverage could have a heavy impact in our gain/loss?
could you please give me one calculation as example about it? thank you for helping… :13:

[Walgum]

So you didn’t understand the concept of leverage in general?
When a broker says leveraged trading is dangerous it just means that you are the one who has to live with the loss that comes when you trade badly. The more money you are trading with the more you can loose and when a broker borrows you money to trade with it it means you are the one who has to pay the losses.

[TradeItSimple]

let’s make it simple…
how leverage could have a heavy impact in our gain/loss?
could you please give me one calculation as example about it? thank you for helping… :13:

Take a look at this video. It should make it clearer.

[gp00053]

In addition to watching TradeitSimple’s video. (Great explanation) Here is a tool that you can put different leverages as well as % and see the different effects. Forex Money Management

Here’s another video on leverage. I’m not recommending anything products or services they have for sale, just the video.
Hope it helps YouTube
Gp

[BPPunisher]

roli andini

Did you study this before?

Leverage the Killer | The Number 1 Cause of Death of Forex Traders | Senior Year | Undergraduate
Start on this topic before saying you’re confused.

[TheLastBear]

roli andini

Did you study this before?

Leverage the Killer | The Number 1 Cause of Death of Forex Traders | Senior Year | Undergraduate
Start on this topic before saying you’re confused.

Leverage is not the killer of forex traders, the lack of risk management is. Here is an example:

Let’s say you set the total risk per trade you wish to take at 2% of your capital and you have a $10,000 trading account. 2% would mean you would be willing to risk $200 per trade. It does not matter if you trade with a leverage of 1:1 or 1:500, you will only risk $200 if you stick to your risk profile and execute risk management. Leverage (as well as volume) changes the amount of pips you can be wrong before you reach the $200 as well as your margin requirement and level, but never is leverage the cause for you blowing your account.

[WarRocketAjax]

In addition to watching TradeitSimple’s video. (Great explanation) Here is a tool that you can put different leverages as well as % and see the different effects. Forex Money Management

Here’s another video on leverage. I’m not recommending anything products or services they have for sale, just the video.
Hope it helps YouTube
Gp

Thank you so much for the link to the calculator, I was going insane googling about this and kept running into lengthy articles literally treating me like I was a 9 year old mentally challenged person.

It takes about 2 minutes for anyone to understand you can’t leverage up your account too much without protecting your downside and survive for long but for some reason all the authors keep finding thousands of ways to make the same obvious point 10 times in the same article without actually getting to the point and explaining how you can properly manage risk.

[4xNewGuy]

Leverage is not the killer of forex traders, the lack of risk management is. Here is an example:

Let’s say you set the total risk per trade you wish to take at 2% of your capital and you have a $10,000 trading account. 2% would mean you would be willing to risk $200 per trade. It does not matter if you trade with a leverage of 1:1 or 1:500, you will only risk $200 if you stick to your risk profile and execute risk management. Leverage (as well as volume) changes the amount of pips you can be wrong before you reach the $200 as well as your margin requirement and level, but never is leverage the cause for you blowing your account.

THANK YOU for explaining it… I think… Plenty of people have been saying “higher leverage = higher losses”, which I think is wrong. Higher leverage can lead to trading higher volumes, which could then lead to bigger losses. But because A leads to B, and B leads to C, it does not mean that A leads to C.

From what I’ve gathered, higher leverage just means a lower margin deposit. I don’t see how it could amplify the value of each pip. I thought that’s what the volume does. Please feel free to correct me if I’m wrong, but I’m pretty sure higher leverage = lower margin deposit, and higher volume = greater profits and losses. Higher leverage might entice the trader to trade higher volumes, but any amplified losses are the result of the trader, not of the leverage itself. If your risk management is solid, higher leverage will in fact be beneficial by leaving you with some additional equity in case the going gets tough.

[Strategic_FX_Profits]

Leverage is not the killer of forex traders, the lack of risk management is. Here is an example:

Let’s say you set the total risk per trade you wish to take at 2% of your capital and you have a $10,000 trading account. 2% would mean you would be willing to risk $200 per trade. It does not matter if you trade with a leverage of 1:1 or 1:500, you will only risk $200 if you stick to your risk profile and execute risk management. Leverage (as well as volume) changes the amount of pips you can be wrong before you reach the $200 as well as your margin requirement and level, but never is leverage the cause for you blowing your account.

TheLastBear is absolutely right that leverage does not kill your account but rather the lack of risk management is.

If you are disciplined with your money management rules, then leverage can be an advantage in terms of the amount of capital you actually deposit with your broker.

For example you have decided that your starting capital is $10,000 and your risk is 1% per trade. Furthermore you decided that if your account drops 25% ($2500) in value, you will completely stop trading and withdraw the remaining $7,500. In this case, with a high leverage, you probably only need to deposit $5,000 (or maybe less) and keep the remaining $5,000 in your bank in case God-forbids another MF Global incident were to happen with your broker.

This, of course, is only if you have decided that you do not plan to risk your whole trading capital. In short, a higher leverage should not change the way you trade.

[bobart]

For example you have decided that your starting capital is $10,000 and your risk is 1% per trade. Furthermore you decided that if your account drops 25% ($2500) in value, you will completely stop trading and withdraw the remaining $7,500. In this case, with a high leverage, you probably only need to deposit $5,000 (or maybe less) and keep the remaining $5,000 in your bank in case God-forbids another MF Global incident were to happen with your broker.

The math is right. Margin should be set to protect the broker, not the trader. If the broker can stand 1:1000 leverage, so be it, I will still only risk what my plan says in it’s goal and in it’s risk to ruin assessment.