Is high leverage really that bad?

Hi!

I have been with a demo account for quite some time and now i am thinking in going for a real account. In my demo account i started with 100€ and 1:100 leverage, because i wanted to have the same conditions i would have in my real account. I trade forex and mostly intra-day with 1 micro lot or less (i have the demo with oanda), and usually what i gain or loss is arround 2 euros. So, why i always see pepople saying that more leverage than 1:20 or so is crazy? Is there something i am missing? Because i feel like i need that leverage if i want do diversificate a bit with such a small deposit.

Sorry if its a bit difficult to read, english is not my native language.
Thanks in advance!

I think so, Oscar - yes.

It’s just my opinion, but what I think you’re missing is the fact that the great majority of aspiring/beginning traders are [B]not[/B] sensible, like you, so “warnings about very high leverage” are appropriate [I]for them[/I].

This is why: counterparty market-makers who are pretending to be forex “brokers” (and have large numbers of customers who don’t really understand the difference between a market-maker and a genuine broker - many of whom post regularly both here and in other trading forums) have learned, from long and successful experience, that [I]the type of customer [U]attracted[/U] by very high leverage is also typically one who has a gambling mentality, is seriously undercapitalised, has a delusional impression of how quickly he can become steadily profitable and to what extent, and is exactly the right fodder for a business model which depends on having a large turnover of customers who lose[/I].

So the reality is that although high leverage is not [B][U]in itself[/U][/B] dangerous, if sensibly used, it’s also part of a very common “syndrome” in which gullible beginners with unrealistic expectations habitually get fleeced by scammy “brokers”.

Nor mine - but evidently we both make ourselves understood with no problem. :wink:

And welcome to the forum.

so where are you from Lexys, now I’m curious!

I’ve lived in England since I was nearly 18, but this is my home town …


Wow, thanks for the fast and clear answer!

So, if i just use that leverage to diversificate and keep opening small positions, its ok? Or would you recomend investing a bit more and puting other leverage? I can’t put much more money though :(.

In my opinion, yes.

Judging by the figures mentioned in your original post, you seem to have alighted on 2% of your account as your risk per trade? Which is what many/most people seem to recommend as a reasonable maximum (I admit it’s higher than I use). So I wouldn’t worry about it unduly, anyway.

I can’t really see that you’d have anything much to benefit by paying in another 200 and reducing your leverage from 100/1 down to 50/1.

I traded forex (successfully, after a long learning-curve and a lot of demo experience first) for a long time using 100/1 leverage and never had a problem with it, anyway. (I liked 1:100, because it made the arithmetical calculations pretty easy.)

I’m curious what you mean by “diversificate”. (That should be “diversify” by the way)

I ask because true diversification is very hard to achieve in forex because of how currencies overlap. A lot of new traders think trading in multiple pairs is diversifying, but they are actually multiplying their risks.

totally agree - correlation is a killer here in FX

Diversify** then, sorry :rolleyes:

On the post i meant that i wanted to be able to open some positions and not just 1 or 2, but yeah, trying not to open multiple positions with the same currency.

If you’re dealing with the majors, then the most you can have open at once is four. For example. USD/JPY, EUR/AUD, GBP/NZD, and CAD/CHF. Even then you have to worry about certain currencies being correlated at times. For example, there are times when USD and CAD are correlated, and AUD and NZD, or EUR, GBP, and CHF.

Of course if you do want to have overlapping or otherwise potentially correlated ones you can just cut your position sizes to keep your risk down where you want it.

Using leverages actually depends on your level of experience. But for relatively new traders, moderate leverages are actually preferable.

I think use high leverage not really bad, for small trader or retail trader which only using small capital with use high leverage will boosting opportunity but should keep using low risk and low volume lot size if want to safe trading, in my view leverage 1:500 already included high and now I have seen some broker offer more than these leverage

Some of them offer even unlimited leverages. Unlimited! Though, I don’t know how they work, as I’ve never used it, OMG

I agree with Pro King… a trader who doesn’t have much experience/doesn’t understand money management is more likely to blow their account much faster with high leverage.

Forex is a business where leverage is compulsory for survival and I think we should use the 1:500 leverage which is the perfect for efficient survival, using high leverage can cause the failure and we should use the leverage 1:500 which is best one.

Higher leverage always carries higher risk. If you don’t have enough experience it’s better to not use it as you can easily blow your account or lose even more. Usually the more professional traders use it however I’ve heard that most of them prefer the lowest possible level in order to minimize the loss. This thing for the unlimited leverage sounds absurd, I can’t imagine someone using it.

Why is 1:500 “the best one”?

Worst advice ever.

Absolutely [I]awful[/I] advice.

(But counterparty market-making brokers who trade [U]against[/U] their clients will absolutely [I]love[/I] you, and welcome you with open arms, because of course their own business model depends on identifying, attracting and then gradually emptying the accounts of “traders” who believe that. So[B] they’ll[/B] survive very efficiently!)

Yes, it is really bad to use high leverage. Use low instead of high leverage because, the higher the leverage, the higher the risks impact you put your trading account.