I’m grateful that my thread gets many replies, although one or two are rather trolly!!
OMG.
Among successful daytraders a typical reward-to-risk is around 0.5 to 0.8, or something like that. It’s almost always LESS than 1.0.
It’s among people posting in retail trading forums that one often, sadly, finds the “advice” to trade with a take-profit target of 2-to-3 times (or more!!) the size of the stop loss. It’s shockingly bad advice that actively prevents huge numbers of people from ever becoming profitable.
I’ve noticed here that people who point out this reality sometimes get shot down in flames. But really, people advocating an ‘R’ of 2.0 or more are here to do marketing of some kind, or at least self-promotion: they’re certainly not making their money by trading profitably!!
To be fair, it’s not just a Babypips problem: it’s also similar in other retail traders’ forums. It’s just very, very bad advice that people see and pass on, and it becomes established as a kind of nasty “consensus of opinion” among those who know no better, and it damages people‘s chances.
There was an awful post giving this advice, here, only very recently. It included the words “Ensure the TP is at least 2-3 times further than the SL for a favorable risk/reward ratio.”. Horrible advice. (The moderators have very kindly removed it now, and very many thanks for that!).
Firstly remember to speak politely and get to know who you are talking to; you may understand, if you have a functioning brain, that in scale to who you are talking to, you must, I insist, YOU MUST be thankful that the other one is taking some time to even reply your comment. And secondly, human have long understood that they need to find a strategy that they work less and gain more; I am saying they understood that a long time ago because that is how they evolved from monkeys to human, and if you do have not yet understood that and if you are willing to trade in a way that even after making more wins you are still in a loss, well… just good luck with running from extinction!
Yea 1 is very high, absolute logic LOL
you would understand just if you do not try to avoid understanding!
Hello @SovoS
Please believe me when I say that I had considered modifying my post to add some clarifications similar to those you provided, but then I decided not to, as I preferred to keep the discussion simpler and more focused on the issue at hand.
That said, I completely agree with what you wrote and thank you for your input and kind words.
Absolutely!
Surely that is exactly the purpose and pleasure of forum threads, that the issues develop gradually and fully, gathering both depth and breadth, as various members build on it with their own thoughts and experiences.
That way we all grow in an industry where we are all on the same side
In order for you to purchase a mini-lot (0.1 lot size) in GBPUSD (Cable), you will need a minimum of ($1.2500 x 10,000 [0.1 lot]) = $12,500 of capital. Since, most trading brokers will not allow you to enter trades that causes your available margin to drop below 100%, you will need a minimum of $25,000 capital to enter a 0.1 lot position in GBPUSD, resulting in your account having a floating balance of 100% margin.
Now, in order to reach that amount of capital in your account, you will either need the exact amount of capital in your account, which most retail traders are unlikely to have, this is the ideal situation of a 1:1 leverage situation. If you have $2,500 in your account, and your broker offers a 1:10 leverage ratio, you are now able to enter the trade utilizing the full leverage offered by your broker, whereas in a situation if your broker does not offer any form of leverage, you will be unable to enter a mini-lot position (0.1 lot size) in GBPUSD (Cable).
If your broker only offers 1:10 leverage ratio, you will be unable to enter a standard lot position (1 lot size) as it will require you to have at least $250,000 capital in your trading account. However, if your broker offers you a 1:100 leverage ratio, you will now be able to enter a standard lot size (1 lot) in GBPUSD (Cable) position.
The reason why people wish to trade with high leverage is that they hope that they can enter high risk positions that can result in either a large amount of gains or a large amount of loss due to their higher lot size entries. 1 lot size is equivalent to $10 per pip movement in GBPUSD.
What most retail traders fail to understand is that, with higher leverage, it is enticing to enter bigger lot positions to earn more quickly, but reality is that, the potential loss is also multiplied at the same time. It’s kind of like wielding a much larger double-sided sword, your results of chopping an enemy and hurting yourself is simply multiplied accordingly.
I hope that clarifies your question of “why do people wish to trade with high leverage”.
SIA
Very well explained