They do not have the same result if they actually need that margin to get to those sizes.
If you are trading two standard lots, you are trading 20,000 units. If you must use 50 to 1 leverage to trade 20,000 units your account value is 400 units (20,000/50=400). A trader in this situation will lose $2 per pip and thus need to lose 200 pips to be wiped out. He is risking .50% of his account per pip.
If you are trading one standard lot, you are trading 10,000 units. If you must use 100 to 1 leverage to trade 10,000 units your account value is 100 units (10,000/100=100). A trader in this situation will lose $1 per pip and thus need to lose 100 pips to be wiped out. He is risking 1% of his account per pip.
In terms of the percent of the account risked per pip, the second trader is at greater risk than the first and would be wiped out with a smaller move against him. 100 pips would wipe out the second trader while the first would only be down 50%.
But you may be asking a different question than the one I answered here.
Well I can agree and disagree. Leverage can be your friend if you understand what your doing. I think the real culprit is that a newbie (and hey Iâm one of them) has illusions of boats and houses and broads and because they turned their 50,000 demo account into 500,000 think they know more than the professionals.
Iâve made the mistakes as well and Iâve identified and corrected them. I think to answer your question the newbies that donât know how to use leverage are the ones you are referring to. And I think itâs because they donât go into a trade with any concept of a plan. They are trying to outguess the market. They have no concept of an entry or exit point and they always get in trouble trying to ride out a bad trade. And more importantly they can never admit to themselves that they were wrong in analyzing a trade.
One thing that I would say about leverage is not that it is a killer but that it has potential to turn your trades upside down. This can either be good or bad. It is not necessarily a killer because the same way you can lose your trade fast, you can also make lots out of it. At the end of the day brokers give a choice of different levels of leverage and we can chose the one that we want. I donât like having a really big leverage but a substantial one to allow me to trade the positions that I want.
i donât allow with you. leverage is a great benefit. we can buy or sell more volume when we has some great signal. we can get it a month or a few months. we need ready to it.
No, I donât agree that leverage is the killer, nor do I agree that using bigger lot size is the reason for failure.
The killer or the reason for failure is not having a trading business plan that would account for your risk tolerance. Alternatively, the killer or the reason for failure is NOT following your business plan. It has happened to almost every one that at some point arrogance or greed or carelessness takes over your good judgement. This is the point where you are likely to fail more often than score a home run.
In simplest of terms, follow your trade plan for entry rules and determining lot size and corresponding StopLoss to manage your risk. Once you are in the trade, you move on to trade management for exit and managing your winners in accordance with your trade plan rules.
There is as simple as it is - make a business plan and follow it strictly - and letâs keep it that way for achieving success in this business and not make it so complicated that it will lead you to failure.
Many people say you need to look at your âriskâ, but the word risk in forex changes depending on who you ask. The reality is with any OPEN order in the market, then your RISK is the same as anyone else. How so? Well because by simply being exposed to the market, and the ability of your broker to cause slippage or lag, your spread can be widen to skip past your sl, or activate pending orders which were hundreds of pips away in a matter of ticks only to margin call your account no matter what your leverage is.
As to chime in on the question asked by the O.P. âLEVERAGEâ isnât the killer of an account. Leverage + HORRIBLE PIP-DRAWDOWN" is what causes your account to suffer massive losses. In other words, if a person aimed to get the best entry possible, instead of worrying about the profit, then your âpip-drawdownâ would essentially be low.
Youâll see many people who taut about 95% rate, and even though their account is in green they end up giving to the market - 50 pips for every 1 they earned. Yes⌠A person may of earned 10 pips (which of course is a winning trade), but before closing for profit they were in red as much as 500 pips. That gives them a REAL R:R of 50:1 which is HORRIBLE.
The problem I have with âsocial tradingâ is almost no one focuses on accuracy. Mainly in part because they trade the higher tf which doesnât allow for pin point accuracy. So for all the new traders out there, if a person offers to manange your funds, always ask for third party verification like myfxbook, or trade explorer and make sure the person has their trade history public. This will allow you to check for accuracy.
it is important in my strategy. we have higher purchase with this benefit. but we need plan about risky to control it. we will have some great signal . we can make big money with it. we can join in the market witn leverage and bonus. it will have us bigger in market. we can get more profit with lower fund.
Leverage is a double edged sword, no doubt about that. However, itâs not leverage to blame for a trader blowing his account. Itâs their inexperience and gambling mindset combined with a ****ty trading strategy that does that. Many smart traders (smart meaning experienced traders who understand market mechanics and trade with a proven edge) use leverage to maximize their gains, youâd be surprised at what they can achieve. However, most people donât know how to use leverage properly and trade with a crappy system, so in that sense yes, leverage is the killer.
I should add that most newbies should trade with low leverage IE 1-2% risk per trade. This will help keep you in the game long enough to learn how it works and find a suitable and profitable strategy. After you gain that experience and develop your strategy, increase your leverage to a comfortable amount depending on your expectancy and win ratio. But many noobs probably wonât listen to me and blow their accounts anyways so whatever. We all remember how we thought we were hot shots and smarter than the guys whoâve been at it for years until the market handed our asses to us.
Leverage is certainly the killer for all those who can not manage it to their advantage. Most of the traders get tempted to trade with bigger lot size when they have high leverage even after knowing the fact that their account is too small to hold the drawdown.
Exactly, the fact is most people who start out think, ow I can make loads from high leverage and not think about if the pips go the other way and then that account is bye-bye, but if you can manage your account then leverage is a great thing.
[B]I can only concur to what everybody said here. Newbies (like me) have problem with all the things mentioned. Let me add some more and pardon me if it was already mentioned by somebody else as my memory always fails when I need it:8: And as to leverage, I donât fully agree with that because for newbies, I donât even know if they really understand what that means. I can only assume that they are trading that high amount because they thought their strategy is the holy grail and they were âsureâ it will win! Errrr, I did that so I know:8: There are so many things that a newbie can do wrong that would blow up their account. Luckily, I am still on demo and will stay on demo until I understand what I am doing. Very important for newbies is to EDUCATE themselves it it will come with TIME! There is no shortcut to it![/B]
[B]" A grasp of Money and Self Management techniques is crucial to longevity. Without longevity youâll be out of the game BEFORE youâve had time enough to learn how to make profits trading." - TWDL- Joe D.
[/B]
[QUOTE=âLitzpip;700239â] I can only concur to what everybody said here. Newbies (like me) have problem with all the things mentioned. Let me add some more and pardon me if it was already mentioned by somebody else as my memory always fails when I need it:8: And as to leverage, I donât fully agree with that because for newbies, I donât even know if they really understand what that means. I can only assume that they are trading that high amount because they thought their strategy is the holy grail and they were âsureâ it will win! Errrr, I did that so I know:8: There are so many things that a newbie can do wrong that would blow up their account. Luckily, I am still on demo and will stay on demo until I understand what I am doing. Very important for newbies is to EDUCATE themselves it it will come with TIME! There is no shortcut to it! " A grasp of Money and Self Management techniques is crucial to longevity. Without longevity youâll be out of the game BEFORE youâve had time enough to learn how to make profits trading." - TWDL- Joe D. [/QUOTE]
Leverage = The amount/type of bullets you have
Gun = Broker which you use
Trigger of the gun = Your bias towards the market (what you believe the market will do)
Vest = Your stop loss
The interesting part of the 4 things listed above isnât the leverage. As the gun can not be used to fire unless someone or something is present in order to pull the trigger. The killer of all accounts is a combination of the Trigger + Vest + bullet (with that order being the most important). A combination of the three is what we know as being the âmoney/trade managementâ.
Most of us have heard about ânot risking more then 1%â of your account, but the reality is the first trade which you place sets off the bias which you will have for the life of the account. If you buy say EU and the trade goes against you, then the reality is every time the price drops, you will be looking to buy more, thus ignoring Price action which determines where the currency will go now, and in the future.
You may actually risk 1% of your account, but adding more trades, or not simply aiming for accuracy is what blows the accounts because by nature, humans have been designed to ignore price action, as we believe we can predict what a currency will do.
If a person on avg doesnât give the market more then 20 pips before closing profits for a trade, no matter how many pips he or she takes in profit, then your money management or better yet, the type of bullet (leverage) should be determined based on that. I personally have seen on another forum, a guy who has a 100% win rate, but the amount of pips he has of floating loss exceeds over 400 pips. At times, even thought, a 400 pip floating loss may not be more then 15% drawdown the reality is 400 pips is way to many pips to be giving to the market no matter what tf you are trading.
So to the new traders, and please take this from a person who lives from trading, focus on being as accurate as possible. Do not take a trade based on news, nor on opinions of anyone because when those trades fail you will be the one left holding the bag. If you can find accurate entries (entries in which you give less then 20 pips to the market before you close for profit) then the reality is you can wager 1% of your account per pip easily as long as you stick to your hard stop loss.
To sum it up, leverage isnât the killer of the account, but the actual system and the comfort people have when they say the market is cyclical, so the trade will come back to me at some point.
Agreed. Leverage can be a good thing when risk is managed. Even with low leverage you can blow your account if you risk a large percentage of your account per trade.
This happens when high leverage is used and the trade taken is with huge lot size that the capital can not hold for long time because of which traders lose their hard earned money to the forex market very quickly.
High Leverage is never the killer and will never be. It is just the gun, the killer is the trader himself,when he is acting without thinking.
Leverage by itself canât kill your account. With proper risk management, the height of leverage is irrelevant. When you set a proper risk, letâs say 2% of your balance, and you calculate your position size according to your entry, stoploss and risk, it doesnât matter if you leverage your account with 1:100, 1:500 or 1:1000. You will always just be risking your 2% (under normal circumstances).
Leverage will only become dangerous, when the trader wonât do proper lotsize calculation and just uses a ârandom sizeâ which he thinks is ok. But then, the trader kills himself with the leverage, he wonât by killed by the leverage itself.
