I’d like to know how EXACTLY the leverage of the Magnr’s plataform influence the operation of trading.
Exist an incorrect explanation spoken by fool ‘traders’ that leverage multiply the gain and the loss. This is INCORRECT!
You can create two demo accounts in any forex broker, one with leverage 500:1 and another with leverage 1:1, and test these accounts in the MetaTrader, making operations with lot = 1. In both accounts, the leverage doesn’t multiply the profit or the loss.
Mathematically, exist a formula for calculate the position size (= lot = volume) and this formula doesn’t depend of the leverage.
[trading capital] x [percent to risk]/100
lot = -------------------------------------------------------
[pips between entry and stoploss] x [dollars per pip]
The – ONLY – function the leverage is up the maximum limit of the lot. How bigger is the leverage, bigger will be the maximum limit of the lot. JUST IT!
If you have an account with just 1000 USD and your leverage is 1:1, probably the maximum limit allowed for you will be 1.00, or maybe 0.5. Now, if your leverage is 500:1, so your maximum limit will be 5.00, or maybe 10.00, or maybe 15.00. It’s depends of the broker…
So, now I repeat my question above: “How – EXACTLY – the leverage of the Magnr’s plataform influence the operation of trading??”
At least you started reading, that is a plus. But before you start insulting traders as fool traders you need to consider that you may not fully understand what they are saying.
You are right, the point with leverage is that you CAN buy more dollars for the same money and thereby increasing your profit or loss per pip. For example your $1000 account.
With a leverage of 1:1 you can trade 1000 USD (that is 0,01 lots and not 1 lot as you mentiond.
With a leverage of 5:1 you can trade 5000 USD.
1000 USD gives $0,1 per pip and 5000 USD gives $0,5 per pip. Therefore with leverage you can get $0,5 per pip and that is a 5x higher profit than the 1:1. [That is the part you seemed to be missing.]
However! You don’ t HAVE to use all the leverage that you are allowed to trade. You can trade 1:1 on a 1000:1 account, but not vice versa.
So yes, 1 lot trading on a 1:1 or a 5:1 account will give the same profit, but on a 5:1 you can trade 5 Lots and on the 1:1 only one.
And your math calc is just a formula that you use when you only want to risk a certain percentage of your equity. There are other ways to calc your lotsize. It is not the only way.
About the “fool traders”, I noticed that exist two types of traders, who that understand what they are doing and who that doesn’t understand.
The second are like a monkey that was taught to pilot an car, they are able to pilot but they doesn’t understand the principles of automotive mechanics. So, when this type of trader trying to teach some principle or some math relationship, they teach wrong.
I’m trying to leave of be like the second type and understand how the markets works really.
About your explanation, I understood it. But I didn’t absorve your logic yet…
I take it you consider yourself part of the second group hence this question.
Leverage has nothing to do with risk management. All leverage allows is that instead of depositing my full $100 000 investment with my broker, I can deposit $1000, use the 100:1 leverage my broker offers and trade as if I had the full amount. Leverage protects my account bro.
Yup, me too. That is also why I trade higher leverage than adviced. I just don’t put all my eggs in the basket, but still want to make profit like I did.
Yeah! Yeah! I think the same thing! But so much traders and investors say that leverage is dangerous. So, I began to think: “Or I’m crazy or these guys are speaking folly!”.
Think! The brokers don’t want that you deposit 100 000 USD for make an operation of 1 lot, theoretically they want, but in the practice, they accepted that you deposit just the sufficient for honor your doubt case your trade be a loser trade. Just it!
So, what make sense is that you deposit the sufficient for pay your debt in the broker. How much big is the leverage, less I need to deposit my money for open a big position and less I risk my money in the broker!
Yeah! I think that a big leverage is the good tool for protect my capital, because my capital can be in my account bank!