Ok, I see what you mean. In my opinion you’re risking too much of your account per trade, and that’s the reason you have to worry about margin calls. It really has nothing to do with account size.
I started my first forex account with $50, and I always had way more than enough capital to hold my trades because I always risked less than 5% per trade.
When I say that brokers are tricking traders I mean that you can’t trade with the 1:400 leverage they are offering and survive in the long-term. But the brokers make new traders believe they can and they end up blowing their account when they hit a losing streak.
hey Phil, I’m still new so help me understand something about leverage.
I too like the idea of high leverage. Like you said about yourself, I will probably start with 50 or 100, because if I loose that much, it won’t hurt, no big deal.
but with high leverage, I can have a bigger lot size, (i will only use .01 micro anyway) but with the high leverage, I could trade a bigger lot size and have a higher per pip value with a small account size right? with smaller leverage then that means I would have a higher margin requrement and be more likely to get a margin call right? or am I wrong about that?
the way I see it, the amount of leverage doesnt affect your per pip value. if you trade a micro lot .01 then its 10 cents a pip, or a mini is $1 a pip. but what the leverage does is affect how much margin you need to trade a particular lot size right? so the higer the leverage the smaller your margin requrement and less likely you are to get a margin call?
I need to go back to babypis school and read that part again, maybe I’m not understanding it !
whe you say the higher the leveradge- bare in mind you daont have to use it all- if you personally use more leverage there is a increased chance of a margin call.
most broker will start closing your trade at when the total balance falls to 20 % left in your account so if you have �100 in your account regardless of leverage they will close you out when you have �20 left in your account and thats what you will end up with
if you are betting 10 p per pip there is a far less chance of you losing that much than if you was betting �1.00 per pip
you are correct when you say the higher the leveragde the small your intital deposit requirments
over all the LESS leveradge you use the better because the more you use the chances of losing also increase aswell
if you think about it if you had �100 deposit
and you was betting 10p per pip that would allow you 800 pips before getting stoped out
if you bet �1 per pip on a �100 deposit you only have 80 pips aginst you before you get wiped out
Thanks Phil, I read that thread and if I understood it all correctly then it’s basically what I was already thinking. Seems like something very simple is getting overly complicated.
Really the only thing that leverage has an effect on is your margin requirement right?
if I trade one microlot $1,000 and…
If the leverage is 100:1 then my margin requirement would be $10
if the leverages is 10:1 then my margin requirement is $100.
If leverage is 1:1 then my margin requirement is $1,000
So the only concern I have about leverage is funding my account with enough money to cover the margin requirement and then some, for the size lot that I want to trade. Other than that, it really doesn’t matter what the leverage is.
I keep reading that high leverage is bad and low leverage is good, but the truth is, it really doesn’t matter. as long as your lot size is right for the number of pips you risk on any given trade, so that you only risk a reasonable amount of your capital.
And as long as you have a big enough account to cover the margin requirement.
Will US-based brokers will be able to offer higher leverage to non-US nationals? Or will this limitation - as well as the remaining changes - apply across the board to all US brokers and their customers, regardless of where the latter might be located?
Page 5 has interesting information: “The amendments leave the minimum security deposit amount at 1% and 4% and [B]eliminate the exemption[/B]. Under the amendments, no FDM would be allowed to offer more than 100:1 leverage on the major currencies or more than 25:1 leverage on other currencies.”
I figured the ridiculous leverage era would eventually end. I don’t think it should keep anyone out of the market though. You could easily set up a $100-200 account with 100:1 and trade microlots and be peachy all the way to the bank.
No worries, I should have put the link in earlier. I find it strange the NFA didn’t mention the proposed ammendment from February, though I haven’t heard of any status update about the proposal. Maybe they have forgotten about it
Even if the leverage is decreased to 100:1 max, that would still leave traders with a lot of leverage.
I wrote back to John Matteson, Staff Auditor at the National Futures Assoc. Compliance Dept., regarding the link you provided.
Here is the reply I received today:
I apologize for not being able to find that letter for you. As for the proposed amendment, you are correct that NFA is requesting that Forex leverage be capped off at 100:1, due to the reasons discussed in the letter. However, the amendment is only a proposal by NFA, and the final decision is in the hands of CFTC.
That email was a reply to my request for more information, as follows:
Sent: Tuesday, June 30, 2009 7:58 PM
To: John Matteson
Subject: Re: Response to NFA Question
I trade spot currencies through Forex Capital Markets LLC (FXCM), in an account having 200:1 leverage. If the proposed rule changes outlined in the link above are approved, as I read the text, FXCM (and all other brokers who presently offer leverage greater than 100:1) will be required to reduce the leverage offered to no more than 100:1.
Am I interpreting this proposed change correctly?
Your reply will be appreciated.
Jason, thanks again for bringing that February 2009 document to the Forum.