I want to embark on forex trading.
But first I want to clear up a few things.
I don�t understand leverage, and why it needs to be in place.
The broker makes money from a spread, and all deals done today are electronic.
So if I have 10k, and I want to put 5k on the US$ going either way, why cant that just happen. I don�t want leverage, it just gives the broker an opportunity to give you a margin call.
Ok so I might only make a a few dollars a day, but hell it’s the fun I’m after not the frill or it being my main work.
I want my money to be 100% at risk, so when I make an order I’m the only one to exit at a loss or gain.
If that isn’t possible, I will not even be bothering with such risks and stick to shares where I’m responsible 100% for the way the markets goes.
Any other trading area I can get interested in without a broker calling the shots. ?
You are correct in that you absolutely don’t understand leverage. Everything you said about it is wrong.
Your money is at 100% risk even with 500:1 leverage. You are the only one to exit at a loss or gain. The broker doesn’t gain money when you win a trade, because you are using his leverage.
Furtheremore leverage has NO bearing on what YOU decide to risk of your account you can have 1000:1 leverage and still only risk 1% of your account if you want. Leverage does not force you to trade larger lots or risk more than you would like.
I have 400:1 leverage on my account and can trade as small as $.01 cent a pip if I like. And I do when I’m trying a new strategy.
All leverage is, is a way to control larger lots with a smaller amount of money. Unless you already have a lot of money you need leverage.
If you have 100:1 leverage all that is saying is that for every 100 dollars worth you trade you must have 1 in your account to cover it. More leverage = less you need in your account to cover a trade = unless you are stupid you want as much leverage as anyone will give you.
Having no leverage would cause a margin call sooner, because you would be covering every dollar 1:1.
You only get margin called if you are stupid enough to trade a lot size too big for your account. That is what people mean when they say a trader was over leveraged. It did not mean his account simply had a lot of leverage available, it meant the trader traded an amount that was a risk of a large percentage of his account.
Lets say you want to risk 1% of your account on any one trade. You find your stop loss then divide your 1% among that. So, lets say 1% of your account was $100 and your stop loss was 50 pips. That then = $2.00 per pip value. Make sense? Probably not at this point.
Surely with no leverage the broker can not ever execute a margin call if you are only exchanging currency that is yours. I dont want the extra the broker wants me to play with… That to me is a lever for the broker.
Why would a you ever get a margin call if you had no leverage. Leverage is what what executes a margin call surely, when the broker thinks you are coming close you using up your account credit and will eat into his leverage (credit)
So man walks into travel agent and say I want to buy US dollars with my �10.
Broker in travel agent says I can sell you $18 for your �10 sir. Deal Done.
Man think’s dollar will weaken against pound.
1 month later man walks into travel agent dollar and exchange his dollar back to pounds. Travel agent says I will buy your dollars and give you �2 for each. so says she will give him �36 for them $18
To me that is no leverage, no broker can give you a margin call, you are not forced to sell if you are up or down on your investment.
I want to buy �10k of dollars, and wait, I decide when I want to sell the risk is completely mine, I might wait a day and sell, I might wait a year, 2 years…
If the market reverses on me, I can wait as long as I want, I will never get a margin call as my �10k in dollars will always be worth something even at a heavy loss when exchanging them back if I needed to. I might decide it’s an investment that can sit in dollars until the market comes back in my favour.
The rest of the post is pretty much spot on, but this is patently incorrect. If you have no leverage you cannot possibly receive a margin. Margin call on what? You’ve not been extended any credit.
When you’re trading spot forex you never actually own any currency. It’s all forward agreements which get rolled over.
So is there any platform that I can exchange just my investment.
I want in invest �10k with no leverage, which puts me in complete control of my money.
I mean I’ve heard of people moving from one country to another using forex to simply exchange their money from one country to another at a set rate. One deal for the total amount the user wants to change at a set rate, none of this leverage.
Here’s an analogy. Your credit card issuer offers you a $50,000 credit limit on your card. You start complaining that you don’t want all that debt — you just want to be able to charge stuff on your card, and pay off the balance every month.
Okay, so do that! And stop complaining about an option which you choose NOT to use. Who cares about the card’s credit limit, if you never intend to USE credit-card credit?
It’s the same situation with your broker’s allowable leverage. If you intend to trade NO MORE THAN 1 mini-lot ($10,000) for every $10,000 in your account, why would you care that your broker ALLOWS you to trade more than that (i.e., use leverage)?
Your broker can’t force you to use leverage. He simply says that IF YOU DO, you can’t exceed a certain limit.
[B]If leverage doesn’t apply to you — because you don’t intend to use it — then ignore it.[/B]
Ar now you have explained like that Clint I kinda get it.
So if I deposit �10k in a mini account, and I make a 1 lot trade (1 lot = �10k) I am not using any leverage, thus without a stop-loss set I can ride out any big movements even if having to wait a long time for a reversal.
I kinda thought if your leverage was set to 100-1 then when you make a trade, say 1 lot 99% of the value was the brokers and just 1% came from your account credit, so thus giving the broker a say in the margin and possibly exiting a trade.
Now I can trade my (1 lot) knowing it’s all my risk and the broker can not touch it.
And you’d never want to “trade” currencies using a money exchanger. They absolutely screw you on the spread they take. I can’t remember what it was like last time I travelled overseas, but back when I was a newbie forex analysts I nearly fell over when my grandmother told me the rate she was given exchanging USD for French Francs was fully 5% away from the market. :eek:
Correct you are. Let me correct my statment for the benefit of anyone who cares to follow the thread so the real point is evident.
1:1 leverage = no leverage. You are covering the whole trade. Which means if you want to trade a lot you have to have a whole lots worth in your account. Even though you won’t get margin called, you would have to trade a rediculously small lot size to stay within 1-3% money managment.
2:1 leverage or even 500:1 = you control more money with a smaller account.
[B]The point being the less your leverage the more you have to have in your account to cover a trade.[/B]
So, unless you already have A LOT of money, trading without leverage would be pointless as the amount you would make per pip would be laughable for the amount you time trading.
Let me stop you right there… The thinking that you can wait for the market to just reverse because it , “will always come back,” is really quite stupid. If you are going to be a long term trader who waits for months to years for a trade to go postive fine. If you are going to be a day or swing trader, well, its just plain stupid.
If you can’t learn enough to place a trade that goes well, or get out when it doesn’t then you shouldn’t be a trader. “riding it out,” until it comes back is a sure way to ruin your account.
You SHOULD, define your risk and set an appropriate SL.
The market isn’t like the law of gravity, “what comes up must come down.”
Sure it may come back, but it could be months, weeks or years from now. In the meantime you are losing money and not learning how to trade for real profitiably. And you could have moved on to several other positive trades that more than made up for your loss.
If you can’t accept losses as part of trading, you shouldn’t be trading. No one, wins 100% of the time.
And again, leverage or lack thereof DOES NOT dictate your risk %. You can risk 1% of your account with 1:1 or 500:1, leverage. When I say this, I say the actual leverage setting on your account. How much of that you choose to use is your own choice. You can be stupid and lever your whole account, or you can lever a small portion and only risk 1-3%.
[B]I said this earlier but pay attention here:[/B]
Lot size determines per pip value.
Your SL should be determined by your trading strategy. That is, lets say you’ve found that a 70 pip SL is the point of no return, where you know the trade is bad.
So, lets say you have a 1K account and want to risk 1%. That would be $10, you are willing to risk per trade.
You take $10 and divide it among you pre determined SL. So… $10 divided among 70 pips =…
$.14 cents a pip… You enter in lot size that equals $.14 cents a pip, since your SL is 70 pips and 70 x .14 = 1% of your account.
With my broker this is quite easy, all I have to do is enter the per pip value I want.
In conclusion, what you are trying to do is manage your risk with the AVAILABLE leverage setting on your account. It doesn’t work that way, you manage your risk like I said above. YOU manage and decide your risk and money managment, it is not dictated by your available leverage.
When trading forums talk about leverage being a double edged sword and dangerous, it isn’t because lots of leverage is dangerous, it’s because USING lot of leverage is dangerous.
Think of it in gambling terms, perhaps at a craps table. You have hundred $1chips. You can of course put them all down at once, or you can put them down one at a time per roll of the dice. A good gambling system would have you playing for quite a while and making some money, if you put down one at a time. Even a great gambling system would probably go bankrupt within the first few rolls of the dice, if you put all your chips down…the odds are against you.
P.S. Just so you know I asked EXACTLY the same question for the same reason, when I was new. Which is why I am trying to straighten you out. IMO, the leverage section in babypips is fubard. It may be true, but the way it is explained, someone who is new will tottally take it the wrong way. Leverage only, multiplies your losses if you are dumb!@# and overleverage your account.
Griffter, you should read this thread. It’s the thread where ThePhoenix and I had a conversation about leverage last year when he was learning to trade.
