the profit calculator on forextime.com is great to use as well
Profit Calculator | FXTM Global
I’m starting to use this on my demo trades to make it an integral part of my process.
High leverage enhances the risk and traders usually tempts to take large positions. so as per my opinion it is a wise decision to avoid high leverage till the time you gain enough experience.
There are several ways to comfortably hege off high leverage and reduce the risk associated with same. Thats said high leverage is almost never necessary.
For example one method is building a profit hedge before scaling in and then laddering as the trade goes you way. Thus your always in profit and only risking profits not your equity.
As Clint has explained mathematically way back at the start of this thread. High leverage never increases risk if used properly. There are two differences between leverage and no leverage 1. the amount the broker makes off your trades. ie. if you have 400 to 1 leverage the broker makes 400 times the spread compared to if you trade 1 to 1 where the broker only makes 1x the spread. 2. With high leverage you are given the ability to enter the market at 400x less capital than if you weren’t using leverage.
Just wanted to stop by and say I was looking for this exact thing because I use a lot of leverage on small timeframes, and so many are saying how bad this is. (I couldn’t figure why because my stop loss would kick in at 1% risk which is long before equity falls below margin used (which is when you get liquidated?))
Thanks!
Clint, I do not understand this part of your analogy.
To keep things very simple let’s use a $1,000 account at 50:1 leverage.
Trading the EURUSD for a $1.00 parity.
I do not want to risk more than 1% of my equity or $10.00
If I set my stop at 10 pips that would be a risk of $10.00.
But if I set my stop at 20 pips then I am risking 2% or $20.00.
This is the part I am not understanding with relationship to my simple example.
This is quite simple
Clint is referring to maintaining your fixed 1% risk, regardless of the stop size (in pips).
Hence, a shorter stop at the same 1% risk would use more actual leverage than the same 1% risk on a wider stop, understand?
It doesn’t matter how big your stop loss is in pips - it will always be equal to your total chosen risk, aka 1% in Clits example.
I understand that, what I am saying and exampled is that by setting you Stop other than 1% you are changing your risk. What am I missing here?
I don’t understand what you’re asking now if i’m honest - I can understand the post from Clint though. Sorry
Thanks,
the original post is2nd from the top, I am saying that if you change the Stop you are changing the amount of potential loss and to me that equates to changing the risk.
I’m sure Clint will jump in when he see the activity,
Is big leverage really a sin?
No.
complete title,
Leverage and risk based on stop loss size. Is big leverage really a sin?
Leverage and risk based on stop loss size. Is big leverage really a sin?
No.
Ok, prove it.
This image looks good to me,
if you have a trade go against you when using 500:1 leverage don’t you stand to lose at 500:1 also?
My guess is that he is not using all of the effective 1:500, but rather he has margin calculated on 1:500 maximum leverage. A subtle difference between effective and maximum leverage
In a nutshell, if 10 pips were to make me £1000, then -10 pips would put me -£1000 down, but as mentioned the margin is calculated on 1:500.
If using big leverage, then high risk tolerance also goes hand in hand.
Exactly and that is my point of all this, that ones risk tolerance is defined by the Stop.