After I read leverage tutorial I got even more confused about its implementation in my demo trading. For instance:
The tutorial clearly state that leverage is very important and higher it is faster you will lose your money. When I talk to brokers they always disagree with that saying that it is the stop loss and direction of the market to watch for and not the leverage. The higher leverage…the better.
Can someone please clarify this from their own trading experience as I have not traded yet?
Unlike stock brokers, forex brokers do not watch out for the trader(just my observation)… the more you trade the more commission they will get from your spreads
I personally dont care about leverage … think about this
If you have a 50:1 leverage
you will need 200$ to trade one regular mini-lot which equals 10,000$ and each pip will equal 1 dollar (if the quote currency is the USD)
If you have a 400:1 leverage
you will need 25$ to trade one regular mini-lot which equals 10,000$ and each pip will equal 1 dollar (if the quote currency is the USD)
But if you have a 10k in the account you will not want to trade with 1/2 of the account size anyway that would be suicide, so it does not matter if its 50:1 or 400:1 because even if you have that 10k, to trade responsibly you will not trade more then 5mini-lots
you should really understand leverage because if you dont know what you are doing you will loose it all…ALL of it…
Leverage is good whenever you have a huge capital, and you only want to risk a small amount of that money.
It can also be good if you are a little bit lucky, and understand how forex works.
It is bad if you think that the more leverage is the better if you only have a small trading margin (capital), because you might get wiped out of your position, due to margin limit. This happens whenever the market moved against your position, and you didn’t have enough money in your account to dampen the effect of that move.
Leverage works both ways. It accelerates both gains and losses.
The School is right and so are the brokers. Trading performance is not based on the leverage used. That’s just a contributory factor in that higher leverage allows for larger positions. Having a high max available leverage just allows for more flexibility.
Keep in mind, also, that the main reason that high leverage is considered a bad thing is because most people don’t use it properly.
At 100:1 leverage, it will cost you $100 to buy a mini lot.
At 200:1 leverage, you can buy that same mini lot for only $50.
And, at 400:1 leverage, it will only cost you $25.
Now, the problem occurs because someone thinks “Hey, at 400:1 leverage, I can buy 4 mini lots instead of just 1”.
What they’re not realizing is that, if and when the price goes against them, they’re now also LOSING 4 times the amount of money!
Yes, they’ll also make 4 times the profit – IF things go in their favor. But, good traders have to calculate things based on a loss situation, just in case. [B]Always think first of what you’ll lose[/B], not of what you’ll win.
One loss at 400:1 leverage can wipe out your account very quickly. It’s been done many times. Just read through some forums and you’ll see the results of that improper use of high leverage.
This statement seems to be suggesting that the margin requirement for a trade somehow has something to do with the risk of a trade. The only time that would be the case is if you intended to have the margin call, and the automatic position close associated with it, be your stoploss. Since doing so suggests that a large portion of your account would be lost in that instance (the higher the leverage used the bigger the % lost), this isn’t a recommended approach.
I want to thank all you who took the time to clarify my concern. I now much better understand the leverage so when I start my demo I will be able more confident in choosing right leverage and margin.
I’m also trying to understand charts and when traders refer to minutes, hours, day charts in their trading ,how do they use the historical chart pattern in their trading at any particular time.What exactly do they look for and how they use it in their trade?
It will answer most of your questions there. Then, once you’ve gone through the lessons, you’ll be able to build on your knowledge by asking questions in the forums.