I wouldn’t say i’m a rookie but I also wouldn’t say i’m a pro, just average I guess.
I wonder, what’s the problem with using crazy amounts of leverage (like 1:200) when using a stop loss ? You will cap your losses and yes it will be huge (when compared to your losses if you didn’t have the leverage) but when taking your profits into the picture they will counteract with eachother if you are a break-even trader and if you are a 60/40 trader you will be winning… alot.
So basically, what im trying to say is that I feel like there is no problem with using alot of leverage if you know where to put your stop loss(or use a stop loss)? Any things i’m overlooking making me look like a fool? Sorry for the rant I just see a lot of information online saying " LEVERAGE C-CAN KILL YOUR ACCOUNT!!!", and don’t worry I understand the idea of if you have a bad month with crazy leverage you can lose a lot of your account. So, anything else?
The markets do not move in straight nice lines, especially Forex (it was the hardest part to learn when going from index to FX trading; the noise).
If you have a lot of noise a tight stop loss will get triggered for the wrong reason, not because you are wrong about the trade but because randomness.
If you have high leverage you need a tighter stop loss to not risk a huge percent of your account, and this means much more stop loss triggered by noise.
Edit: one way to counter that is to reduce your lot size, but if you are just starting out and maybe trading one lot you cant go any lower.
To be honest it doesn’t matter what the maximum leverage is on an account and what leverage you actually employ in a position - as long as you have an agreed maximum risk per trade; as you said by using a SL.
The advantage to having higher maximum leverage is that you have more free margin to use on other trades, providing your maximum open trade exposure is also at a sensible level.
With that being said, leverage used is a by-product of your notional position size against the amount in your account. If you don’t use a stop loss and you’re position size is too big then you’re going to get burnt rather quickly. The higher the maximum allowable leverage the bigger you can make this position.
The bottom line here is that you just have to be sensible - as it is in the UK we are now limited to 1:30 maximum leverage on retail accounts (should you want a UK broker, which for regulation reasons I’m happy with)
@JagaFaglar
I understand your points however I trade on the 1D chart so noise wont affect me as much as someone trading on 5m, and lets say I use 100 pounds on a trade with a stop loss with 2% of my account at risk which is normally 100 pips lower(normally my exit indicator gets me out much before then).
So my point is, I use a very small amount in reply to the bigger losses (due to big leverage) which in return allows me to put my stop loss at a level where it wont be hit in a day under normal circumstances.
@BaconSandwich
Yes, I get your point and this is one of the main reasons I use it as normally I deal with about all major pairs and am in a trade with around 5 at every moment, and due to having alot of margin leftover, I can jump into another straight away
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