Leverage - it's not always a double edged sword!

#1

Hello, I am new to forex and just completed the babypips school and I’m interested in learning price action. I have a query regarding leverage and using a 2% capital risk per trade.

Am I correct in saying that the leverage I choose to open an account with does not matter if I use a 2% risk on each trade. In fact it would be better for me to opt for the largest leverage possible so that my margin requirement is less.

This has been on my mind for some time and can’t find any website that can seem to answer this question.

Thank you for your help in advance,

lmccormick

#2

Absolutely correct. One more advantage of higher leverage is the ability to increase your positions considerably once they are in profit and your stop loss is above break-even. You could then be trading many more lots totally risk free with a much bigger upside potential.

#3

hello, everything you said is correct. go for the largest leverage … you can usually change it later anyways.

#4

With that being said, don’t go with the brokers who advertise 2000:1 leverage just because they have huge leverage. They’re all bucket shops, and you’ll never see a penny back from them if you request a withdrawal.

#5

You are absolutely right. Leverage of thing is not always necessary but it gives us the chance to secure large position in the market when there’s no sufficient capital to open the position. For me, I’m enjoying the leverage my broker is offering from 1:1 to 1:500 without inquiry and you are free to use any amount of leverage you wish to use any time you want.

#6

But we must understand the risk too. We must be ready with the risk if we use high leverage and big lot size when trading. We will feel the advantages of leverage if we can maximize leverage as well as possible.

#7

Stop Loss above break even = profit. There is zero risk if you increase the position size and you are still in profit. Absolutely zero risk.

#8

Right, Because whether high leverage or not, our margin is very important that is why we don’t have invest funds we can’t afford to lose for the market is full with risk, unless you don’t want to stay in the market for long.

#9

Absolutely. As long as you remain with your risk profile you will not feel any negative impacts by leverage. Leverage is a great tool and only fools think it damaged the financial system. You may have to adjust your lot size or your SL, but leverage is never a bad thing if used properly.

#10

I’m Brazilian, I’m sorry for my English, but come on, it depends will depend on your technique, if you rely on leveraging with a single asset it makes perfect sense to think like that, because the stops are instantaneous (except for some disasters, like FXCM x SNB, so be careful, the breakeven point is related to a study of the history of the asset, in the case of CHF financial irresponsibility is the source), but when you are working with investing in many assets at the same time and a sudden drop reaching the margin, your broker can treat this as a queue, thus creating spaces of time, in these spaces the assets can keep moving until they reach the bottom of the queue if this happens until then the loss value will be greater than the margin, the Stop Out Level, this can be a problem, if the technique is that care must be added

#11

Well to some extent leverage doesn’t matter. For instance if your trading capital is 1000 USD, 2% per trade (for the first trade) will be 20 USD.

The next step is to determine pip value of your trade, to calculate how many pips you can survive (max drawdown) for example. If your pip value is 1$ obviously you can survive 20 pips (20/1).

The lot size in this case will be 10000 units of base currency (0.1 lot). Obviously again, if your leverage will be less or equal than 1:10, you won’t be able to open position.

Using 1:100 leverage will clearly reduce margin requirement, but it doesn’t matter as the pip value will stay the same, so you will be losing or winning money at the same speed.