Leverage/Risk Question

[FranziskaSchulz]

Well I have seen and heard the phrase that higher leverage increases your risk, so in forex, with 1 lot volume, be your leverage 1:1 or 1:100, 1 pip loss is always the same, for example its always 10USD so how does the leverage effect your risk?! can you explain?

[Profitpilot]

Leverage affects how much margin you need to open a trade, not the pip value itself. With higher leverage (1:100), you can open a bigger position with less money, but it also means your account can blow up faster if the trade goes against you. Lower leverage (1:1) requires more capital upfront but gives you more breathing room. So, the risk comes from how much of your account you’re using per trade, not the pip value itself.

[FranziskaSchulz]

So what you are saying is that big volumes are risky not necessarily the leverage?

[Hiromi_Ishii]

@FranziskaSchulz

how does the leverage effect your risk?

I think this page may help you, Franziska :

The Relationship Between Margin and Leverage

[charlotte_daily]

Leverage doesn’t change pip value, but it lets you trade bigger with less money, meaning you can win or lose much faster. More leverage = more risk if you’re not careful!

[Franca_Bridge]

@FranziskaSchulz

how does the leverage effect your risk?! can you explain?

@FranziskaSchulz

how does the leverage effect your risk?! can you explain?

The most important and relevant thing to understand is that brokers offering leverage above 1:50 in the US or above 1:30 anywhere else are by definition the ones that chose to avoid proper regulation, and the risk there comes primarily from what that tells you about who they are, what customers they want, and how they do business, rather than from the leverage itself.

Regarding the leverage itself, it’s a confusing subject for most beginners! But fortunately, @Clint has kindly posted a lot of very helpful, simple information about leverage, here. Answering exactly your question and many closely related ones. These two links are just a “starter”!

A question about leverage

You can use any amount of leverage you desire – up to, but not exceeding, the maximum allowable leverage offered to you by your broker. The leverage offered to you by your broker is the maximum allowed by the government regulator (that’s the nominal formula amount), or a lower maximum dictated by your particular broker. In the U.S., the regulator is the CFTC, and the maximum leverage allowed (for major pairs) is 50:1 – which corresponds to 2% margin, according to the formula. Your broker can…

Leverage question

The answer to your question has two parts, a theoretical part and a practical part. In theory, it could be necessary for your broker to intervene in your account with a forced liquidation, even if you are using only 1:1 actual leverage. But, as a practical matter, it will never happen. Let’s look at both situations. In theory Because brokers require margin on every trade, it would be possible (in theory) for you to lose all of your account down to the level of the maintenance margin, at whi…

[SchmaltzHerring]

@Franca_Bridge

The most important and relevant thing to understand is that brokers offering leverage above 1:50 in the US or above 1:30 anywhere else are by definition the ones that chose to avoid proper regulation, and the risk there comes primarily from what that tells you about who they are, what customers they want, and how they do business, rather than from the leverage itself.

That’s probably the best one-sentence description of the most important point I’ve ever seen!

@FranziskaSchulz

how does the leverage effect your risk?!

A couple of very helpful replies above, obviously, and after those, this is a real expert article that may also help -

Beware of brokers offering high-leverage gifts - even if

[AnnaProbably]

@FranziskaSchulz

1 pip loss is always the same, for example its always 10USD

Exactly!

@FranziskaSchulz

how does the leverage effect your risk?! can you explain?

I think you ask a very similar thing to what I asked in a thread recently and got usual very helpful replies from @Franca_Bridge and @SovoS and others!

Beginner question - leverage and trade example

I trade cable, for example, 1 mini-lot for $1 per pip. I start a long trade, open at 1.2500, my take profit is 1.2515, my stop loss is 1.2475. If this trade is a winner, then I win $15 for 15 pips x $1, and if this trade is a loser, then I lose $25 for 25 pips x $1. It is right, so far? All of this is right if my leverage is low like 1:10, and it is right and exactly the same results if my leverage is medium like 1:50, and it is right and exactly the same results if my leverage is high like 1:…

[Jamie_Charles]

@Franca_Bridge

The most important and relevant thing to understand is that brokers offering leverage above 1:50 in the US or above 1:30 anywhere else are by definition the ones that chose to avoid proper regulation, and the risk there comes primarily from what that tells you about who they are, what customers they want, and how they do business, rather than from the leverage itself.

I think the tight leverage restrictions actually protect the traders in regulated markets from over-risking the trades. But, if a trader thinks he/she has a good risk management plan, then who’s stopping them

[FranziskaSchulz]

Thank you with all my heart; honestly this, although was totally useful and fine, but didnt answer my question specifically about Risk!

[FranziskaSchulz]

thank you, so if you are able to control your trading activities and do not open too much trades at the same time, your risk is fine regardless of your leverage?

[FranziskaSchulz]

@Franca_Bridge

The most important and relevant thing to understand is that brokers offering leverage above 1:50 in the US or above 1:30 anywhere else are by definition the ones that chose to avoid proper regulation

honestly this is the 20th comment I see by you mentioning this very same thing!. thank you for your comment; but please, ok we did get this, repetitive information gives me, and a lot of other readers headaches. none of the information you mentioned actually answers my question!

[FranziskaSchulz]

I think you are the only one here understanding my question!

[FranziskaSchulz]

When you are in a forum you MUST learn to either not start a conversation or to finish that.

I like communicating with people who are here to really help others not to provide false and totally base-less information! EITHER LEARN THE CALTURE OF USING FORUMS OR DO NOT USE THEM!!!

[Melaine5678]

I think the key takeaway here is that while it amplifies potential gains, it also magnifies risk, which is why proper risk management is crucial. Many new traders get lured by high leverage without fully understanding how quickly losses can add up.

[Slonce]

Talking about myself I se a mix of dynamic position sizing and volatility-based stop-loss orders to keep things in check. Out of curiosity, how do you typically set your stops when trading with high leverage.
Do you lean towards ATR-based levels, fixed percentages, or another method?

[Ethan.ishere]

I totally get where your confusion about leverage comes from. Even though 1 pip on a 1-lot position is generally around $10 no matter if your leverage is 1:1 or 1:100, the real impact of leverage shows up in how much capital you must put in—and how easily you can overextend yourself.