Hi,
I’ve heard mixed things regarding leverage. What are people’s views? Is it best to use as little leverage as possible? Or is it useful to be able to use a slightly larger “amount” of leverage?
Thank-you!
[B]The leverage you use[/B] should never be a concern. You should never even have to think about it.
If you exercise proper money management, by pre-determining your level of risk, and then making your position sizes conform to your risk parameters — actual leverage used will take care of itself, and [I]you needn’t even wonder[/I] whether you are using 1:1, or 5:1, or 20:1 actual leverage.
[B]The maximum allowable leverage offered to you by your broker[/B] is another thing altogether. It’s a [I]limit[/I] on what you are permitted to do — sort of like the credit limit on your credit card.
Whether your broker offers you 100:1, or 200:1, or 500:1 maximum allowable leverage, he is merely setting the [I]required margin[/I] level on your trades. He is not telling you how BIG to trade — in other words, he is not telling you how to do your money management, how to establish your position sizes, or how much actual leverage to use.
You can have an account which allows you UP TO, say, 1000:1 leverage, and with that account you can trade various size positions, from tiny to huge. The leverage you actually use can be anything, from LESS THAN 1:1 up to the 1000:1 limit.
If you use way too much leverage, by unwisely trading positions which are way too large, then your broker will gladly pocket your busted account, and turn his attention to other unwise traders.
On the other hand, if you use leverage wisely, the high maximum allowable leverage offered by your broker will benefit you in this way: The portion of your money which your broker will set aside in the form of required margin will be negligible. And that’s a good thing, because it leaves almost all of [I]your[/I] money in [I]your[/I] hands, to use as you see fit.
Example: if your broker offers you 1000:1 maximum allowable leverage, he is requiring only 1/10 of 1% margin on each trade (that’s just $100 margin on a $100,000 position). By contrast, if maximum allowable leverage is only 50:1 (as it is in the U.S. and soon to be in the U.K., as well), then required margin would be 2% (which is $2,000 on a $100,000 position).
I’ve said previously on this forum, that I would gladly accept 10000:1 maximum allowable leverage, and the [I]almost-zero margin[/I] that would be associated with it. And I would continue to figure my position sizes based on my risk parameters, without regard for how much actual leverage I was using.
It’s possible (but, highly uncommon) for a broker to de-couple required margin and maximum allowable leverage. In jurisdictions where margin and leverage are not dictated by regulators, a broker can establish whatever maximum allowable leverage he feels is prudent, and then set required margin at any level he chooses — even making is ZERO — without regard to the usual “formula” relating leverage to margin (required margin = 1 / maximum allowable leverage). At one time (and, maybe, still) there was a broker called YouTradeFX which imposed a maximum allowable leverage limit, but required ZERO margin on trades. Please note: I did not, and do not, recommend that broker.
.
1 Like
having leverage and margin requirements is different than leverage in use , if everyone know this then really no need anyone views 
:35:
As for what you say you can find many forex trading blogs that will inform you about the benefits of leverage. However, maximizing your trading profit is about how you manage the leverage available to you. When applied in the right situations, it can greatly increase your profitability as a merchant.
Leverage trading can be a wonderful asset to your trading career, and it will really help you improve your position in the forex market. Once you have understood the best situations to apply and the leverage limitations, you will be in a good position to trade with a high degree of success.
You’re just a Bot - aren’t you ?
I always use 1:500 personally. Just personal choice.