If I want to expose myself to very low risk, say, 20:1, are there online brokers that allow this low? What is the typical minimum leverage (if there is one)?
Thanks!
It’s totally up to you how little you want to risk regardless of leverage, leverage in effect only acts as a maximum.
To extend purple’s response, you’re thinking in terms of permissible leverage determined by your broker, when you should be thinking in terms of the actual size of your trade (leverage you use). The latter is really the only thing that matters.
Great answer on leverage courtesy of Clint:
http://forums.babypips.com/newbie-island/41836-leverage-position-sizing.html#post297878
Just another version:
Go with the highest broker leverage you can get (as this is the max.) and with a trade lot size what doesn’t get above your 20:1. Your [U]lot size[/U] is the real leverage. No matter if your broker leverage is 1000000000000000000000000000000000000:1.
Good morning.
Nothing personal here (and I’m sure I don’t even have to say that to YOU Mr. Gecko) but I’ve yet to see worse advice given to a new trader (with regard to leverage anyway).
By the way Mr. Gecko: are you sure you didn’t leave off an additional zero there??? LOL!!!
Sorry but here’s leverage ‘for what it is’:
Leverage is a ‘tool’ afforded traders by brokers to all but ensure that they overtrade their accounts. Whether this happens in the first trade or after six months??? The broker is prepared to take that risk. Given the statistics: there is a 70% - 95% chance that this will happen eventually. Why??? Because only 70% - 95% of us human beings are capable of CONSISTENTLY managing risk i.e. risking only 2% of their capital (preferably less) on EVERY SINGLE trade FOREVER and EVER and EVER. Those that can mange their risk on EVERY SINGLE trade FOREVER and EVER and EVER without so much as ‘screwing up’ EVEN ONCE are those that fall into that ‘elite 5% category’ that actually ‘make it’ in this business.
The point is this:
Leverage has nothing at all to do with risk management or $ value per pip movement. It doesn’t matter whether you’re trading with 50 000:1 leverage or 1:1 leverage: if you open a position of 10 000 units of EUR/USD you’re making or losing $1 per pip movement. Where leverage DOES make a difference is how much of your capital is ‘tied up’ while that position is open. Extrapolating further: it follows that the lower your leverage the more capital you need to open and maintain that position and the LESS positions you can have open at any given time. Bottom line: the lower the leverage offered by a broker (or selected by a trader) the better your ‘protection from self’. What it basically ‘boils down to’ is this: ‘if you cannot pay you cannot play’ (with little to no leverage). Leverage, no matter how you ‘dress it up’ or ‘sugar coat it’, is credit. So think about the logic here: your broker (especially if your broker is also a market maker) is ‘lending’ to you the ‘shortfall’ required to open a position (let’s say at 200:1). So they’re ‘lending’ YOU money so that you can use THEIR money to TAKE money from them (assuming that you’re profitable)??? Well I don’t know but that sure doesn’t sound like ‘good business sense’ to me. NOT UNLESS they’re ALMOST sure (70% - 95% sure that is) that you are GOING to ‘fu*k up’ (because of high leverage) at SOME point JUST BECAUSE YOU CAN and JUST BECAUSE YOU ARE HUMAN at which point they get their money back AND yours (your capital).
Don’t get me wrong: little or NO leverage while still being a bad trader and not being able to discipline yourself and manage risk on EVERY trade doesn’t mean that you’re going to be profitable. But it WILL take you a LOT longer to wipe out a trading account (and hopefully before that happens you will have learned much about yourself, grasp and implement risk and money management and apply it on EVERY trade FOREVER).
There’s another ‘101’ more reasons I can give you to justify my response above but I’ll save those so as to include them in my ‘retorts’ to the inevitable ‘arrows being shot at my back’ posts that are bound to ensue from this point.
Regards,
Dale.