Straightforward enough, I believe I got it, thank you !!Originally Posted by ;
Straightforward enough, I believe I got it, thank you !!Originally Posted by ;
Yes, 400:1 is much far better than 100:1 if you can handle your greed and trade.
However, you do not usually earn swap/interest at 400:1.
I attempt to wrap up what everybody else stated with a couple illustrations:
In these examples assume your base currency is USD and and your current balance is $10,000. Moreover, you receive a margin call if your margin drops under $500.
Higher Leverage and Money Mangement
Higer leverage without cash management is a real killer. If you choose to exchange GBPUSD long and the current price is 1.9000:
(A) With 100:1 you will purchase 4 standard lots and have 7600 of your margin (4*100000*1.9/100=7600).
(B) With 400:1 you can purchase 16 lots and have the same quantity of your margin (16*100000*1.9/400=7600).
If (A) each pip prices you 40 (i.e. 1pip*$10) while in case (B ) ) each pip prices you $160. Now if the price falls to 1.8983 in case (A) that your free margin drops to $1720 (i.e. you have dropped $680). You have lost a significant sum of money but you are still in the game. If (B) you lose $2720 (17pips*$160) and your free margin falls below zero ($7600 $2720gt;$10000). Your broker stops out you and you are out of this game losing over 27 percent of your account in a single transaction and just with a 17 pip movement.
With Money Manegment You Usually Don't Care about Leverage
in case you have MM rules set up you usually use position sizing and risk a particular quantity of your cash. For instance you choose to set VAR (Value At Risk) to be 5 percent of your account dimensions (i.e. you risk $500 of your account balance per transaction ).
With this system in place if your stop loss is set to become 50 pips from your open price you won't trade more than 1 lot. Because with 1 lot every pip will cost you $10 and 50 pips is $500 or 5 percent of your account.
Now if you have a leverage of 400:1 or even 100:1 you just buy 1 lot. But with higher leverage you have less margin (i.e. $425.00 vs $1900.00 in the event the price of $ GBPUSD is 1.9000). However, as far as you are away from margin call it does not really matter, does it?
Higher Leverage will help You Trade More Currency Pairs (or have more Open Trades)
One of the approaches which you can lower your odds of loss would be to exchange several pairs at the same moment. In this case a higher leverage is really helpful. By way of instance if you exchange 1 lot for every pair with 100:1 and $10000 account balance you might not be able to exchange more than 4 or 3 transactions but using 400:1 trading 4 or more pairs at the same time is not a problem.
The same situation is true if you decide to have several trades open at the same moment.
Conclusion
The most important thing is that higher leverage can be utilized as a winning tool in the hand of a professional trader but be a killer if used by a novice trader.
Great Luck,
Al
. . .okay I got margin called on a good commerce, using 100:1 leverage onto a matchOriginally Posted by ;
platform out of fx sol. When I'd used 400:1 instead the thing is I would of profited. . .here's the math;
equilibrium = $4.222.37
x20 lots= 3960.50(I acknowledge that is foolishly
large ), but my point is I'd of remained in the game when the margin was higher. I had been attempting to get some ground, but 100:1 might not permit me.
With this mindset if you get a greater leverage you may trade more number of lots.Originally Posted by ;
Greater leverage generally narrows your stop loss. If your trading method revolves round prevent losses higher leverage is a tool.
Thank you Yoda, but if you don't mind explaining this to me in greater detail, I don't see how leverage has an effect on my stops.Originally Posted by ;
Sorry if I don't get it right away....
But I love your help.
Thank you.
For people following this thread I urge you to jump across to the ribbon on Discovering risk - this is about how to set your gearing variable to maximise riches whilst minimising your odds of blowing your account based on the numbers of your system.
As some individuals have said on this thread, it is not whether 400 is better than 100 it is what is right for your platform - the aforementioned thread will explain to you how to determine this variable.
Really the leverage doesnt come into account.
When you have a stop of 25 pips, and you are betting 1 total lot that's 10$ a pip then you are risking $250. Thats all you need to be worried about is how much money you're going to loose on a trade, the leverage really doesnt matter.
Only thing higher leverage does is enables you to bet an insane amount each trade. You dont need that much leverage. Say that your bankroll is $1000 and you were going to bet 20 percent of your account per commerce and you had a 10pip cease on euro so $10 a pip for a complete lot.
1000*20% = $200 for risk / 10 pips = 20 a pip risk / $10 a complete lot = 2 lots
in order to buy 2 lots with 1000$ you would need to get a complete lot for 500$.
Full lots = 100,000$ / 500$ 200 or 200:1 leverage.
As you prolly know trading 20 percent of you account implies you have an amazing system or you are completely mad, so even if someone is trading mad they'd be hard pressed to need 200:1.
A realistic example is: say your bankroll is $1000 and you were going to bet 3% of your account per trade and you had a 20pip cease on euro so $10 a pip for a complete lot.
1000*3% = 30 for risk / 20 pips = $1.50 a pip risk / $10 a complete lot = 0.15 lots
in order to buy 0.15 lots with 1000$ you would need to get a complete lot for 6,666.66$.
Full lots = 100,000$ / 6,666.66$ 15 or 15:1 leverage.
So in the end, if you've 200:1 and You're trading and think, dern I wish I had 400:1, you might reconsider your trading plan
I am afraid I have to disagree - it is not what you will likely lose on a single trade, it is just how much are you going to lose through the worst drawdown you're system is likely to endure after a poor sequence of trades. Backtesting over years of historic data will give you an idea of the biggest expected drawdown, which allows you to compute what leverage you can afford before heading when that drawdown occurs.Originally Posted by ;
Trading even 100:1 ensures that if your worst sequence of trades increases a 1 percent drawdown - i.e a drop of state 132 pips in your gathered profit on eurusd will lose you all your capital. 400:1 equates to a 31 pip autumn and you're gone!
Or am I overlooking something here?