Thread: Questions about leverage...

Sorry for the utter ignorance of those questions but I just cant seem to get my head round leverage and how it works, I understand that its a way of'borrowing' money so that you may trade with more money than your really capital, however...

1) Is it possible to nearly/completely wipe my account with one bad transaction or on the other extreme, create an entire killing on one great transaction?
2) Do you need to use leverage? Is it necessary to become profitable in the long run?

Could somebody explain it please I just cant seem to get my thoughts around it.
Due

From book meaning of leverage is being able to control a lot of cash utilizing none or nearly no of your cash and obtaining the remainder. When you put resources into a leveraged thing, the provider will ask you to establish an aggregate talking to just a small amount of the aggregate estimate of your own position. For instance, to control a position that is $100,000, your broker will set aside $1,000 out of the document. Your leverage, which is communied in proportions, is currently 100:1.

Originally Posted by ;

From publiion meaning of leverage is having the ability to command a lot of money utilizing not or nearly no of your own cash and acquiring the remainder. When you place resources into a leveraged thing, the supplier will ask you to set up an aggregate talking to only a small quantity of the aggregate estimation of your position. For instance, to control a $100,000 position, your broker will set aside $1,000 out of the record. Your leverage, which is communied in proportions, is currently 100:1.

You're right Hugelee; you're right! By the way, which leverage do you prefer to use on your trading?

Originally Posted by ;

1) Is it possible to nearly/completely wipe my account together with just one bad trade or on the other extreme, make an entire killing on one great trade?
2) Do you need to use leverage? Is it needed to be profitable in the long term? Could someone explain it please I just cant appear to get my thoughts around it. Thank you

1. Yes
2. Grey region. The larger account size - the less leverage you're going to want. 10 percent per year on 1000 account - not worth the annoyance. 10 percent per year on 1 million - lifestyle. So the account requires larger leverage simply to see reasonable return in precisely the same time pushing you risk much higher.

My personal way to leverage. I'm conservative trader and utilizing ~5:1 leverage. So with 10000 account standing size it would be ~0.5 lot. I would need to keep all my money with a broker. As conservative trader with this kind of leverage - 10% loss is uncommon. At least for me personally
So - I maintain just 2000 with broker and utilizing 100:1 leverage. In the event of black swan occasion I'm risking just 20 percent of my initial capital and rest of the money safely sitting in my bank account. Even if account size falls to 500 - I can open position of 0.5 lot you need to be prepared mentally for some larger swings in you account, but in the end I'm trading with my 10000, not with 2000.
For some people it doesn't work as they believe 8000 needs to spent someplace else - that means they simply increasing general leverage.

Originally Posted by ;

Sorry for the sheer ignorance of those questions but I just cant appear to get my head around leverage and how it works, I know that its a way of'borrowing' money so that you may exchange with more money than your really capital, however... 1) Is it then possible to nearly/completely wipe my account with one poor trade or on the other extreme, make an entire killing on a single good trade? 2) Would you need to use leverage? Is it necessary to become profitable in the long term? Could somebody explain it I just cant appear to receive my thoughts around it. Thanks

According to me, leverage is not a bad thing; I utilize this trading attribute in order to my trading program and system! It will help me a lot!