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10:1 could be the new leverage rule
- Thread starter Surprise
- Start date
dude, this is not about being able to invest money elsewhere that would otherwise be tied up in margin. This is about not running exorbitant risks. Banks are getting limited in the amount of leverage used, and so should anybody who trades retails with >10:1 leverage. What is so hard to grasp...
Quote from Nashequilibrium:
PLS....everyone take 2minutes out your day and send an e-mail in protest to this rule. As this ruling does not makes sense at all, you can get more leverage in the futures markets......also this rule will tie up a lot of your capital which could be earning interest somewhere else, or could serve as margin when you are trading different markets. This rule will limit your ability to create a diverse portfolio with limited capital as well.
The issue is not leverage but risk management and it is an issue that these guys do not seem to understand. Even 1000:1 leverage is not an issue, if u want to risk 1% of your portfolio you can but just with less money down, everything averages out. Its different when some newbe comes and actually leverages his account by 100 or 1000 to 1, that is a disaster. The high leverage is possible because of the low trade minimums, if there where high trade minimus then leverage would be an issue but people can trade for $1 now.
Therefore they should instead advocate for education of the application of leverage as most people do not know how to use it! If this rule passes fx traders will have to jump to prop houses to get leverage and that would not be good as you can get that now with no intermediary.
all your screaming does not help, tell me trading 50:1 or 100:1 is not taking completely outsized risk. The point is, anyone trading money on such basis DOES NOT understand risk nor should be trading because he/she is not only risking his own money but on a larger scale also adding to aggregate risk in the market as a whole.
Quote from Veyron 16.4:
Really? What exactly does that mean - "over-leveraged?" Can you define what being "over-leveraged" looks like and why one definition of being "over-leveraged" can and should be applied to all traders?
LOL! They are losing money because they have not yet learned how to sustain long-term profitability in one of the markets that is the easiest to trade. I did not say An Easy Market TO Trade. I said, ONE of the easiest markets to trade.
Look, I can enter a derivative NOC contract (Option for Northrop Grumman) deep ITM at say $4.75 and be right on the direction of the market over the next 6.5 hours of trading and make a profit. But, if I enter that same NOC derivative contract deep OTM at say $0.25 and be right on the direction of the market over the next 6.5 hours of trading, I can make several hundred percent in net gains in the same time (depending on where the Greeks happen to be positioned at the time of entry).
So, whether or not I gain or lose money trading leveraged stock options, is yes, a function of the leverage being offered, but it is primarily a function of whether or not I know how to position my capital to take advantage of movements in the market, whether they go against my position or with my theoretical projection.
The difference in the currency markets is the SPEED at which things move. Once you get accustomed to the speed and you study the data of the pair or spot you are trading, the leverage becomes your friend, just like the trend. Apply good money management, know where and WHY to use a Stop Order, what Limit Level to target and WHY (answer is contained in the data of the pair or spot) and you can accelerate your net gains far in excess of what you can do for the same dollar traded in the equity options business.
Why?
Because, not only can the Greeks conspire against you during the trade, but your underlying stock is subject to taking hits from three (3) additional and unexpected sources: 1) News relative to the underlying company offering the underlying stock and 2) News relative to the Equities Markets in general and 3) An Exchange that does not want to cooperate with the theoretical direction of your trade. Combine the Greeks with these three heavy hitters and you get ultimate instability in trade accuracy over time, such that your ability to trade with accuracy using stock options is less that what it would be trading straight-up spot FX or pairs.
Why?
Because one thing above all else moves a currency: 1) Interest Rates. Thus, all you have to learn how to do, is realize how the current day's or week's Economic Reports will affect the sentiment on how the Central Bank will handle rates in its next decision. And, that's just how simple it is on the Fundamental side of trading the currency markets, it gets a whole lot easier when you become a Technical trader of the currency markets to conditionally extract a specific number of pips from the market on a routine basis without all the fear and loathing about News, Greeks, where the NASDAQ or the NYSE might go and the like.
The currency markets, more than any other that I've traded, is all about finding YOUR niche and sticking to it. This is a Technical traders delight where leverage is the name of the game - when you finally find out what you are doing here.
Show me a currency market trader that is over-leveraged and I'll show you a trader that has not yet found out the reason why they are trading currencies in the first place.
Learn the behavior of your pair - it is just that simple. Know what it likes to respond to and what it does not like to respond to. Each one has an attitude and a disposition. Learn your pair's personality. If you don't think or know that they each have attitudes, dispositions and personalities, then you don't yet understand currency trading. Take your pair out to dinner, to family reunions and bring it home to meet Mother. Better yet, marry your pair and sleep with it every single night. How else will you know when your pair is sick, has a headache, has back-pain, feeling a little under the weather - or - feels good, feels like dancing, wants to hit the street in a Veyron or tear up the highways at 254 mph. You need to know when your pair is sitting on the launch pad and ready to blast into high earth orbit and you need to know when you pair wants to go to bed and sleep. When you pair says:; "Not to night honey." Why force the issue? It makes no sense.
Get to know your pair - THAT is the answer, not derailing leverage and not whining about the 95% who fail to get to know their pair.
Show me somebody serious about trading the currency markets and that has failed, and I'll show you somebody that never truly consummated their relationship to their pair.
Get to know her and what SHE likes - NOT what YOU WANT to force her to DO! She does not like being FORCE into doing anything, just like a real Woman. Get to know her and when SHE gets ready to MOVE, then YOU move with her.
When you really get to know her, you will be able to properly anticipate when she is about to make that move, BEFORE it happens. This takes time and if you don't spend the time to understand this, then you should not blame the matter on leverage.
Now, get out there and build a real lasting relationship with your Woman! Good marriages take work. Lasting marriages take UNDERSTANDING and COMMITMENT.
Understand AND commit to learning your pair and she will reward you.
Trader b is at a huge disadvantage because 10pips is a completely RANDOM move in ANY currency pair and thus can get stopped out at any second of the day. Trading on 10pips stops is a gamble and casino and has NOTHING whatsoever to do with trading, unless you run a fully automated strategy that takes advantage of tiny moves with a STATISTICAL edge. A discretionary trader on 200:1 margin with 10pip stops DOES NOT HAVE any edge whatsoever. Thats utter nonsense. Show me ONE fx trader who can show a trading record over 1-2 years who trades on such basis and who is making money. There is none!!! The trading cost alone would be 30% of your risk on such trade. LOL...
Quote from andy9775:
Explain to me this,
There are two traders both with $10,000 accounts
trader a is leveraged at 100:1 and trader b is at 200:1. Both traders
target 100pips and both limit there risk to 2% total account size.
Trader a buys 1 lot with a 20 pip stop loss trader b buys 1 lot with a
10 pip stop loss. The position goes against both and they are stopped
out. Trader a at 100:1 with 1 lot lost 20 pips at $10 per pip gives
him $200 of his total account. Trader b leveraged at 200:1 with 1 lot
lost 10 pips at $20 per pip gives him $200 of his total account. Both
traders are thus able to suffer 50 losses prior to there accounts
being at 0. For arguments sake lets assume that the spread is included in the SL to account for the overall risk.
How is the trader with more leverage risking more? Also please do not try to ignor the question by saying that no one trades with 10 and 20 pip stop losses as this can be extended to .10 lots and 100 and 200 stop loss levels. I would also like to make note that when the financial crises hit many people who were invested in the safe stock market lost more then 2% of there accounts, mind you they weren't leveraged at all but they didnt understand the risk. That is why 95% of traders fail, they believe that they can open a position and use no or a very wide stop loss and when it gets hit there accounts are down 25% and they complain. I did the same thing, luckily I didnt blow my account and broke even, then went to demo some more.
Quote from asiaprop:
are you stupid? Sorry to be so direct but the answer is so simple I dont get why you dont comprehend: Trader b is at a huge disadvantage because 10pips is a completely RANDOM move in ANY currency pair and thus can get stopped out at any second of the day. Trading on 10pips stops is a gamble and casino and has NOTHING whatsoever to do with trading, unless you run a fully automated strategy that takes advantage of tiny moves with a STATISTICAL edge. A discretionary trader on 200:1 margin with 10pip stops DOES NOT HAVE any edge whatsoever. Thats utter nonsense. Show me ONE fx trader who can show a trading record over 1-2 years who trades on such basis and who is making money. There is none!!! The trading cost alone would be 30% of your risk on such trade. LOL...
Wow thank you for answering my question. What about the second part then trading 0.10 lots using 100 and 200 pip spreads? Is that wide enough for you? Its just an example using random numbers would you like me to pick another one? Point is risk management and leverage are separate things. Also, care to give your opinion on the last part? Its also important to note that not everyone holds there position for the entire week day or even hour. So it is you that is stupid, I asked you to tell me, with out mentioning that 10 pips is to tight why trader b is at a higher risk and you failed to do so.
Quote from asiaprop:
I trade listed options you moron, where do I trade leverage beyond what is set by the exchanges?
BTW, with prop firm I never meant shady outlets populated by guys with coffee stained shirts and slippers running around the office and behaving they are gods because they may have scored 500k in profits one year. Maybe you misunderstood....;-)
Options.....lmao - no over-leverage there
Fucking imbecil!
you still do not comprehend the issue at hand. Of course trading 0.1 lots at a 100pip or 200pip stop loss level is A LOT WISER way of trading than trading, lets say, 1 lot on like a 10pip stop. The point is that people seek leverage because they think they can make easy money in those markets which 95% of people prove they cannot. So do you really think those who set up 100:1 accounts really seek to trade 0.1 lots with 100pip stop loss levels? Please dont make me laugh. The dirty truth is that most of such guys attempt to max out their funds' leverage and thus cannot take any swings because they would get margin calls. So what options do they have: They take incredibly tight stops which most market makers and brokers just love to hunt for. Easy pray....problem is....the aggregate of all those traders add to systemic market risk. That is at the heart of regulators at the moment. And I welcome this because there is no easy money. Believe me or not, but this limitation will safe A LOT of those newbies a lot of money!!!
Quote from andy9775:
Wow thank you for answering my question. What about the second part then trading 0.10 lots using 100 and 200 pip spreads? Is that wide enough for you? Its just an example using random numbers would you like me to pick another one? Point is risk management and leverage are separate things. Also, care to give your opinion on the last part? Its also important to note that not everyone holds there position for the entire week day or even hour. So it is you that is stupid, I asked you to tell me, with out mentioning that 10 pips is to tight why trader b is at a higher risk and you failed to do so.
exactly so the issue isnt leverage its risk and education, people have a I want it now and I want to put as little effort into it to get it attitude. Wouldnt it be smarter to educate the traders rather then just stop them all together and punish those who trade .1 with 100 pips?Quote from asiaprop:
you still do not comprehend the issue at hand. Of course trading 0.1 lots at a 100pip or 200pip stop loss level is A LOT WISER way of trading than trading, lets say, 1 lot on like a 10pip stop. The point is that people seek leverage because they think they can make easy money in those markets which 95% of people prove they cannot. So do you really think those who set up 100:1 accounts really seek to trade 0.1 lots with 100pip stop loss levels? Please dont make me laugh. The dirty truth is that most of such guys attempt to max out their funds' leverage and thus cannot take any swings because they would get margin calls. So what options do they have: They take incredibly tight stops which most market makers and brokers just love to hunt for. Easy pray....problem is....the aggregate of all those traders add to systemic market risk. That is at the heart of regulators at the moment. And I welcome this because there is no easy money. Believe me or not, but this limitation will safe A LOT of those newbies a lot of money!!!