Are you a successful at home day trader with no other source of income who began with modest means?

[VPhantom]

I also do not get why using the leverage is a negative thing as long as you stay within risk norms.

Exposure to force majeure risk. Everybody would use high leverage if it was as easy as setting and forgetting a stoploss order.

Quick example with easy round numbers: with a normal stop level of -1% of the instrument, maybe the worst slippage encountered is say net -1.5%. On 10:1 leverage (conservative by FX/futures standards) that's still a manageable -15% on equity, just a horrible day. If some crazy news hits which completely eliminates liquidity down to -20% of your entry, on that leverage you're looking at -200%: so a $100K balance allocated at 10:1 for a $1M position just became -$100K in the blink of an eye, where the stoploss (which is a market order) finally got executed. Broker will collect. Best case you're with a market-maker like Oanda or FxPro which contractually forgives negative balances (thanks to B-booking), and you're just out 100%, still a very bad day. ops:

Granted, it very rarely happens, and you have to be exposed exactly at the wrong time, but rarely isn't never. With leverage, we do not have the absolute guarantee that we will still be able to trade tomorrow; we're gambling on the improbability of our stops getting executed 20x further from our entry than we anticipated.

(Although when I say leverage, I mean on one's entire net worth, not on the equity which happens to be parked at a given brokerage account to satisfy margin requirements. In the example above if say you're worth $200K, with $100K of that at the broker, net you're now flat broke. No debt at least, but you're now jobless.)

 

[d08]

Exposure to force majeure risk. Everybody would use high leverage if it was as easy as setting and forgetting a stoploss order.

Quick example with easy round numbers: with a normal stop level of -1% of the instrument, maybe the worst slippage encountered is say net -1.5%. On 10:1 leverage (conservative by FX/futures standards) that's still a manageable -15% on equity, just a horrible day. If some crazy news hits which completely eliminates liquidity down to -20% of your entry, on that leverage you're looking at -200%: so a $100K balance allocated at 10:1 for a $1M position just became -$100K in the blink of an eye, where the stoploss (which is a market order) finally got executed. Broker will collect. Best case you're with a market-maker like Oanda or FxPro which contractually forgives negative balances (thanks to B-booking), and you're just out 100%, still a very bad day. ops:

Granted, it very rarely happens, and you have to be exposed exactly at the wrong time, but rarely isn't never. With leverage, we do not have the absolute guarantee that we will still be able to trade tomorrow; we're gambling on the improbability of our stops getting executed 20x further from our entry than we anticipated.

(Although when I say leverage, I mean on one's entire net worth, not on the equity which happens to be parked at a given brokerage account to satisfy margin requirements. In the example above if say you're worth $200K, with $100K of that at the broker, net you're now flat broke. No debt at least, but you're now jobless.)

That's unreasonable risk to begin with in your FX example. I guess that's why I stick to equities. If one of my positions goes to 0 in a day with no market to triggers stops, I will still be alright, I'd even be alive if it happens to 2 positions. That's an unlikely scenario that has never happened in the past few decades but I guess you never know.
I'm not sure if I'd even trade without leverage.

EDIT: you also disregarded the fact that you can have 10 losing trades in a row, which would expand the drawdown quite a bit!

 

[i am nobody]

I think you should first watch where you put your stop and only secondly what leverage you will use.

If I put my stop at 0,15%, I can take a fairly big leverage. If I use a 1% stop my leverage should be much lower. If you compare these two examples, I can take a 6.66 leverage and have the same loss when stopped out as a 1% stop without leverage.

But before knowing where to put my stop I should also know if I will not be stopped out all the time because my stop is too close. I should not try to take the cheapest price, but I should take that price that gives me maximum chances not to be stopped out. This price can be xxx % away from the highest or lowest price.

The tricky thing is that you should try to find the optimal combination of entry, stop and leverage.

 

[VPhantom]

That's unreasonable risk to begin with in your FX example.

I was merely illustrating how commonly-used leverage levels were already pretty risky in the unlikely but not impossible event of forced liquidation when nobody out there wants your position. I can't imagine AAPL or NQ dropping 50% in half a second, but it's theoretically not impossible.

If I put my stop at 0,15%, I can take a fairly big leverage.

In everyday market action, absolutely. It's what I do too; I vary size according to stop size (which fluctuates based on market structure) in order to keep risk constant. My point wasn't about normal markets though, but about flash crashes and blindsighting events, etc.

I do use leverage, I'm just aware of the fact that, by definition, it makes us vulnerable far beyond our calculated theoretical risk level if something goes horribly wrong. So in the back of my mind I know that as I'll become better capitalized I'll be reducing my use of leverage to reduce that risk long-term, and that in the mean time I'm gambling on the improbability of a force majeure hitting my account.

 

[prc117f]

To earn a living trading 150k you would need to make 70-80k a year consistently. That would mean a 53% Annual return on 150k consistently.

Which I find a bit hard to believe unless you are taking excessive risk via leverage, then it just means it is a matter of time before you blow out your account.

 

[Jakobsberg]

To earn a living trading 150k you would need to make 70-80k a year consistently. That would mean a 53% Annual return on 150k consistently.

Which I find a bit hard to believe unless you are taking excessive risk via leverage, then it just means it is a matter of time before you blow out your account.

I am glad you know your trading limits and inability to handle leverage but please don't assume everyone is like you and not everyone blows up. Some people actually know what they are doing. As a quick example, how are you going to blow up if you only leverage up on winners and have stoploss at breakeven?

I think you earlier said you trade equities with 10% leverage. So how much do you know about trading options or futures? Seems like you are just making assumptions based on your own limited experience. I agree that a long term 53% return on unleveraged stock is pretty unrealistic but who says you need to attempt that with so many other possibilities with much better probability of success.

 

[Occam]

Some people actually know what they are doing. As a quick example, how are you going to blow up if you only leverage up on winners and have stoploss at breakeven?

EUR/CHF on Jan 16, 2015

With the possible exception of some futures (and I am not talking about offsetting positions here which aren't "leveraged" de facto), any tradable instrument can bankrupt a sufficiently leveraged trader in an instant. That said, I agree that leverage can be used pretty safely for those who "know what they're doing"; but even they must acknowledge the possibility of bankruptcy, however remote; if they don't, they are risking a nasty surprise.

 

[Turveyd]

To earn a living trading 150k you would need to make 70-80k a year consistently. That would mean a 53% Annual return on 150k consistently.

Which I find a bit hard to believe unless you are taking excessive risk via leverage, then it just means it is a matter of time before you blow out your account.

Surely it depends on how good you are and your method, I can hit $150 per day, which is enough for me to live off, in 1 trade about 5mins average with a 5k account.

Been part supporting my failing business for a while, which is why I'm stuck on 5k to many out goings.

Trade the account upto 20k area end of April, aim for $500 per day average and close business ( trying to not take any out till then )

 

[Clubber Lang]

To earn a living trading 150k you would need to make 70-80k a year consistently. That would mean a 53% Annual return on 150k consistently.

Which I find a bit hard to believe

150k = 600k buying power in a retail account.

12% gets him to 72K.

 

[Jakobsberg]

S

EUR/CHF on Jan 16, 2015

With the possible exception of some futures (and I am not talking about offsetting positions here which aren't "leveraged" de facto), any tradable instrument can bankrupt a sufficiently leveraged trader in an instant. That said, I agree that leverage can be used pretty safely for those who "know what they're doing"; but even they must acknowledge the possibility of bankruptcy, however remote; if they don't, they are risking a nasty surprise.

Sure each leveraged trade could go bust, but you dont need to leverage the whole account to get high equivalent underlying or use instruments which can go negative in a big way like CHF positions did. Buying options or leveraged certificates is an easy way to get leverage and wont go negative.

Not using leverage will also not prevent you going bust if you dont know what your doing e.g. all in on micro cap.