I have seen a couple of studies that claimed that was the ideal range. Here is one that's worth looking at:
http://ddnum.com/articles/leveragedETFs.php
Ideal leverage?
- Thread starter julie_flower
- Start date
I have seen a couple of studies that claimed that was the ideal range. Here is one that's worth looking at:
http://ddnum.com/articles/leveragedETFs.php
Don't be afraid a big leverage, 1:2000 allows you to trade with little sum.
Leverage boosts up the trading amount. Higher the amount-higher are the chances to make profit, but there are always two sides of a coin. High leverage brings along high probability of risk which can affect the trading strategy adversely. So as per me ideal leverage should be between 50x to 100x.
Very true, opting for a desired amount of leverage is individual’s own choice. However, one must understand before, the concept of leverage and what all pros and cons are attached to it, then only decide the amount of leverage. Usually more professional traders prefer to trade at 100x leverage.
Leverage should ideally be volatility dependent, which is time frame dependent.
So the key inputs to determine leverage are:
1) maximum capital at risk
2) volatility measure
Here's an example (assuming only trading 1 position at a time):
. risking maximum 1% of account per trade
. $100k account
. means risking max $1000 per trade
. lets say we are trading EURUSD
. lets say we use the 60min chart
. lets say we pick the 20EMA ATR as volatility measure, currently at 0.0016,
. and lets say we use as stop such ATR x3
. that translates into 48 pips stop
. which translates into $480 stop for every EUR 100,000 trade.
. then $1000 / $480 = 2.08
. thus under this approach one should trade EUR 208,000 on a EURUSD trade
. which would represent leverage of 2.08 * 1.1186 = 2.33
My ideal leverage is in the 1:1-5:1 range. Think about finding your ideal leverage going through an analysis similar to the one presented above.
Cheers
So the key inputs to determine leverage are:
1) maximum capital at risk
2) volatility measure
Here's an example (assuming only trading 1 position at a time):
. risking maximum 1% of account per trade
. $100k account
. means risking max $1000 per trade
. lets say we are trading EURUSD
. lets say we use the 60min chart
. lets say we pick the 20EMA ATR as volatility measure, currently at 0.0016,
. and lets say we use as stop such ATR x3
. that translates into 48 pips stop
. which translates into $480 stop for every EUR 100,000 trade.
. then $1000 / $480 = 2.08
. thus under this approach one should trade EUR 208,000 on a EURUSD trade
. which would represent leverage of 2.08 * 1.1186 = 2.33
My ideal leverage is in the 1:1-5:1 range. Think about finding your ideal leverage going through an analysis similar to the one presented above.
Cheers
