Leverage beyond 1:100?

[cabletrader]

Quote from euclid:

Risk is the number that matters, but it is closely related to leverage and if you are using high leverage, you need to be sure you have calculated your risk.

Well of course you've calculated your risk, it was the first calculation you should have made! The leverage you used is a by-product calculation and isn't important.

Come on guys, this isn't rocket science

Here an example for those having difficulty understanding the concept.

Let's say I have equity of $10k and I don't want to risk any more than 1% on my next Eur/Usd trade, so that's $100 I'm prepared to risk. My analysis tells me that if price moves 25 pips against me then the trade is wrong so I'm going to set my stop loss for the trade at 25 pips. $100 which I'm risking, divided by 25 pips, equals a pip value of $4 per pip. Trading Eur/Usd at $4 per pip means a trade size of 40k

Equity: $10k
Risk: 1% - $100
Pair: Eur/Usd
Stop Loss: 25 pips
Pip value: $100/25pips = $4 per pip
Trade size: 40k

Nowhere in those calculations was it necessary to work out how much leverage I was going to use before I placed the trade, I don't need to know what leverage I used, it's not important.


I don't know how many other ways there are to explain it, really I don't......

 

[fluttrader]

Quote from cabletrader:


Equity: $10k
Risk: 1% - $100
Stop: 25 pips
Pip value: $100/25pips = $4 per pip
Trade size: 40k

Nowhere in those calculations was it necessary to work out how much leverage I was going to use before I placed the trade, I don't need to know what leverage I used, it's not important.

I don't know how many other ways there are to explain it.......

another example :

Equity: $10k
Risk: 5% - $500
Stop: 5 pips
Pip value: $500/5pips = $100 per pip
Trade size: 1million

You are assuming GUARANTEED execution at your stop , assume the market blows through your stop and you get executed 45 pips lower than your planned stop > loss = 50 pips*100 = $5000

You planned to risk only 5% BUT you lost 50 % on that trade

Now say again that leverage doesn't matter ...

(high leverage is a typical bucketshop marketing tactic, remember they are on the other side of your trade > the higher the leverage the less they have to manipulate the price to pocket your money)

 

[fluttrader]

Quote from euclid:

When calculating risk, you have to take the worst case. The worst case is a market gap against you. Say it gaps 100pips against you. It doesn't matter if your stop is -5pips or -50pips, you get filled at -100pips. There's a reason why brokers don't base margin calculations on where your stops are. They know stops mean diddly when it comes to real risk.

I like to move my stops to b/e as soon as I can which makes the risk calculation very simple. Since fx is a very liquid market, I assume maximum gap is a 1% move (I don't hold over the weekend), so my risk on a b/e position is 1% x leverage. I don't want to risk more then 50% of my account on such an event so I would use a maximum of 50x leverage.

I'm not saying it's wrong to use higher leverage than that. Different traders may use different assumptions in their risk estimation. Risk is the number that matters, but it is closely related to leverage and if you are using high leverage, you need to be sure you have calculated your risk.

Exactly, some people here are living in an idealistic world of guaranteed stops, I have never heard of any professional trader trading size with more than 10:1 leverage

 

[cabletrader]

Quote from fluttrader:

another example :

Equity: $10k
Risk: 5% - $500
Stop: 5 pips
Pip value: $500/5pips = $100 per pip
Trade size: 1million

You are assuming GUARANTEED execution at your stop , assume the market blows through your stop and you get executed 45 pips lower than your planned stop > loss = 50 pips*100 = $5000

You planned to risk only 5% BUT you lost 50 % on that trade

Now say again that leverage doesn't matter ...

(high leverage is a typical bucketshop marketing tactic, remember they are on the other side of your trade > the higher the leverage the less they have to manipulate the price to pocket your money)

Leverage doesn't matter, there, I've said it again!

For aggressive compounding (and therefore use of high leverage) I don't assume my stop will get filled at the requested price, I'm guaranteed it will get filled, no slippage, no exceptions, not even 500 pip gaps on NFP!

Fluttrader, you'll need to try harder than that to catch me out my friend

 

[cabletrader]

Quote from fluttrader:

Exactly, some people here are living in an idealistic world of guaranteed stops, I have never heard of any professional trader trading size with more than 10:1 leverage

lol, doofus, guaranteed stops aren't an 'idealistic' world, they're a facility offered by some marketmakers.

lol, this thread is really attracting the goons of ET! I always thought you guys were 'challenged' but I never realized just how much

Tooooo damn funny

 

[TraderZones]

Quote from aiyah_mark_lah:

people who advocate limiting leverage or all the blah blah do not seem to have much control over their positions, or a lack of planning.
.

Whereas people on the other side, like yourself, have no clue about how markets work. You are a little bug sing and smile, until the inevitable windshield presses the Reset button on your account balance

 

[aiyah_mark_lah]

oh ok...i see your point

 

[IShopAtPublix]

Quote from TraderZones:

Whereas people on the other side, like yourself, have no clue about how markets work. You are a little bug sing and smile, until the inevitable windshield presses the Reset button on your account balance

Just becase YOU can't imagine life at leverage beyond 1:10 does not mean nobody else can.

100:1 is still reasonable while 400:1 is suicide. Depending on the trader skill, stops and expectations leverage is essential for profits in any market.

 

[cabletrader]

Quote from IShopAtPublix:

Just becase YOU can't imagine life at leverage beyond 1:10 does not mean nobody else can.

100:1 is still reasonable while 400:1 is suicide. Depending on the trader skill, stops and expectations leverage is essential for profits in any market.

Ah you don't want to pay too much attention to the likes of 'TraderZones', most days he can't even remember who he is

In this post he was trying to sell a trading system for 250k as 'TraderZones' until it was deleted.

In this post he's trying to sell the same system as 'Port1385'

In this thread he gets caught red-handed when he forgot who he was logged in as, lol, and then it transpires that he's 'rcanfiel' as well!

No-one can take TraderZones/Port1385/rcanfiel (or whatever he's calling himself today!) seriously, he's just a joke comic character with nothing particularly amusing to say

 

[aiyah_mark_lah]

Quote from fluttrader:

Exactly, some people here are living in an idealistic world of guaranteed stops, I have never heard of any professional trader trading size with more than 10:1 leverage

Whats a professional's leverage ? Typically a pro's deal size are already so large there is no point magnifying them 50 times or more, that is a different game altogether.

People who can't handle a highly geared position are a combination of :

-seriously under capitalized.
-no idea where their position is going.
-has a low winning percentage.

On the idealistic stops. This is sounds really odd to me. It appears that you must be really unlucky to be caught in all those lousy fills. Some like news releases can be avoided if you can't take missing your stops by a few pips. But to be fill at a price so far away that it blows your account is unlikely, such instances must happen many times in order to blow out your account, but for that to happen, you must be really unlucky.