Leverage, I dont understand the principle of it...

Quote from the1:

I know a few who have done just that so if I know a few it means there are plenty who do this very thing :).
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Yea, you are right. 1:50 isn't as bad as I was making it out to be. I was thinking more of futures where you can easily get 1:100-200, which is a lot worse and can blow out the account pretty easily.
 
I am appreciating all your replies, however, I dont think I am wording it properly?

Why are they giving me £50k to trade with when I only have £1,000.00 (hypothetically)
 
Quote from capitalistsmith:

I am appreciating all your replies, however, I dont think I am wording it properly?

Why are they giving me �50k to trade with when I only have �1,000.00 (hypothetically)
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Listen very carefully....

Because if they didn't, they wouldn't have any customers. Therefore, they could not operate a business. Therefore, they could not generate a profit. Comprehende?
 
Quote from achilles28:

Listen very carefully....

Because if they didn't, they wouldn't have any customers. Therefore, they could not operate a business. Therefore, they could not generate a profit. Comprehende?
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Thats very condescending isnt it?

Guess you were never new once.... (just born with knowing it all)


Im well aware of that statement thanks for turning up and repeating it again....


I didn't realise I was asking too much for someone to spare a few minutes (anyone who is kind enough to) to elaborate slightly rather than tell me the following statement above

(and achille I apologize if its because you actually do not know a detailed answer other than - "they wouldnt have any customers" lol)
 
I don't know what you are looking for. We all gave you the answers already.

1. It would be very difficult to impossible to make a living trading without leverage.
2. It is inefficient for commercial hedgers if they have to use all their capital to hedge a product.
3. Leverage allows easier entrance into the trading world.
4. Risk controls available today virtually guarantee someone using leverage won't blow out the firm, so brokers give traders more to work with if they so desire.
 
Quote from capitalistsmith:

Thats very condescending isnt it?

Guess you were never new once.... (just born with knowing it all)


Im well aware of that statement thanks for turning up and repeating it again....


I didn't realise I was asking too much for someone to spare a few minutes (anyone who is kind enough to) to elaborate slightly rather than tell me the following statement above

(and achille I apologize if its because you actually do not know a detailed answer other than - "they wouldnt have any customers" lol)
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Troll




If you dont want to use leverage, DON'T,
If you want to user leverage, DO


Simple
 
Ok here is what I was looking for in terms of my questions and getting someone with more experience to either agree correct or elaborate:


A ECN+STP broker will provide leverage of lets say 1:50 of your initial deposit because if they didn't then the prospective gains from the spreads (commission charged as an aggregate from all customers) probably wouldn't be enough for them to be lucrative as a business and hang around as a broker....

When it actually comes to trading itself they`re "artificially" providing the leverage of:

£1,000 deposit @ 1:50 = £50,000.00

To not only coincide as the business` (brokers) best interest (making money from the spread at a higher price to clients) but to also provide a decent ROI by allowing the client more exposure and punch to each position they trade given what ever risk profile they tackle the market at.

With regards to the £50k in this instance that the broker provides, they wouldn't ever let you utilize the full liquid leverage, but instead cut you out of the trading position once your:

1) Margin has been reached (a form of pre-empting safety net from the brokers perspective?)
2) Total balance on deposit is lost.


Now, with this all said, where does the:

£49,000.00 (leverage liquidity by the broker) come from?

£1,000.00 (is the only collateral if the client is wrong, from the brokers perspective, as all the risk is on me and in some cases even more than my initial deposit)




I don't think it necessary to act like a wise arse but instead respect the fact that im trying to understand more about leverage.

If it annoys you that people dont learn the way you do, then could you be so kind as to not reply in the same fashion because I dont find it beneficial.


Thanks.
 
Quote from capitalistsmith:

Ok here is what I was looking for in terms of my questions and getting someone with more experience to either agree correct or elaborate:


A ECN+STP broker will provide leverage of lets say 1:50 of your initial deposit because if they didn't then the prospective gains from the spreads (commission charged as an aggregate from all customers) probably wouldn't be enough for them to be lucrative as a business and hang around as a broker....

When it actually comes to trading itself they`re "artificially" providing the leverage of:

£1,000 deposit @ 1:50 = £50,000.00

To not only coincide as the business` (brokers) best interest (making money from the spread at a higher price to clients) but to also provide a decent ROI by allowing the client more exposure and punch to each position they trade given what ever risk profile they tackle the market at.

With regards to the £50k in this instance that the broker provides, they wouldn't ever let you utilize the full liquid leverage, but instead cut you out of the trading position once your:

1) Margin has been reached (a form of pre-empting safety net from the brokers perspective?)
2) Total balance on deposit is lost.


Now, with this all said, where does the:

£49,000.00 (leverage liquidity by the broker) come from?

£1,000.00 (is the only collateral if the client is wrong, from the brokers perspective, as all the risk is on me and in some cases even more than my initial deposit)




I don't think it necessary to act like a wise arse but instead respect the fact that im trying to understand more about leverage.

If it annoys you that people dont learn the way you do, then could you be so kind as to not reply in the same fashion because I dont find it beneficial.


Thanks.
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Because your loss is capped.

They can create as much money you want (because you will be charged interest on those funds, no harm to the broker as they are aware of your downside and aware that they will charge you interest on those "created" funds)

By charging you interest on the "created funds", your loss cap reduces on every roll (if charged interest, instead of paid)


If i knew you could lose only 1,000.. and you use leverage, I don't have any issues with lending you $1,000,000 and charging you interest, because I know the most you can lose is $1k.
 
What do you mean charging me interest?

You referring to swaps?

(if so I thought they were based upon the currency you hold - from buying or selling of foreign currency - is the difference in interest based upon that countries national rate - either added or deducted based upon the position size)


Sorry if I mis-understood what you`ve written...
 
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