The Dangers of Leverage

Quote from Lucias:

Maverick... that's my point has been that Don claims to give traders floor trader edge.. to me that means co-location, cme rates, edge, etc.. But I don't think that is the reality. Anyway, I heard Don was having a rough time and don't want to stress him.. just trying to interject some reality. I'm sure he's a good broker. This is another thing why does Don put up with you running his edges down?

(Serious Don, hope all is well... sending out good vibes to you )
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I think you and Don are having a failure to communicate. Don has no CME membership. There is no "floor trader" edge. I don't even know what that is. I don't even think Don has any co-located servers. Not sure why he would even need them.

And Don is not putting up with anything. We've shared a few dinners together and I hope to see him again when he is in Chicago next. Or maybe I'll take him up on the comped room in Vegas. Anyway, Don knows I'm a straight shooter. Perhaps a little too straight for his comfort. LOL. But he and I are both professionals and we both understand this business. For whatever that is worth.
 
Well.. okay technically Don says the floor trader model but everyone knows the "floor trader edge" was the ability to see the paper vs the commercials and being in the pit.

He's a stock trader.. nevermind.. I was trying to make a point but its pointless.

Quote from Maverick74:

I think you and Don are having a failure to communicate. Don has no CME membership. There is no "floor trader" edge. I don't even know what that is. I don't even think Don has any co-located servers. Not sure why he would even need them.

And Don is not putting up with anything. We've shared a few dinners together and I hope to see him again when he is in Chicago next. Or maybe I'll take him up on the comped room in Vegas. Anyway, Don knows I'm a straight shooter. Perhaps a little too straight for his comfort. LOL. But he and I are both professionals and we both understand this business. For whatever that is worth.
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Quote from Lucias:

Well.. okay technically Don says the floor trader model but everyone knows the "floor trader edge" was the ability to see the paper vs the commercials and being in the pit.

He's a stock trader.. nevermind.. I was trying to make a point but its pointless.
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I think you don't understand the jargon he is using. When Don refers to the floor trader model, he is referring to how he and his brother got started. In the old days you clerked on the floor for a year and then the guy you were clerking for would put you on a badge and back you or you would back yourself. The "floor model" he is referring to is where you keep all the profits and take your own risks vs the "Chicago model" where guys get backed upstairs on a salary and a p&l split.
 
Quote from Maverick74:

Don, my broker is not sure if this option hit or not. Kind of ambiguous language there. Did you have any traders make 250k net last year with only 20k or 25k on deposit? I was really hoping to start of my week with a winner on this trade. :)
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Leverage can provide fast scaling if you know what you're doing. I'm sure the better traders in the firm could start with 5k and end up 500k+ with no more than 20:1 leverage throughout. Right Don?

On another note, leaving 200k in a prop firm to make 100k sounds kinda insane. :)
 
Quote from EvOTraderV2:

Here's a chart of how much your account balance changes if prices moves depending on your leverage. I put this together for someone I am training. I'm trying to point out the dangers of leverage. More leverage means more risk, not more profits. It provides more opportunity for profits, but increases the odds you will lose your money.

Note what a 1% change at 30:1, you lose 1/3 of your account. Scary figures.


Leverage % Change in stock % Change in account
100:1 1% 100%
50:1 1% 50%
33:1 1% 33%
20:1 1% 20%
10:1 1% 10%
6.67:1 1% 6.67%
4:1 1% 4%
1:1 1% 1%
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I think you are confused. No sane man leverages 30:1 their account. You are confusing margin and account leverage. Margin requirements in retail forex can result in a 50:1 leverage but nobody will place all of his account on margin, I mean nobody in the right state of mind. Most traders will place on margin an amount so that their risk of loss will equal to a small percentage of their account. This reduces the account leverage to maybe 2:1 or 4:1 max or even below 1 for people like me.

There is:

-Broker offered leverage: for forex usually 50:1
-Broker margin: varies for futures and stocks
-Account margin: this is how much of the account is used to margin positions
-Account leverage: this is how much the account is leveraged.

For example, you can have a 500K account and buy 1 EURUSD lot for 50:1 leverage. You put down 2K.

Broker offered leverage: 50:1
Broker margin: 2K
Account margin: 2K
Account leverage: 1:5 (actually 0.2X leverage = 100K/500K)

A +/-1% change in EURUSD position will affect the account by +/-0.2%

Please understand the terms before using them.
 
I'm not the one confused, bill. You seem to be. there are MANY n00b traders who call up firms and ask for 20:1 or 30:1 to intraday unhedged positions. It's especially been a topic on other threads where traders with $2500 or $5000 deposits want to intraday trade.

20:1 has been dubbed as "typical" which is completely incorrect for directional intraday trading.

Quote from intradaybill:

I think you are confused. No sane man leverages 30:1 their account. You are confusing margin and account leverage..
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Quote from Maverick74:

My broker is giving me one more chance to settle the trade. How about this. Last year, did you have any new traders who came into your firm with 20k that net 250k for 2011? Thank god I put this trade on for small size. I'm really sweating this trade now. :)
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I show only 6 that came in with $25k or less and made over $250k.

Better, to be current. And this is as detailed as I want to get, you know why, regulators look at everything and I don't want to mis-state anything.

January 2012.

62k
57k
42k
101k
33k
30k
26k

And. yes there are those who made more in January. This is from our top 30 group who came in with $25k or less initially. And, yes, it's only one month, and yes, it may be vague (I'm not going to print names or even accounts, for obvious reasons). And, no I'm not going into any more detail. I would love to see the Principals of other firm's post any of their numbers. Our top earner in Jan was 155k. Other than than family members of course.

All this doesn't really prove anything as far as how well anyone of you guys would do here, I wish I could say it did. I can say that we do our best to help each other, Retreats and all that. Morning call every morning, Tuesday talks etc. But, it's up to the individual trader to take what we offer, some do, some don't.

And, Mav. We do still own a CME seat (actually in Bob's name), Just fyi.

All the best,

Don
 
Quote from Don Bright:

I show only 6 that came in with $25k or less and made over $250k.

Better, to be current. And this is as detailed as I want to get, you know why, regulators look at everything and I don't want to mis-state anything.

January 2012.

62k
57k
42k
101k
33k
30k
26k

And. yes there are those who made more in January. This is from our top 30 group who came in with $25k or less initially. And, yes, it's only one month, and yes, it may be vague (I'm not going to print names or even accounts, for obvious reasons). And, no I'm not going into any more detail. I would love to see the Principals of other firm's post any of their numbers. Our top earner in Jan was 155k. Other than than family members of course.

All this doesn't really prove anything as far as how well anyone of you guys would do here, I wish I could say it did. I can say that we do our best to help each other, Retreats and all that. Morning call every morning, Tuesday talks etc. But, it's up to the individual trader to take what we offer, some do, some don't.

And, Mav. We do still own a CME seat (actually in Bob's name), Just fyi.

All the best,

Don
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Well Donny, I was wrong on both counts. Good job over there. I think you may have just gotten a few lurkers on this board excited. Prepare your inbox! :D
 
Quote from Maverick74:

Well Donny, I was wrong on both counts. Good job over there. I think you may have just gotten a few lurkers on this board excited. Prepare your inbox! :D
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Come on John, you know I'll cover your bet with your bookie, er' broker. Let me know when you're heading to Vegas. "Vegas Baby"

LOL,


Don
 
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