Quote from EvOTraderV2:
60:1 is a bit ridiculous. You lose 50% of your capital on a 1.6%% move. Nobody trading with that much leverage stands a chance. Whomever gave you that much is just as guilty as you are for blowing out the account.
I agree its ridiculous. But let's clear up some points:
First, I don't think anyone uses leverage all in one direction on one trade. I had tens of trades on at once, on and off, some just for a few seconds, some for a day, and very few on for days at a time. Never was I all in one stock or instrument. That would move from ridiculous to insane on my part. That is serious rookie ball. My friendknew me from the risk arb days, and although my positions were not market neutral he probably assumed I was hedging in some way.
2nd: 60:1 was great for me. I didn't state that I blew this account. When I That's just your assumption. I zeroed two accounts when I started on my own with little training and 10:1 leverage. Maybe this is a good example of being unskilled (any leverage will likely bust you) and being skilled with luck (even 60:1 did not bust).
I could have easily yes as you stated, but I made tremendous amounts of money over equity. Just because it worked out ok that time doesn't mean it's going to over time. And this risk, if it was present with the firm I traded with, may be present at other firms and that's not only possible but perhaps probable.
I spent most of the calendar year prior to that scratching out on many trades, losing a little making a little. By the way, that doesn't sound sexy but it's terrific preparation for when a big move comes, because after a while of doing the right things you are very sharp when the opportunity presents itself. That's essentially what happened in my case with the 60:1. Good outcome, doesn't make it a prudent tactic and I agree with you. But I might have known better, I still took the leverage offered. I even think if I called the desk again they would have increased it probably. Yes it's truly scary.
My post was an illustration of where I took the bait of leverage and was either super skilled at risk management or/and just plain lucky. What might be also scary is that, in this case, when firms see you making money hand over fist, it's probably even hard for them to reel in the buying power. A lot of people seem mesmerized by this situations. Human nature perhaps?
Just like in poker and in trading, when you do the wrong thing and you make money doesn't mean its going to work over time. I was just using my point to illustrate that I could have done the wrong thing for many in the firm, and I was not monitored properly.
If you are thinking of joining an arcade these are the outliers to consider. Remember nobody though LTCM was going to go under, a brilliant guy, seemingly brilliant model, no constraints, anyone remember what happened?
