Questions Regarding Leverages

[checkmail]

Hello friends this is checkmail and me would like to trade max quantity with minimum amount.

Am using 1:100 leverage and mine 0.01 lot = 1.32 cents on eur/usd form avail margin.

If i use 1:500 leverage than mine 0.01 lot = how much $ on eur/usd from avail margin ?

Also does our equity amount shrinks or rises with increase in leverages form 1:100 to 1:500 ?

can anyone answer this ?

[shabz]

Read this article about the dangers of Leverage:

http://www.investopedia.com/articles/forex/07/forex_leverage.asp#axzz1ljSfqkxO

[Roels Major]

[Kristianto]

leverage is extremely dangerous. anything above 100X is almost like playing in the casino

[shabz]

Not understanding Leverage is the main reason why most people blow their accounts.

Example for EURUSD.

A leverage of 1:1 for a $1000 account would mean you control only the pip gain/loss of $1000 which is 1000/100,000 = 0.01 Lots, a 1 pip gain or loss = 10 cents, it would take a move against you of 10,000 pips to blow your account, as it would take a 10,000 pip gain to double your account.

By giving you 1:100 leverage, a fully leverage position would mean you could control $1000 x 100 = 100,000/100,000 = 1.0 lots, a 1 pip gain or loss = $10, in this example it would take only a move of 100 pips against you to blow your account, but brokers to protect themselves will have taken out of your account a margin for the position, so very often they will give you a margin call, once available margin gets used up by your losses. Which would also mean your position closes at a loss automatically even if your stoploss was not hit.

Leverage is designed for people with small accounts to take larger positions than their account could normally trade, it is a dangerous 2 way sword, can give you great returns, but losses can also be devastating.

Risk management is key to survival in this game, look at position calculators such as :
http://www.**************/position-size-calculator

This should help you to have the correct lotsize, to your account size, stoploss placement, & currency pair.

[hagarb]

Is leverage advised for beginners? If most of traders loose money, this tool seems to be a short way to prejudice. What leverage percentage do you use? Thanks!

[shabz]

Most traders would be advised not to use leverage more than 1:2 or 1:3, which would equate to about 2 - 3 % of your account size. This way you could control your drawdown when it happens and not be left with a big hole in your account.
With leverage of just 1: 20, 20% of your account could be lost and to get back the loss you would have to make 25% win to get back to Breakeven, and this increases as your leverage goes higher.

Leverage can be a quick way to make money as well as fast way to drain your account. Why do you think Brokers offer 1:500 ?

[Forturama]

I think you should adapt your leverage to your trading system.
Scalper will use a higher leverage than position traders... using a not adapted leverage can cause a huge loss.

Most traders would be advised not to use leverage more than 1:2 or 1:3, which would equate to about 2 - 3 % of your account size. This way you could control your drawdown when it happens and not be left with a big hole in your account.
With leverage of just 1: 20, 20% of your account could be lost and to get back the loss you would have to make 25% win to get back to Breakeven, and this increases as your leverage goes higher.

Leverage can be a quick way to make money as well as fast way to drain your account. Why do you think Brokers offer 1:500 ?

[Gad]

leverage that we use should be adjusted to the capital that we use. so do not arbitrarily choose the origin of leverage because other traders

[fxapex]

I think one should use leverage only if he/she is experienced enough, you should be smart enough to use leverages.