Hello all.
I am still trying to firmly understand leverage. To my knowledge a high leverage account is not inherently higher rish than a low leverage account. Rather high leverage is a tempation for a new trader to over expose his risk or take bigger positions that he really should. However if you are carefull than higher leverage can be safer.Example
If you have a 5k account with 100:1 leverage and you open a lot on GBP/US your used margin is 1k and your unused margin is 4k.
However with a 400:1 leveraged account with the same 5k balance you again buy one lot of GBP/US and this time your used margin is only $250 dollars and your unused is $4750
In both scenarios you have a pip value of $10. So say your sl was 40 pips. So with your 100:1 leveraged account your risking $1400 or 28% of your account on one trade. Now on your 400:1 leveraged account your risking $650 or 13% of your account.
In the case of 400:1 leverage your have much smaller percentage at risk of what you are willing to lose than the 100:1 account even though your potential to gain is equal. This being the case higher leverage is more safer than low leverage as long as you take the appropriate risks.
ps i know opening 1 lot on a 5k account is foolish. This is for demonstration purposes only. The point is if you only risk 2% or 3% of your account it can be done safer with higher leverage. Am i right here?
I am still trying to firmly understand leverage. To my knowledge a high leverage account is not inherently higher rish than a low leverage account. Rather high leverage is a tempation for a new trader to over expose his risk or take bigger positions that he really should. However if you are carefull than higher leverage can be safer.Example
If you have a 5k account with 100:1 leverage and you open a lot on GBP/US your used margin is 1k and your unused margin is 4k.
However with a 400:1 leveraged account with the same 5k balance you again buy one lot of GBP/US and this time your used margin is only $250 dollars and your unused is $4750
In both scenarios you have a pip value of $10. So say your sl was 40 pips. So with your 100:1 leveraged account your risking $1400 or 28% of your account on one trade. Now on your 400:1 leveraged account your risking $650 or 13% of your account.
In the case of 400:1 leverage your have much smaller percentage at risk of what you are willing to lose than the 100:1 account even though your potential to gain is equal. This being the case higher leverage is more safer than low leverage as long as you take the appropriate risks.
ps i know opening 1 lot on a 5k account is foolish. This is for demonstration purposes only. The point is if you only risk 2% or 3% of your account it can be done safer with higher leverage. Am i right here?