Firstly, I know that I write sometimes like a know it all. I actually don't know it all. I only read and retain what interests me and what I think will help me in some ways. The rest goes out the window thanks to my builtin anti cluttering system.
So, when it comes to leverage, I do what works for me. Upon signing onto a broker, I set the leverage to the highest possible and leave it at that. There are a lot of variables in Forex. Why should I add another variable? However, once in a while, I come across instructions to an EA or a trading system where the author suggests to lower the leverage at some point and increase it at another. Normally I ignore that piece of instruction and in my mind replace it with: Always set your leverage at maximum but use it gingerly and wisely.
Now I'm thinking maybe I'm missing something and I like to find out if I am for sure. They say leverage is a two sided sword. It can increase your gains and it can amplify your losses. Let's start with that statement.
I know why it can increase my gains. Obviously it is easier buying something for a fraction of the cost than buying it at face value. So for the sake of simplicity, let's say for a $1000 account, I have a leverage of 1:1000 and it costs me $10.00 to enter a trade in a pair with that leverage. If I reduce it to 1:500, it costs me $20.00 of my available leverage for the same trade. At 1:500 if my trade goes horribly wrong and I have a huge $950 DD, at that point it is wise to increase my leverage to 1:1000 so instead of blowing my account when the DD reaches $980, this will give me another $10 of relief. (assuming the margin call formula is: Margin is Free Margin = Equity – Margin).
Now in the above example, if I had my margin set at 1:1000, there would be no benefit to me by changing margin level. Changing margin to 1:500 would harm my situation. So, the question is: Why would I ever want to lower my margin?
I think the answer is for the fear of myself and to stop myself from thinking that I have a lot of available leverage. So I deceive myself and pretend I have only 1:500 margin and if things get tough, suddenly, I undeceive myself pull out this hidden extra 1:500 margin and bail myself out. Is that right? is this designed for traders that with a 1:500 leverage would use $20 of it on one trade and if you give them 1:1000 leverage, then they are going to think: hey, I used $20 on one position and now that I have got a 1:1000 leverage, it shows I am using only $10 leverage. So I better go get into another position and bring it back to $20 leverage used. Now this trader has doubled their risk. So in this case, with this kind of thinking, double the leverage, means double the risk. This is why leverage has two edges. It will increase your risk IF YOU USE THE EXTRA LEVERAGE.
Is that why the regulatory bodies are lowering leverage because they think lower leverage=lower risk taken by the trader and higher risk=higher risk taken by the trader?
Am I right so far or am I missing something? How about the rest of us careful traders who enter only that one trade whether the leverage is 1:500 or 1:1000?
Alright, one more thing: I came across this photo of a lady using a lever (that's where the word leverage comes from) to open the tire bolts of a heavy truck. First thing you may notice is that she looks like she has a hard time turning the wrench. Then you may notice that she has one hand half way on the lever and the other maybe 3/4 at best. Also, she is using her leg to help her pull. My advice to ease her job and to help her become successful at this challenge would be for her to use her full leverage. I have actually been to mechanic shops where experienced mechanics use the identical tool for the exact purpose and they use the uppermost end of the lever to grip and pull down and it works beautifully.
I saw this photo first in this thread: https://www.forexfactory.com/showthr...0#post11591050 post#1
Read a few posts under. She (the thread starter) has apparently gone postal on me. I would have asked her directly why she is so mad but she has put me on her ignore list. I didn't even know that FF had an ignore button. She suggested I start my own thread for my comments since they are apparently garbage and she posted a pic of some suggestively dressed lady referee giving me a red card and a reference to old ladies. HUH! Can anyone else tell me why this?
So, when it comes to leverage, I do what works for me. Upon signing onto a broker, I set the leverage to the highest possible and leave it at that. There are a lot of variables in Forex. Why should I add another variable? However, once in a while, I come across instructions to an EA or a trading system where the author suggests to lower the leverage at some point and increase it at another. Normally I ignore that piece of instruction and in my mind replace it with: Always set your leverage at maximum but use it gingerly and wisely.
Now I'm thinking maybe I'm missing something and I like to find out if I am for sure. They say leverage is a two sided sword. It can increase your gains and it can amplify your losses. Let's start with that statement.
I know why it can increase my gains. Obviously it is easier buying something for a fraction of the cost than buying it at face value. So for the sake of simplicity, let's say for a $1000 account, I have a leverage of 1:1000 and it costs me $10.00 to enter a trade in a pair with that leverage. If I reduce it to 1:500, it costs me $20.00 of my available leverage for the same trade. At 1:500 if my trade goes horribly wrong and I have a huge $950 DD, at that point it is wise to increase my leverage to 1:1000 so instead of blowing my account when the DD reaches $980, this will give me another $10 of relief. (assuming the margin call formula is: Margin is Free Margin = Equity – Margin).
Now in the above example, if I had my margin set at 1:1000, there would be no benefit to me by changing margin level. Changing margin to 1:500 would harm my situation. So, the question is: Why would I ever want to lower my margin?
I think the answer is for the fear of myself and to stop myself from thinking that I have a lot of available leverage. So I deceive myself and pretend I have only 1:500 margin and if things get tough, suddenly, I undeceive myself pull out this hidden extra 1:500 margin and bail myself out. Is that right? is this designed for traders that with a 1:500 leverage would use $20 of it on one trade and if you give them 1:1000 leverage, then they are going to think: hey, I used $20 on one position and now that I have got a 1:1000 leverage, it shows I am using only $10 leverage. So I better go get into another position and bring it back to $20 leverage used. Now this trader has doubled their risk. So in this case, with this kind of thinking, double the leverage, means double the risk. This is why leverage has two edges. It will increase your risk IF YOU USE THE EXTRA LEVERAGE.
Is that why the regulatory bodies are lowering leverage because they think lower leverage=lower risk taken by the trader and higher risk=higher risk taken by the trader?
Am I right so far or am I missing something? How about the rest of us careful traders who enter only that one trade whether the leverage is 1:500 or 1:1000?
Alright, one more thing: I came across this photo of a lady using a lever (that's where the word leverage comes from) to open the tire bolts of a heavy truck. First thing you may notice is that she looks like she has a hard time turning the wrench. Then you may notice that she has one hand half way on the lever and the other maybe 3/4 at best. Also, she is using her leg to help her pull. My advice to ease her job and to help her become successful at this challenge would be for her to use her full leverage. I have actually been to mechanic shops where experienced mechanics use the identical tool for the exact purpose and they use the uppermost end of the lever to grip and pull down and it works beautifully.
I saw this photo first in this thread: https://www.forexfactory.com/showthr...0#post11591050 post#1
Read a few posts under. She (the thread starter) has apparently gone postal on me. I would have asked her directly why she is so mad but she has put me on her ignore list. I didn't even know that FF had an ignore button. She suggested I start my own thread for my comments since they are apparently garbage and she posted a pic of some suggestively dressed lady referee giving me a red card and a reference to old ladies. HUH! Can anyone else tell me why this?
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