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Forex Trading: Does Leverage Works Against You ?

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Ovidiu Caslariu
7845
Ovidiu Caslariu  

High Forex leverage is really dangerous in the world of Forex trading. The reason for this is because high leverage is being pushed down on traders' throats by the marketing teams of the various brokers. The reason they are interested in you trading with high leverage is due to your chances of coming out on top when trading with high leverage are very low, and at the end of the day, most brokers, at least the market makers amongst them are the ones trading against you, and are profiting from your losses.

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Simon Gniadkowski
Moderator
18004
Simon Gniadkowski  
MetaSky:

High Forex leverage is really dangerous in the world of Forex trading. The reason for this is because high leverage is being pushed down on traders' throats by the marketing teams of the various brokers. The reason they are interested in you trading with high leverage is due to your chances of coming out on top when trading with high leverage are very low, and at the end of the day, most brokers, at least the market makers amongst them are the ones trading against you, and are profiting from your losses.

Leverage won't make a winning strategy into a losing one,  it will help a losing strategy kill your account faster,  perhaps that is more humane ?
Ronnie Mansolillo
5529
Ronnie Mansolillo  

the difference between various types of leverage changes  the risk you take on each transaction. also is influenced especially when it implements a strategy that provides the money management (a correct strategy for lot sizing), MM is the sizing function of a predetermined percentage of your parameters (either fixed margin or others).

To understand that you just do a backtest of an expert that provides a money management with different leverage and see how it changes the drawdown factor in final result.

Ronnie Mansolillo
5529
Ronnie Mansolillo  
Raptor summed up in a perfect way the analysis. If you use a correct and profitable  strategy then leverage is your friend otherwise it will be your worst enemy.
Dua Yong Rew
5438
Dua Yong Rew  
use it to your advantage. not mis-use it.
Weedjo
65
Weedjo  

If you're interested in using a mathematical-based way of calculating a useful leverage, I would recommend you to look into http://en.wikipedia.org/wiki/Kelly_criterion

While the Kelly-Criterion is not perfect for Forex and/or leverage, it can give you a very good hint. There are a lot of modifications on the Kelly-Criterion, just google and look for paper. Also there are some easy to understand videos on youtube!

Kelly criterion - Wikipedia, the free encyclopedia
Kelly criterion - Wikipedia, the free encyclopedia
  • en.wikipedia.org
In probability theory and intertemporal portfolio choice, the Kelly criterion, Kelly strategy, Kelly formula, or Kelly bet, is a formula used to determine the optimal size of a series of bets. In most gambling scenarios, and some investing scenarios under some simplifying assumptions, the Kelly strategy will do better than any essentially...
Ubzen
5394
Ubzen  
Weedjo:

If you're interested in using a mathematical-based way of calculating a useful leverage, I would recommend you to look into http://en.wikipedia.org/wiki/Kelly_criterion

While the Kelly-Criterion is not perfect for Forex and/or leverage, it can give you a very good hint. There are a lot of modifications on the Kelly-Criterion, just google and look for paper. Also there are some easy to understand videos on youtube!

Kelly wouldn't work unless there's a mathematical edge. There aren't any mathematical edges in trading. Most people calculate their advantages based on historical performances. If it doesn't perform in the future like it did in the past, then the optimal_% would be just wrong.
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