Effects of different leverages

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Hi,


what is the effect of different leverages?

What happens if I use 1:3000 instead of 1:500?

What are strengths, weaknesses, opportunities and threats?


Kind regards.

 

Hi Christian,


I can give you an example: if you open a trade that will require you to use 60 USD of your margin on the account with the leverage of 1:500, you will need 6 times less as compare to the 1:3000, so only 10 USD (3000/500).

Thus, the higher your leverage, the less you need to use your own money on the trade to be opened. That basically means, on an account with more leverage, you will have more money left to trade on or more money to cover existing losses... =D.

So: less leverage, more money (margin) used for a trade, less money free for other trades/positions and vice versa... higher leverage, less money (margin) used for a trade, more money free for other trades/positions.

By the way, since you are asking this, 1:500 is already a very dangerous leverage.

To start, stay away from it, because even pros do. Start somewhere below 100, best is 50 and even less if you can.

Don't forget: patience earns you all the money.



Cheers

Hanns

 
Hanns Friedriech Groeschke:

Hi Christian,


I can give you an example: if you open a trade that will require you to use 60 USD of your margin on the account with the leverage of 1:500, you will need 6 times less as compare to the 1:3000, so only 10 USD (3000/500).

Thus, the higher your leverage, the less you need to use your own money on the trade to be opened. That basically means, on an account with more leverage, you will have more money left to trade on or more money to cover existing losses... =D.

So: less leverage, more money (margin) used for a trade, less money free for other trades/positions and vice versa... higher leverage, less money (margin) used for a trade, more money free for other trades/positions.

By the way, since you are asking this, 1:500 is already a very dangerous leverage.

To start, stay away from it, because even pros do. Start somewhere below 100, best is 50 and even less if you can.

Don't forget: patience earns you all the money.



Cheers

Hanns

Thank you Hanns.
 

I give you another example. If you are good enough to manage scale-ins, then a higher leverage helps you more to cover losses than low leverages. I am trading breakouts and I need higher leverages.

I made a test, I traded my strategy parallel with an 1:50 account with an 1:200 account. With the 1:50, i gained a profit of round about 50% for one setup which I traded consequently, with the 1:200 I gained >200%. 

In other words, when you use the advantages of CFDs and Forex against futures, which is the unlimited scaling of sizes, you will be more profitable with higher leverages. But a beginner who trades with a fixed position will probably simply damage his account sooner.

 
Margin and risk are Independent. If you risk the same amount, margin is irrelevant. If you make more with higher margin you are risking more.
  • You place the stop where it needs to be - where the reason for the trade is no longer valid. E.g. trading a support bounce the stop goes below the support.
  • Account Balance * percent/100 = RISK = OrderLots * (|OrderOpenPrice - OrderStopLoss| * DeltaPerLot + CommissionPerLot) (Note OOP-OSL includes the SPREAD, and DeltaPerLot is usually around $10/pip but it takes account of the exchange rates of the pair vs. your account currency.)
  • Do NOT use TickValue by itself - DeltaPerLot
  • You must normalize lots properly and check against min and max.
  • You must also check FreeMargin to avoid stop out
 
Leverage only matters if you really use it. If you trade 0.01 Lot (only this one trade opened) with a balance of 1k, it doesn't matter if you use 1:100 or 1:1000
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