Margin, Leverage and deposit - page 2

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Fernando Carreiro:
And why would I show you that?

Why would I want to teach you?

What would motivate me to do so if I am alread happy with my own profits?
To support your theory that traders need to know the basic concepts of margin, leverage etc to be successful.

I posted to learn. There are resources that explains but I have difficulty understanding why it can amplify profit/losses

It does not help me or others if your comments are not helpful.

Lastly, I think there are people that are successful and did not understand the basic just like albert einstein who did not know how to tie shoelaces

Maybe when I grasp the essence of the basic, the last mql championship I would not be rank at 35th place. I would be at top 3. Haha.
 
Dua Yong Rew:

What is their relationship?

Why do people say leverage can multiply your profit/losses?

I always thought I use my balance to support my trade. Does leverage makes a big difference?

After releasing muti products you asking this non-sense question just a profile promoting trick
 
Deevog:
After releasing muti products you asking this non-sense question just a profile promoting trick
How?
 
Dua Yong Rew:
To support your theory that traders need to know the basic concepts of margin, leverage etc to be successful.

I posted to learn. There are resources that explains but I have difficulty understanding why it can amplify profit/losses

It does not help me or others if your comments are not helpful.

Lastly, I think there are people that are successful and did not understand the basic just like albert einstein who did not know how to tie shoelaces

Maybe when I grasp the essence of the basic, the last mql championship I would not be rank at 35th place. I would be at top 3. Haha.

Don't worry about what others are thinking.

On the topic. If you trade the same lot size your profit/losses are the same whatever the leverage/margin.

The great difference is you have the possibility to multiply your risk (and so you profit/losses).

Suppose you have an deposit of 10,000 EUR. You trade EURUSD, 1 standard lot (100,000 units).

  • With a leverage 1:1, you can't even open a trade.
  • With a leverage 10:1, you can theoretically open a trade as the margin will be 100,000 (1 lot) / 10 (10:1 leverage) = 10,000 EUR. However it will not be possible as your margin is equal to your balance/equity, you need at least some place for your trade to move in + or -.
  • With a leverage 100:1, your margin will be 100,000 (1 lot) / 100 (100:1) = 1,000 €. You can open a 1 lot trade. You can even open a trade of 2, 3, 4, 5 lots (or more trades, it's finally the same)... and so multiply your profit AND your losses. Very often people only see the possibility to multiply profit, they forgot it also multiply the eventual losses. So a high leverage can be useful if you understand it and don't abuse it.
 
Fernando Carreiro:
To succeed at trading, yes!

To trick and scam users into buying your products, probably not!
I understand your point, but I would be more prudent before accusing people to be scammers.
 
Alain Verleyen:

Don't worry about what others are thinking.

On the topic. If you trade the same lot size your profit/losses are the same whatever the leverage/margin.

The great difference is you have the possibility to multiply your risk (and so you profit/losses).

Suppose you have an deposit of 10,000 EUR. You trade EURUSD, 1 standard lot (100,000 units).

  • With a leverage 1:1, you can't even open a trade.
  • With a leverage 10:1, you can theoretically open a trade as the margin will be 100,000 (1 lot) / 10 (10:1 leverage) = 10,000 EUR. However it will not be possible as your margin is equal to your balance/equity, you need at least some place for your trade to move in + or -.
  • With a leverage 100:1, your margin will be 100,000 (1 lot) / 100 (100:1) = 1,000 €. You can open a 1 lot trade. You can even open a trade of 2, 3, 4, 5 lots (or more trades, it's finally the same)... and so multiply your profit AND your losses. Very often people only see the possibility to multiply profit, they forgot it also multiply the eventual losses. So a high leverage can be useful if you understand it and don't abuse it.
Thank you. Your comments as usual are very helpful
 
In layman terms, leverage helps to open trades but ultimately it's the equity that supports the trade which is more crucial?
 
Dua Yong Rew:
In layman terms, leverage helps to open trades but ultimately it's the equity that supports the trade which is more crucial?
You can't summarize it like that. It's not only about opening...  it can impact seriously your equity and you have to deal with your free margin.
 
Alain Verleyen:
You can't summarize it like that. It's not only about opening...  it can impact seriously your equity and you have to deal with your free margin.
Hmmmmm.....

Higher leverage gives more free margin to support more fluctuations?
 
Dua Yong Rew:
Hmmmmm.....

Higher leverage gives more free margin to support more fluctuations?

Yes if you trade the same lot size with 100:1 as if it would be 1:1.

But usually people don't do it, instead they open more trades and/or bigger trades...which results in more risk (profit/losses).

I would suggest you to open a demo account with leverage 1:1 or 10:1 and play with it. You will see the differences quickly I think.

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