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Why brokers offer high leverage if everybody says it will blow your account?

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tele2112
408
tele2112 2016.05.29 10:16 

I know brokers that offer even 1:2000 leverage. But why they do this, if in the long term you will eventually lose

Mohammad Soubra
24985
Mohammad Soubra 2016.05.29 10:17  
tele2112:

I know brokers that offer even 1:2000 leverage. But why they do this, if in the long term you will eventually lose

you can select the lowest one

this up to you

you would select the higher risk or the lower...

tele2112
408
tele2112 2016.05.29 10:57  
Mohammad Soubra:

you can select the lowest one

this up to you

you would select the higher risk or the lower...

so its usefull high leverage after all? it blows your account or not?
Sergey Golubev
Moderator
93666
Sergey Golubev 2016.05.29 11:14  
There is some thread with good replies here: Forex Trading: Does Leverage Works Against You ?
Doerk Hilger
1154
Doerk Hilger 2016.05.29 11:18  

When I read threads like this I dont know if I should find it funny or sad. 

@tele2112 - simply do the math how many points in loss it needs until the account is blown away with a leverage of 1:2000.

And the answer to your actual question is already inside your question: Remove "why", replace "if" by "because" and replace "?" by "!". The easiest way to identify a broker who just wants you to loose is to glance at the leverage. 

Mohammad Soubra
24985
Mohammad Soubra 2016.05.29 12:29  

Usually brokers don't force you to any option

also they are not forcing for any trade or even not looking for your lot size

.... but they are doing their marketing always. so, be careful and select your personal best choice and leave all the broker's marketing

Mohammad Soubra
24985
Mohammad Soubra 2016.05.29 12:33  
Doerk Hilger:

When I read threads like this I dont know if I should find it funny or sad. 

@tele2112 - simply do the math how many points in loss it needs until the account is blown away with a leverage of 1:2000.

And the answer to your actual question is already inside your question: Remove "why", replace "if" by "because" and replace "?" by "!". The easiest way to identify a broker who just wants you to loose is to glance at the leverage. 

Remember that higher leverages are great with lower account balances ONLY

but... the opposite is the correct with the big trading accounts

when you have an amount of 10.000 USD it would be very bad with our money

1:100 leverage is enough (or even lower) for such as amount above

Doerk Hilger
1154
Doerk Hilger 2016.05.29 13:42  
Mohammad Soubra:

Remember that higher leverages are great with lower account balances ONLY

I am highly interested in how this makes sense, please explain and give me a mathematical example. 

The only truth is, that high leverages are used to create the illusion, that you can make kinda big money with small accounts. The reality is, the account, wheter small or big is just killed faster. If you dont have enough money to trade, dont trade. If you think its a good idea to use high leverages on small accounts because your absolute profits (amounts - not percents) are not high enough otherwise: Dont trade. 

There is only one good reason for high leverages, for example if you have 100.000 on your bank account, you transfer 10% to your broker - a leverage of 1:1000 comes down to 1:100 by this - and if the broker offers guaranteed SL or similar, you will never loose more than 10%. This may be a good idea, yes, but the rest not.

Leverage and margin correlate. The higher the leverage, the faster your available margin decreaes, but not linear, it decreases exponential. And exactly this is the killing factor.

tele2112
408
tele2112 2016.05.29 17:26  
So it blows your account, but why the main brokers offer this if it isnt profitable? and what leverage is profitable?
Marco vd Heijden
Moderator
4700
Marco vd Heijden 2016.05.29 17:30  

To attract new traders / funds.

For the simple mind more sounds usually better.

They most likely do comparison to find the highest leveraged brokerages and end up with these.

Doerk Hilger
1154
Doerk Hilger 2016.05.29 19:04  
tele2112:
So it blows your account, but why the main brokers offer this if it isnt profitable? and what leverage is profitable?

Youre doing a big mistake in your thinking. You presume that all brokers want you to be successful, which isnt that way. 90-95% of all traders loose their money, and some brokers simply bet on this and dont hedge anything. And like any other company in the world which has an interest to increase their profits, exactly these brokers optimize the conditions which help their clients to loose faster.

And to make myself clear, I dont claim that every broker who offers a high leverage is not serious, I just say that this is an evidence, not a proof, and if a broker offers an obvioulsy too high leverage, one should take a deeper look at the company and their reputation.

Profitable is only that leverage which can be used with a lot size that suits your account, your success rate, your profit factor and your maximum consecutive losses - and all this by never forcing you to decrease your lot size because you dont have enough margin anymore after a regular series of losses. And due to the fact that most people simply have no clue how to calculate this, its an easy method for such non-hedging brokers to optimize their own result and to speed up the losses of the clients - cause its their profit.

In other words: Be careful and get used to risk & money management.

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