@Michalis - This should be interesting; so why is that best?

The required.margin for holding a possition equals Possition Size/Account Leverage

A higher Account Leverage will therefore reduce the required margin which in turn increase margin level and.reduce stop out chances.

Michalis, and what percentage of equity available would you advise people to risk per trade?

@Antonio - Your question is a very good way of getting to the main issue. I am not 100% positive the op isn't just kidding around and seeing who responds.

Correct me if I wrong but you can increase profit with higher leverage but in same time you have great chances increase your losses.

You will be closed when your negative PnL hit certain level of your balance(which not depends on leverage) but not equity.

Of course, I can be wrong...

Hi Antionio.

This is a very good question.

However the only person who can answer this question is the person trading.

Unless you experience the feelings of seeing your equity being in a negative state you cannot be the judge of this %.

Increasing the percentage of equity to be risked has the benefits of

* Allowing you to stay in the trade longer as you wait for it to turn in your favor.

* you to take a bigger position size earning a bigger reward

The above two will come at a come cost however and that being having to see the equity decrease.

Another good factor to decide how much to risk per trade is to do the following trade plan.

Decide how much you can accept to lose overall in a year. For example 30%.

Once you lose 50% you stop trading.

Assume the year has 50 trading weeks for simplicity, this will imply you can lose 1% per week.

So you can distribute this 1% per the trades you perform per week.

Mike

Michalis,

Trading at leverage above 20 is not trading but gambling. There are special institutions to do that, they are called "casino's". But of course, that is just my personal opinion. I wish everyone the best of luck getting investor money with this kind of risk/leverage.

That being said, it seems like your "account 2 " exemple in your article is somewhat 'fishy'.

How can you have an equity of 400, a leverage of 100 and a position of 100.000 ? That would imply a leverage of 250 (100.000/400), or do I misread your article ?

regards

I have been a professional trader for well over a decade and have traded FX (cash and/or futures) during most of that time. For the relatively junior traders who may be reading this, the premise being put forth is at a minimum dangerous and virtually guaranteed to drain your account.

Even if you happen to be the trader who through sheer luck wins the leverage lottery for a trade or even for a period of time, statistically it will eventually catch up to you, not to mention, the odds of you being that trader in the first place are infinitesimally small.

@Michalis - how is it that you can state positively that higher leverage is a good thing but equivocate to the position that only the individual trader can answer the question as to what percentage of available equity should be risked per trade? Mathematically, you cannot separate those two numbers.

No disrespect meant, but do you actually trade for a living vs read/write about it or trade as a hobby? I do not concern myself with the trading style of any particular individual, that is their choice and none of my business, but I am concerned that traders just starting out can't tell bad, bordering on irresponsible advice from a new and wonderful way to trade leading to untold riches.

Dear Scott

There is difference between Account Leverage and utilised leverage.

Account Leverage is how many times you have the ability to multiply the investment amount.

Utilised Leverage is how.many times more you have actually invested your amount.

The 2nd one is the one that is the killer.

Having a posittion of 1 Lot in a 10k account means you have a utilised leverage of around 10.

However I have not mentioned at all if the Account Leverage is 10 or 1000 as is irrelevant to the utilised leverage.

The higher account leverage however will reduce the required margin (position size/leverage) which is what makes it a good thing

Dear Michalis,

If you are making the point that a higher leverage means reduced margin requirement, than my friend, you are a menace to new traders. By doing what you suggest, you just postpone the margin call and so let losses run. As Scott, i am in this business for decades and the very first lesson I have been taught is to never wait for the margin call. So, advising youngsters to use high leverage (not to use it) in order to postpone margin calls is insane advice.

@Michalis - I appreciate your thoughts on educating me regarding leverage and yes, I understand the difference between account and utilized leverage.

Let me point out a simple truth - if a new trader has the account leverage, they will eventually use it and I can guarantee it will be at the worst possible time. On the other hand, if one doesn't intend to use that leverage and knows doing so is a terrible idea, why would anyone seek out an account that offers it?

I trade through a prime broker so in one sense I have virtually unlimited leverage and yet I never use it; I am never anywhere near my risk limits. First of all I would have the risk manager all over me in a heartbeat wanting to know what was going on and secondly, one of the absolute best ways to tell if you are over your head with a position is to look at what your effective leverage is (backing into it based on where you are relative to your internal risk limits) and/or, how do you feel with each pip movement for or against you.

If your effective leverage is high or you feel elation with each move in your favor or feel despondent with each move against you, I promise you are very likely in trouble (even on the upside). It may not be this trade or the next one but you will lose a substantial percentage of your account sooner or later.

I am still curious as to whether you trade for a living and therefore speak from practical experience as a trader. On the other hand, if you are on the broker side, then of course I completely understand why you want people to have high leverage. Nothing sells a new account like the tantalizing prospect of riches based on opening an account with the equivalent of $400.

The best possible leverage to survive is MAYBE 5:1. The more you risk the sooner u are out.

High leverage is how the markets thin the herd. Seen too many incidents and known too many players that suddenly owed creditors more than or multiple times their entire net worth. Further, whenever they were winning they were self congratulatory regarding their brilliance. When disaster struck, it was bad luck or someone else's fault. Then they sued our company.

@ Larry - well put.

During my compliance management days I was constantly under pressure to bend the standards to accommodate clients and salespeople attempting to reach for trade profits and commissions. Some clients actually threatened to sue if they did not get their way. Bull markets and loose credit conditions produce such an atmosphere and we are clearly within such a state today. I never capitulated to the hounding but it was easy to find firms that would. The aftermath of the prevailing cycle promises to be the messiest yet.

@Larry I would think that compliance management has to be one of the most thankless jobs on the planet. I bet if the trade would have worked out but they got margined out before price turned in their favor, it was your fault, if price kept going against them, they railed against you for not having made them close their trade earlier. In fact, I bet 90% of their losses were somehow your fault.

Clearly you understand how it all works in real time with real people. The fact that I accepted the role likely speaks to some intellectual deficiency lurking within me. One particularly lingering memory is going to war with clients during the dotcom and related IPO frenzy. Some brought checks directly from closings on credit lines from their banks and demanded that they be allowed to trade. Our interpretation of Reg T was stricter than most so I drew the line at allowing suspected home equity money from diving into raw speculation. Plenty of litigation followed the break down of the bubble but it could have been worse although hard to imagine how much worse. I also told brokers that their smarter and most accomplished clients would become blithering morons after blowing through the milk money and the children's education funds. They did not believe it until the papers were served. Now we operate in an environment where accountability is increasingly hazy. Most intermediaries operate upon the basis of minimal responsibility since they are acting as conduits or carrying out instructions from self directed parties, individual and others. However, the legal question when the bull breaks a leg is whether or not these intermediaries acted as enablers who overlooked and ignored deficiencies and excess risk assumption that any reasonable person could have detected or suspected. The probability of prevailing in litigation does not preclude litigation. Since arbitration is the common path, intermediaries are at far greater risk than they believe.

I agree with you on all counts. A risk manager once came to me and said - given your track record, we would like you to trade more size. I replied - how do you think I got this track record in the first place? I never trade larger size than the model says to trade and I never trade just to trade. As Marc mentioned above, if you want to gamble go to a casino.

We must have been trained by some of the same people. I was told early on, if you find yourself in a hole, the very first thing to do is stop digging.

In response to the published list of brokers which offer high (extreme) leverages I would like to say that selecting a high quality broker is by far more important than having an account at high leverage, especially since, conform your recommendation, one better should not trade on high risk.

Thank goodness I didn't read the list of brokers and their leverage the first time I looked at the article; I would have just about come unglued (which is not to suggest I am not there at the moment).

@Michalis - that list borders on criminal, in fact, in the US those numbers would be illegal. Either you are selling something or have zero understanding of how having that kind of leverage will turn out - not might turn out, not probably will turn out but how it will turn out.

I can truly say I don't know how the other moderators even let the post get through. I would have had a very short debate with myself (I am a moderator) as to whether it should be put in promotions or delete it outright. I can say unequivocally that if I had been the one to see it, followed the link and read down through the bottom, the choice would have been very easy.

If I see anything like this again, I will delete it and if I see it a second time, I will have you banned. It really is that irresponsible.

This article is absolute bullshit and border illegal in most countries as it is misleading to the unwary investor.

First of all, as has been said before, the relevant measure of leverage is debt-to-equity : if you are trading on a 1:30 leverage (which is basically an LTCM like leverage and bordering insanity even for a reasonably safe strategy for a hedge fund, never mind forex for a retail) with an additional pocket of cash equivalent to your initial margin, you're basically trading on a 1:15 leverage, period. Your PnL will be the same, this is absolutely equivalent.

Second, if you trade 1:30 on half your portfolio with the other half in cash, you'll have the money to meet your first margin call, sure. The only thing is that, for a given volatility you'll have more margin calls (the exact number depends on your return distribution). Basically, you're setting a stop loss, that's it.

High leverage = high risk. Even for a well hedged institutionnal portfolio this is risky as your basis risk can take unexpected turns (guess what happened to the guys hedging Corps using AIG issued CDS and who had to firesale the bunch of "treasury-like synthetics that earns a few bps more than treasuries" because of high leverage ?).

For a retail investor, and this article certainly targets them, given that it explains, poorly, the concept of collateral, this is absolutely insane to advocate the use of anything more than single digit leverage, even for a "safe trade" like buying a house. The numbers I see in the advertisements at the bottom of the page are absolutely ludicrous and criminal in nature in most parts of the world.

I reported this article as spam because :

* this is a thinly veiled advertisement

* it constitutes, in most western countries, an attempt to defraud investors

* Some of the other articles on this site are even worse (yes it is possible) than that, especially the "loss recovery" article.

* The website in question doesn't state its location or legal owner but appears (whois) to be operated from the US. In which case it is illegal as hell.

Scott, thanks for the diligence. When dealing with a list such as the one noted the due diligence is relatively simple and easy. The players fail to meet the most basic test which is the "this must be a joke or else it is a scam" test. Bull or bear market in any sector at any time and the schemers are always working the turf intensely.

@Larry - you are quite welcome; one of my duties as a moderator is to watch out for newer traders that might not understand what was being said and why. I appreciate you and several others taking the time to weigh in against this sort of nonsense.

Hi guys

I was not expecting so much controversy to be caused by this post of mine.

The position from which I am operating is as a blogger. I am sharing a blog post.

If this Linked In group is only aimed to US Traders where the leverage is capped to 50 then by all means please delete this post.

The title of this post does not sound appropriate but I explain my arguments within the post.

I do not know how many of you have read the post ( I can understand quite a few did) but the point I am trying to make is not to trade with a higher leverage (Open a trade positions much greater than your equity) but instead have an account that offers that ability for the reasons I describe in the post. Mainly because it will reduce the required margin and delay the margin call.

I can still appreciate the fact however that you still do not agree with this argument ,mainly cause

* a delayed margin call will involve bigger losses

* you have more leverage capability available you will be tempted and overuse it.

However this is just an opinion.

At no point I state that you should trade 1xxx times bigger.

I state at the bottom of the post

"But just because you have selected to have available the biggest possible leverage offered this does not mean you will have to trade the maximum size your leverage allows you. That will be extremely risky and unwise."

Thank you and no harm aimed at any investors.

@Michalis - Fair enough, I personally will give you the benefit of the doubt on this. The group is not aimed strictly at US members, in fact, of all the moderators, I am the only one in the US. I do agree that many trading issues are subject to interpretation and without a difference in opinion no trades would ever take place.

I think the opinions of the more senior traders in the group were pretty clear cut; taking those opinions into consideration may be worth one's while.

@Michalis It's not personal and I'm ok to give you the benefit of the doubt, especially since you seem quite young. Basically I have a grunge against this kind of business for several reasons :

* first they put an emphasis on over-leverage, especially for retail, and even more for small retail accounts. One of the advertised business on your post is for a company that offers 1:2000 leverage (which is mad) for accounts up to 3000 USD. After that the available leverage diminishes by a factor of 20 (1:100 over 200k). Clearly they're concerned for the risk they run, not the risk their smaller clients run. There is no excuse for that, especially given the dement leverage (any idea of what of 1:2000 leverage would do when the BNS dropped the peg ? a loss of 500 times your capital, as the market gapped brutally).

* then they advertise using unlikely success stories. At best they're the one in a million lucky guy (with this kind of leverage, EVEN if you can gauge the market sentiment accurately 9 times out of 10, you will last about two weeks). Most often they're completely made up stories : most of the guys making money on that business are retail brokers or miracle advice sellers.

* gambler's ruin ensures that a highly leveraged player will lose its shirt. Basically if you continue to play, at one point volatility will make you broke, no matter how high you went. Once you're ruined, you cannot play again and recoup your losses. This is asymetric. Investing is not a zero sum game : on average companies are making money, investment is efficient (with limits especially in a ZIRP policy). The more you leverage (and the less you diversify, another subject I'd like to talk about), the more this upward bias is negligible, and the more you're likely to be a victim of the gambler's fallacy.

* You are right on one thing : it is usually better for retails to buy USD 90 000 of treasuries and invest USD 10 000 at a 1:100 leverage than investing USD 100 000 at a 1:10 leverage. Simply because usually brokers don't try to recover negative balances on this kind of account, for fear of bad publicity and legal challenge. In the first case, the broker basically writes you a put option. It is however to be balanced with counterparty risk : that option might be free or almost, but if the broker is unable to deliver if you're on the winning side of the trade, it is worthless. Usually the brokers offering higher leverages are the shittiest and bet the farm on being able to cash enough deposits before they're eventually forced to declare bankruptcy.*

If the last point was your point, I STRONGLY suggest that you check the financials of your brokers. This kind of option is worthless if the broker is no capable of meeting its financial commitments.

I'm more than willing to discuss the subject : it is a bit boring financially because it is very basic, but it impacts a lot of people, so I guess there is an interest in explaining the thing.

*to be honnest, if your risk management is better than that of your shitty broker you "might" be willing to pick up nickels in front of a tractor (ie. small gains with huge tail risks), and then let the shitty broker pick up the tab when it eventually goes south.