leverage?

so i know risk return is important , but i was just wondering what kinda of leverage everyone here uses in regards to $/point.

im only demo at 50:1 leverage, with say a 10,000 account what kind of $/point would you use on cable for example?

$/point is only meaningful when one considers the points risked. For example, risking $10/pt on a 10 point contrary move risk is the same as risking $1/pt on a 100 point contrary move risk.

a BILLION TRILLION to one

Cable_Loonie said:

so i know risk return is important , but i was just wondering what kinda of leverage everyone here uses in regards to $/point.

im only demo at 50:1 leverage, with say a 10,000 account what kind of $/point would you use on cable for example?

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There is margin and there is leverage. 50:1 is your margin, not you leverage. For face value of 50K you must put down 1K. Your leverage will depend on your capital because is is defined as assets/equity. Many confuse the two. I have heard so many times people arguing that Forex is risky because of the high leverage. Actually, it is low margin. The leverage depends on your capital. You can have 50:1 contracts but your leverage can by 1 or even 0.5. This is a good paper everyone should read.

My leverage is always less than 4 and most of the times around 2 in Forex. In equities I never use leverage. In futures my leverage never exceeds 2.

a rule of thumb (for me at least) is risk 1% per trade. so for a 10 000 account that will be 100 bucks. now if you used a 50 pip stop you could do 2 bucks per pip. you get the general idea. this strategy will keep you around longer and as long as you using a ratio of risk 1% to make 2 to 3 then you have a good chance as long as you have an edge.

intradaybill said:

There is margin and there is leverage. 50:1 is your margin, not you leverage. For face value of 50K you must put down 1K. Your leverage will depend on your capital because is is defined as assets/equity. Many confuse the two.

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And you've just added to that confusion.

In accepted market parlance, 50:1 is a leverage ratio indicating a position 50 times the size of the funds employed to open it. The modifiers "permissible" and "employed" (or several others) are used to indicate whether you're talking leverage allowed by your broker or the exchange (based on margin requirements in the latter case) or the amount of actual leverage you are employing relative to your account balance. In either case, leverage is related to your account in terms of indicating either how large a position you have related to it, or how large a position you could have.

Margin, on the other hand, is specifically related to position. In forex, you must put up 2% margin on a position where 50:1 leverage is what your broker permits. In futures you must put up $2500 to trade a $100,000 T-Bond contract (or whatever it currently is). You will not hear experienced traders say "I'm putting up 50:1 margin". That's incorrectly mixing terms.

I have heard so many times people arguing that Forex is risky because of the high leverage. Actually, it is low margin.

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Forex is risky when people abuse the high leverage available to them.

arabianights said:

a BILLION TRILLION to one

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Rhody Trader said:

And you've just added to that confusion.

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John, there should be no confusion. The broker offers 50:1 leverage so that for 100K face value you must put down 2K. The leverage of the broker actually defines the margin. The leverage of a trader depends on account size. If you have 100K in the account and you go long one big lot EURUSD then leverage is 1. What is confusing about it? I also think the paper I posted was very helpful and clear about this and a good resource for newbies.

Bill

intradaybill said:

John, there should be no confusion. The broker offers 50:1 leverage so that for 100K face value you must put down 2K. The leverage of the broker actually defines the margin. The leverage of a trader depends on account size. If you have 100K in the account and you go long one big lot EURUSD then leverage is 1. What is confusing about it? I also think the paper I posted was very helpful and clear about this and a good resource for newbies.

Bill

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If the broker offers 50:1 leverage on a 100k account then you could either put 2k down per lot OR hold a 50 lot position. You are just confusing matters. 50:1 leverage can be abused by holding a position 50 x your account size OR it can be used as a tool for holding more than one position (margin).

To answer ops question, I just define my risk in terms of % capital at risk divided by stop size ($100 risk \ 100 point stop = $1 per pip) as forker has already mentioned.