forex - how much leverage to use

codenaruto

Newbie
4 0
hello,

i would like to know what leverage level should i select from my forex broker i have decided to go with dukascopy which offers 1:200.

personally, i think 1:100 seems a lot i would gear myself toward something like 1:15.

any input on this would be greatly appreciated.

Thanks
 

Rhody Trader

Senior member
2,620 266
As long as you have enough available leverage to employ your preferred trading strategy, it really doesn't matter - unless there is some cost/opportunity cost to having to post higher amounts of margin.
 

BobbyBB

Active member
176 8
personally, i think 1:100 seems a lot i would gear myself toward something like 1:15.

Good move. Many think that more leverage is better but all it does is offer more rope to hang yourself with.

Somewhere in the 15 to 25:1 is perfect for most. Always think in terms of potential losses, how will you handle a string of them, how will the level of leverage you use effect your trading when you hit that rough patch.
 

pikolo

Newbie
3 0
I think 1:25 to 1:50 is the average leverage that anyone could start with. It is best to use a lower leverage if you have not yet mastered the art of trade. You can always change your leverage in the future.
 

Bruce1

Newbie
1 0
Only amateur traders think in terms of leverage. Experienced traders and certainly professionals think in terms of risk. A decent risk limit for a professional FX trader would be something like a 95% daily VaR limit of 3% of the capital committed to the trader. The VaR limits might change depending on how the trader has been doing recently. In particular, losing traders get their VaR limits reduced so that they don't blow themselves up trying to get back to even if I am managing their risk.

In most cases leverage isn't clear as they are trading off a pile of cash in a prime brokerage account and as long as there is sufficient margin for the trade there is not an issue. Using leverage as some proxy for risk is just dumb. Levering up 30:1 on the Eurodollar rate 2-years out is not a very risky trade. Levering up 4:1 on a natural gas trade would be a very risky trade.
 

ffsear

Senior member
2,166 444
Only amateur traders think in terms of leverage. Experienced traders and certainly professionals think in terms of risk. A decent risk limit for a professional FX trader would be something like a 95% daily VaR limit of 3% of the capital committed to the trader. The VaR limits might change depending on how the trader has been doing recently. In particular, losing traders get their VaR limits reduced so that they don't blow themselves up trying to get back to even if I am managing their risk.

In most cases leverage isn't clear as they are trading off a pile of cash in a prime brokerage account and as long as there is sufficient margin for the trade there is not an issue. Using leverage as some proxy for risk is just dumb. Levering up 30:1 on the Eurodollar rate 2-years out is not a very risky trade. Levering up 4:1 on a natural gas trade would be a very risky trade.

Pretty much sums up my thoughts on the matter (y)
 

Shakone

Senior member
2,458 665
Only amateur traders think in terms of leverage. Experienced traders and certainly professionals think in terms of risk. A decent risk limit for a professional FX trader would be something like a 95% daily VaR limit of 3% of the capital committed to the trader. The VaR limits might change depending on how the trader has been doing recently. In particular, losing traders get their VaR limits reduced so that they don't blow themselves up trying to get back to even if I am managing their risk.

In most cases leverage isn't clear as they are trading off a pile of cash in a prime brokerage account and as long as there is sufficient margin for the trade there is not an issue. Using leverage as some proxy for risk is just dumb. Levering up 30:1 on the Eurodollar rate 2-years out is not a very risky trade. Levering up 4:1 on a natural gas trade would be a very risky trade.

Only amateurs eh? :)

Well, if I use leverage of 1:1 I know exactly what is at risk. If you use VaR, and don't know your leverage, you do not know what you're risking. Agreed?
 

TheLastBear

Active member
125 2
Leverage is not the problem. It does not matter if you use 1:1 or 1:1000. What is more important is how you use leverage and that your money management is good. You can calculate how many pips you can allow to move against you and how much capital you should put in each trade.

I know plenty blame leverage on losses, but when it comes down to it the tool is not wrong; the user is to blame.
 

ph_trader

Well-known member
413 6
traders with large accounts lean to smaller leverage for lower risk but the reward is always good for big accounts, I trade on a 1:500 leverage and thinking of reducing it, though the broker i trade with hotforex offers as much as 1:1000.
 

LogicalTrader

Newbie
4 0
Leverage does not matter since it does not determine your pip values. That is determined by your trading size. Use a correct risk% (1 - 3%) is good on each and every trade and you will avoid blowing your account.
 

TheLastBear

Active member
125 2
Leverage does not matter since it does not determine your pip values. That is determined by your trading size. Use a correct risk% (1 - 3%) is good on each and every trade and you will avoid blowing your account.

I think to many focus on leverage and blame it for losses, when indeed they should blame themselves for improper money management. Leverage is a great tool if you know how to use it and a devastating one if you are careless.
 

Shakone

Senior member
2,458 665
Leverage does not matter since it does not determine your pip values. That is determined by your trading size. Use a correct risk% (1 - 3%) is good on each and every trade and you will avoid blowing your account.

In terms of the leverage you actually employ, for those who say leverage doesn't matter, please tell me the following:

If you employ Leverage of 5:1, what % move in the underlying will be needed for you to lose your account? How often does a move of this size occur in your trading instruments?

Leverage 100:1, what % move in the underlying will be needed for you to lose your account? How often does a move of this size occur in your trading instruments?

Leverage 400:1, what % move in the underlying will be needed for you to lose your account? How often does a move of this size occur in your trading instruments?

Then if you've determined those. What is the largest gap on any instrument that you trade since you've been trading?
 

wackypete2

Legendary member
10,229 2,054
People throw around terms such as limits, risk, leverage, percentages, etc... and yet most of them can't reasonably define any of them. What is a 1% or 3% risk of your money? Can you structure a simple trade to guarantee that risk parameter will not fail you? (options traders need not reply).

Peter
 

LogicalTrader

Newbie
4 0
The simplest way to look at it is in the example below:
For this example assume the following:
Account equity of $5000
Risk Per Trader 3% = $150

Taking the risk per trade of $150 you then use your preferred analysis method to determine where a reasonable stop-loss level would be placed based on your considered entry point, the markets range (this avoids getting knocked out of your trade by regular price action) and other important levels of support and resistance. The real point of the stop-loss level is to get you out of the market at a point where your analysis would indicate a trade in the opposite direction. If you determined that level would be 30 pips away you then divide your risk per trade by the distance of your stop level to determine the correct volume for your trade. In this case: $150 / 30 = $5, therefore your trading volume = 0.50 ($5 per pip – based on standard lot sizes)

As you can see leverage really only determines the amount needed to open your position and servers as more of a logistical item in your trading. Leverage should not factor into your risk process. Where most new traders go wrong is trading in size that is not appropriate for their account.

Size kills in this market.
 

Mr. Crabs

Established member
598 3
As long as you have enough available leverage to employ your preferred trading strategy, it really doesn't matter - unless there is some cost/opportunity cost to having to post higher amounts of margin.

Agreed the more leverage the merrier just treat the lots like real money and relate it to what you can afford and you won't be taking more risk than you would have trading on low leverage.

It also gives you the opportunity to plunge deep if you're very confident, jumping full in 1:3000 leverage on the EUR dive Monday morning and you would have made 3,000% profits in one day! On the other hand if you bought 10 lots on high or low leverage you're still essentially taking the same exact risk...
 
 
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