Is Forex trading a game?

[Nick99]

Hey all,

I happened to come across some websites that offer X400 leverage on Forex trades, which got me thinking - can you really have any control over your trades with such leverage ?

Forex trading is complex and requires a lot research, and while most traders should be able to tell if they predict that the USD/EUR will reach .5 or 1.3 in the upcoming weeks, I believe that no one can guarantee that during the fluctuations it won't drop 1/400 ( 0.0025% ) and cause you to close your trade due to full stop loss.

so, what sense is there in using such leverage? doesn't it turn Forex trading into a game?

I'd love if someone could explain that point to me,
Thanks

Nick

 

[Rhody Trader]

I happened to come across some websites that offer X400 leverage on Forex trades, which got me thinking - can you really have any control over your trades with such leverage ?

Forex trading is complex and requires a lot research, and while most traders should be able to tell if they predict that the USD/EUR will reach .5 or 1.3 in the upcoming weeks, I believe that no one can guarantee that during the fluctuations it won't drop 1/400 ( 0.0025% ) and cause you to close your trade due to full stop loss.

so, what sense is there in using such leverage? doesn't it turn Forex trading into a game?

I don't think you'll find too many position traders who would dream of getting anywhere close to using 400:1 leverage in practice, though they certainly could trade through accounts which allow that kind of gearing. Scalpers could be another story all together.

Really, what available leverage like that comes down to is reducing your margin requirements.

As for forex trading being complex and requiring a lot of research, I suppose it can be if you want it to be.

 

[TheBramble]

Nick, margin is a useful tool to enable larger positions to be taken than your cash deposit/credit would otherwise allow.

Your risk calculation is the crucial aspect to consider and that must always be calculated on cash, not margin. And is done BEFORE you calculate position size.

Having limited your risk to whatever basis you use (1% of total cash capital available for example) you can then use the margin to establish a bigger size without impacting your risk exposure.

 

[Nick99]

Still, when you determine a stop loss, when using a X400 leverage you reach your stop loss a lot faster ( because a drop of 2 pips is suddenly increased X400 ) .
so even if you risked 20$ in X100 instead of 100$ in X20 the chances of reaching your stop loss increase rapidly.

 

[Hoggums]

Still, when you determine a stop loss, when using a X400 leverage you reach your stop loss a lot faster ( because a drop of 2 pips is suddenly increased X400 ) .
so even if you risked 20$ in X100 instead of 100$ in X20 the chances of reaching your stop loss increase rapidly.

I think you have misunderstood.

If you buy 1 lot at 50x leverage - your trade and winnings/losses are exactly the same as if you'd used 400x leverage. The trade itself is identical. Both trades will have the same margin call level.

What is different is the margin requirement required from your account. The 50x leverage account will lock up 8 times more money in your account than 400x leverage.

So theoretically your maximum trade size can be 8 times larger with the 400x account than with the 50x account.

 

[ronblack]

Hey all,

I happened to come across some websites that offer X400 leverage on Forex trades, which got me thinking - can you really have any control over your trades with such leverage ? Nick

They are just too greedy and want to pocket their customer money faster. All forex retail traders sooner or later lose their account to professional market makers. It's a fact of life. Yes, there are the lucky ones who may win some money but if they stay in the game long enough they will eventually lose everything. Forex is a zero-sum game.



Ron

 

[Rhody Trader]

Still, when you determine a stop loss, when using a X400 leverage you reach your stop loss a lot faster ( because a drop of 2 pips is suddenly increased X400 ) .
so even if you risked 20$ in X100 instead of 100$ in X20 the chances of reaching your stop loss increase rapidly.

Firstly, you shouldn't be determining your stoploss in currency terms. If you do you are almost certainly going to 1) trade too big, and 2) put your stop too close.

Secondly, I'm not sure what you're getting at with the $20 risk at 100:1 vs. $100 risk at 20:1. Those would seem to be completely uncomparable risks? If you flipped it around then you would be talking about equivalent pip moves. Is that what you're driving at?

 

[Nick99]

take for example the program I see on the t2w banner at the top of this page - "etoro".
They have a stop-loss mechanism that closes your trade once you reach -100% on your position, that means that if the currency goes down 1/4% my position is automatically closed.
Questions is: can anyone be certain that a position won't drop that minor percentage? if it was a X100 leverage the drop would have been -1%, that's a huge difference.

catch my drift?

 

[ronblack]

take for example the program I see on the t2w banner at the top of this page - "etoro".
They have a stop-loss mechanism that closes your trade once you reach -100% on your position, that means that if the currency goes down 1/4% my position is automatically closed.
Questions is: can anyone be certain that a position won't drop that minor percentage? if it was a X100 leverage the drop would have been -1%, that's a huge difference.

catch my drift?

You are making a fundamental mistake. You are assuming that each position you hold invests 100% of you current bankroll. That is not necessarily true, neither it should be true even if you are using the Kelly formula, unless your system is 100% profitable, something very unlikely.

For example, let us say you have 10K in your account, the leverage is 100:1 and you go long a 10K lot of EURUSD. If the currency pair drops 1% you will loose your margin of $100, or only 1% of your account.

Only if you go long 100 mini lots (10K each) and you are fully invested then for a 1% drop in the currency you will lose all of your capital.

Ron

 

[tr2w]

Yes, It is a money game.

 

[BBPI_FXTrader]

forex trading is a business.
i don't knwo why tarders would use so much leverage, apart from scalping and news trading. i personally use high leverage on news trading. why ? because the market moves a lot after the news and i can make a lot of money fast.

 

[Rhody Trader]

i personally use high leverage on news trading. why ? because the market moves a lot after the news and i can make a lot of money fast.

And you can lose it just as fast.

 

[bbmac]

Don't just use leverage arbitrarily...you should seek to optimise it safely to your trading system/methodology's strike rate (winning trades as a % of total trades) and resultant probability of a consecutive losing run given tat strike rate.

For example it would be suicidal to use a high leverage with a system that only produces say a 50% strike rate as at some point you could face a consecutive losing run at that strike rate of 12 trades. Of course higher strike rates can be more safely used with higher leverage.

Your first task as a trader is to preserve capital and generally speaking these high leverages offered by bucket shop brokers are designed to relieve you of your money, palying to your greed.

As an example, I have a very high strike rate in my intraday trdaing but my maximum leverage is equivalent to 13:1 and more typically between 7-10:1. Using such conservative money management removes any doubt that i will ever suffer any terminal drawdown/wipe out.

 

[ronblack]

And you can lose it just as fast.

true, losing is an event with probability 0.95 as opposed to the event of winning which has a probability of 0.05, based on experience of course, not back testing.

Forex trading is a suckers game. They offer you high leverage and then cause a lot of volatility and the result is 95% of retail traders lose.

Ron

 

[tune]

Forex Trends and Whipshaws by Bo Yoder from Articles

Created by Camtasia Studio 2

 

[Rhody Trader]

Forex trading is a suckers game. They offer you high leverage and then cause a lot of volatility and the result is 95% of retail traders lose.

Forex is neither the only place where a lot of leverage is employed, nor is it the only place were the vast majority of folks are long-run losers. The implication is that it's the traders who are the problem.

 

[data_editors]

Forex is a game for serious individuals. The ones that really put their focus to make this as a living.

You can bet small if you would just like fun or just starting out.

In this regard, here's an interesting quote from George Soros:

"If investing is entertaining, if you're having fun, you're probably not making any money. Good investing is boring."

 

[NewTrader1978]

In this regard, here's an interesting quote from George Soros:

"If investing is entertaining, if you're having fun, you're probably not making any money. Good investing is boring."

Good quote! I find that good trading requires the emotion component to be removed as much as possible but that also removes the excitement.

 

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[Torch]

Abitrarily defining Forex trading as 'complex' is unhelpful. It is hard graft which is not to say it has to be difficult.

What it requires is an ongoing reliably disciplined approach which in my case took about three times as long to develop as my actual trading strategy!

The qualities that I (simply had to) develop as part of improving as a trader have had interesting and largely beneficial side benefits in my overall 'wheel of life' as well, so I've never found the journey boring either.