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rsksmiles

Newbie
3 0
Hi I am new here.

I intend to trade stocks using MT4. I have opened a demo account and am trying to get my head around leverage.

What concerns me is the loss side of things (doesn't it always?). I am worried that when the price goes against me and I want out that the change will wipe out my equity due to the leveraged nature of the trade.

Obviously I can limit this with stop loss orders using correct money management but what if my internet connection goes down at the worst possible moment?

Am I over worrying here?
Are stop loss orders adequate for protecting a leveraged trade?

If I am showing my ignorance - please point me in the right direction.
 

tar

Legendary member
10,443 1,313
If you mean individual stocks then you shouldn't use that much leverage , stocks can gap against you due to some announcement , stops aren't guaranteed and in that case your stop wont protect you due to the gap and slippage , so either trade small or dont trade stocks ... ofcourse some cfd brokers may let you add a guaranteed SL but it will cost you .
 
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rsksmiles

Newbie
3 0
If you mean individual stocks then you shouldn't use that much leverage , stocks can gap against you due to some announcement , stops aren't guaranteed and in that case your stop wont protect you due to the gap and slippage , so either trade small or dont trade stocks ... ofcourse some cfd brokers may let you add a guaranteed SL but it will cost you .

Thanks for the reply.

So now I am really showing my ignorance ... and I hesitate to ask this .. what instruments do not gap?

Just looked at forex (eur/usd) and it doesn't appear to gap. Can I ask how come? Is it not dependent on the same pressures as stock prices?
 
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tar

Legendary member
10,443 1,313
Thanks for the reply.

So now I am really showing my ignorance ... and I hesitate to ask this .. what instruments do not gap?

Just looked at forex (eur/usd) and it doesn't appear to gap. Can I ask how come? Is it not dependent on the same pressures as stock prices?

What you mean by stocks ? do you mean individual stocks like Yahoo , Microsoft ... etc or you mean indices like Dax , Dow ? Anything can gap but in individual stocks its much bigger if there is an announcement from the company in question ( sometimes it can be 20% or even more ) , however currencies and indices may gap just a little if there is big news like NFP or sudden change in interest rates but its usually small and it doesn't happen often , however gaps over the weekend may be bigger : Ukraine ... etc .
Anyway you should always use proper risk management and you shouldn't use too much leverage .
 
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rsksmiles

Newbie
3 0
What you mean by stocks ? do you mean individual stocks like Yahoo , Microsoft ... etc or you mean indices like Dax , Dow ?

Individual Stocks

Anything can gap but in individual stocks its much bigger if there is an announcement from the company in question ( sometimes it can be 20% or even more ) , however currencies and indices may gap just a little if there is big news like NFP or sudden change in interest rates but its usually small and it doesn't happen often , however gaps over the weekend may be bigger : Ukraine ... etc .

I have dug a little deeper and I have seen it explained that in the FX market their is much higher liquidity (more buyers and sellers) and so the chance of the price gapping by a lot due to a slow period are non existant. Also during the weekend there are the external events like the Ukraine but also the fact that banks continue to buy and sell currency meaning that the gap is created as (I guess) the price data is not visible/ distributed.

Anyway you should always use proper risk management and you shouldn't use too much leverage .

The broker I am demoing with is GCI who have 20:1 leverage/ margin requirement for individual stocks which I can cope with - 400:1 kind of scares me. I have some money that I am prepared to lose (in order to learn) although I do not want to lose. But with the high leverage I do not want to see that wiped out AND having to write a substantial cheque !!!

Up until now my learning has been limited to my own emotions during some day trades and TA and putting together some strategies that I am comfortable with. It is scary how risking 20€ in an unleveraged stock trade sets the adrenalin pumping !)

Thanks for your time and patience.
 
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tar

Legendary member
10,443 1,313
Banks are closed during the weekend so there's a possibility for a gap in FX , usually its small and it doesn't happen often , just look at your charts .
Also don't forget unlike US indices and forex , individual stocks only can be traded for a few hours a day - during stock exchange session - , and if the stock opens with a gap the next morning , your stop wont be executed at your desired level if you hold your position overnight .
Leverage : If a broker offers you 400:1 or 20:1 it doesn't mean you should use that level of leverage , you may choose to trade smaller and don't go up to a leverage of 20:1 in your stocks trades .
 

SydneyFXTrader

Newbie
3 0
Thanks for the reply.

Just looked at forex (eur/usd) and it doesn't appear to gap. Can I ask how come? Is it not dependent on the same pressures as stock prices?


Any currency has the potential to gap - The risk is greatest after the Friday close at 5pm New York time and when the Market opens again on Sunday night (New York time which corresponds with the Monday morning in Asia). The re-opening of the market is the first time it has a chance to react to any weekend news. Just be aware that the risk exists and factory into your trading plan. My trading plan states that I close all trades on Friday night before I go to bed. I've been stung once and won't do it again.
 

emery1990

Junior member
10 0
I went down this route, doesnt take long to loose all your money, yes the gains are big when you do win but the losses are big too! Being new and excited I was doing a lot of spread betting (longs) on the turn of the eurozone crisis.

Long story short I lost all my money with in 2 weeks! It was money I could afford to loose, but just annoying I lost it by not educating myself enough, and taking on leverage.
 
 
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