Is 50:1 Leverage Enough?

1. Doyl on August 31st, 2010 9:41 pm
   

   Been practicing with 50:1 leverage already. We could see the writing on the wall. Making it work, just not making as much $$$$.Our current government seems to think profit is a crime. We investors, large and small, supply the financial lubricity that all markets need. I think Atlas is getting ready to shrug.
2. Keith on August 31st, 2010 10:01 pm
   

   Our current adminstration is a joke. Just make sure to vote your mind in November.
3. Peter Shepherd on September 1st, 2010 2:13 pm
   

   Greg,

   That was a great explanation of how your risk and margin requirements are affected by the leverage change. But, how is the profit affected, and how does it affect you to have multiple trades going at one time? THAT is the big picture I think we want to look at.

   How would the big picture look at 200:1, or 300:1, or 400:1, as far as profit and loss go?

   Peter
4. Greg Michalowski on September 2nd, 2010 8:31 am
   

   Peter..Good to hear from you.

   If you are a successful profitable trader who thrives on fully leveraged positions you are in trouble. People who are not successful traders who thrive on using a lot of leverage, it helps you lose less money. 200:1, 300:1 400:1 is just in the stratosphere. Too much leverage is not a good thing if you lose money. The more risk you take it does not always mean you will have a bigger reward. It also means you will have a bigger loss too.

   Without making any judgement, there is no doubt that more margin will be needed in the scenario of multiple positions. The question that needs to be answered is if you have 3 positions and say they all involve the USD, would they all have a correlation that in effect has you risking 9% of your account equity. At sophisticated institutions they may calculate a dollar risk position. What I mean by that is if the EURUSD is the baseline currency pair and it goes up, the USDJPY might have a 40% correlation, GBPUSD might have an 80% correlation. So the overall risk might be something less than 9%. Most retail traders don’t have such data available. What I can say is if all positioned are dollar biased the same way, that retail traders should lower the position amounts to account for the overall risk to the account. In a straight line situation with three positions, they should take 1/3 position in each.

   The point is if you have three positions that lose 9% in one move, that runs counter to proper risk management. You have a streak of 4 straight losing trades with that leverage and you took a big chunk out of your account. You don’t grow your money by losing a lot quickly. You grow it by making money steadily, catching the trends that add more value. With a higher account value 3% is more, so you can trade a larger position and build it up steadily and consistently. Take a big bet that loses even 10% on one trade is a hit.

   People will hear how funds make X-amount of dollars. On a percentage basis the numbers are much more modest. The difference, is they have a lot more 0′s at the end of their account balances. Controling RISK, RISK, RISK is the traders equivalent of LOCATION LOCATION LOCATION for real estate.
5. Josef on September 2nd, 2010 11:14 pm
   

   Once again…our government misses the boat, the point, everything. How can they regulate intelligence and money management. Makes no sense.. punish the small guy..again. Thanks. Really, are they trying to push money out of the country. I have traded between 50 to 100:1 in general from the beginning, but thought it was my choice. Not the government!!! Can this be amended or changed?? Who has the power? Another administration?
6. Greg Michalowski on September 3rd, 2010 6:49 am
   

   Josef, Thank you for your comments. I just shrug my shoulders at times, but letters, sentiment don’t work. The vote is the last option. Greg
7. lim on September 7th, 2010 11:06 am
   

   Greg,
   Good morning, where can I get the chart like yours?
   Lim
8. Greg Michalowski on September 7th, 2010 11:10 am
   

   Send me an email at greg@fxdd.com and I will send the spreadsheet. Greg
9. chris on March 21st, 2011 11:24 am
   

   you forgot to mention the most important thing, ofcource if you calculate on only 1 lot, it doesnt matter much, but that isn’t the way it works.
   if you have a 5000 dollar acount with 100:1 you can buy the double amount of contracts for the same money, what I mean is, if the margin you have to put up at 50:1 would be, lets say 5000, then it would be 2500 at 100:, so right there this is starting to work against you because you only have 5000 dollars in your acount, at 50:1 you can only buy 10 contracts because you cant put up with more margin than you have in your acount which is 5000 and the margin is 5000, so then your profit will come from 10 contracts maximum, on the other hand if the leverage was 100:1 you could buy the double amounts of contracts which would be 20, so you can imagine how much more your profits would be with 100:1, double! the damn 50:1 leverage put your profits to half which is bad, lets just face it, 50:1 sux! and it is NOT enough
10. Greg Michalowski on March 21st, 2011 12:05 pm
    

    The leverage can also work against you as weill. That is you can lose twice as much with 100 to 1. The regulators (rightly or wrongly it is not my position to comment on it) did it to protect the customer. That is there thinking. They take the stance that 100:1 is too much for most traders in the retail sector. It may not be for you. You may make good money trading, control your risk, don’t blow up, etc. In this case, it is not good for you.

    I guess my point is that most retail traders who overleverage don’t make lots of money quickly, but lose a lot of money quickly. They leverage 100 to 1 and forget that the 50 pips they risk is 6% of their account. If they used 50:1 the 50 pips would be 3% which is more proper money mgt. Again, is that the regulators concern? That is open for discussion and debate. The fact is, that despite the opposition to the idea, the reduction was still enacted.

    Thanks for weighing in Chris. I hope you understand. Greg
11. Peter on March 21st, 2011 1:56 pm
    

    Since when is it the Federal Government’s job to “protect” it’s citizens from themselves? Forget about trading a moment. This country was built by those that were FREE to risk all they had, to succeed, or to fail. Many failed and many succeeded. Many who failed kept trying and went over the top.

    The Federal Government is clearly overstepping it’s Constitutional Authority and it’s time for a broker or a group of brokers and/or traders to get together and challenge this law in court, if necessary, fighting it all the way to the Supreme Court.

    Too many people, for too long, has been laying down, and letting the Federal Government and the banksters ride over us.
12. Greg Michalowski on March 21st, 2011 2:01 pm
    

    Thank you for expressing your opinion Peter.
13. Josef on March 21st, 2011 2:40 pm
    

    I agree with Peter 100%. I can go to a casino and lose the house, car and whatever. And we all know the odds are stacked against the average person. So how, when I do research, and more research, and more analysis, does the government feel the need to protect me. It is really confusing. And none of the brokers have offered any negative comments from what I have seen and monitored since the decision came down. I get that the brokers would prefer traders to trade more, and not lose their money on a dip or backlash. But still..where is the voice for the trader!!!
14. chris on March 23rd, 2011 9:16 pm
    

    Greg, of course the leverage work both ways, but don’t forget that our main and only goal here is to make money, and we can do that best with a high leverage, in fact, the higher the better, ofcourse with prooper money managment as allways. higher leverage doesn’t mean that we should in any way stop using money managment, prooper money managment work no matter how high the leverage is, don’t fall for the statement that the government was lowering the leverage to “protect” retail traders money so they don’t blow their acounts, please let me assure you, they couldn’t care less about your money, there is other reasons behind this that we can only speculate about., what 50:1 does compared to 100:1 is bringing your possible return of investment down 50%! if you could win 10000 dollar a year, well, you can only win 5000 now, hmm why don’t I like that? cmon everybody! lets use 50:1 and get half of what we did before, horray! sounds great huh?
    Forex and other instruments where high leverage are used involve high risk, and that is someting that we accept for the possibility to get a high return of investment, so if that return of investment go down to half in a market that is still risky doesn’t sound good to me. the people trading in Forex is well informed about the risk and it’s their job through money managment to balace that risk to a minimum, for people that don’t like the high risk investments there are allways shares, but let us that wan’t high risk have it, as I wrote before, there is other things behind this than the gov caring about your money, I would more think of something in the line of they wan’t to freeze out the small traders from the market by lowering the leverage more and more, what will it be next time? 40:1? then 30:1 and 10:1 by that time Forex is not very exotic anymore. then people will go else where, this is very bad from another perspective, because of this, there will be alot of shady new brokers offering 500:1 and more, Hell I even seen 1000:1 demand supply, right, and we can already see that effect, the shady MMs are popping up everywhere, and if something is a risk for peoples money it is these bucketshops, contrats Gov, nice work! instead of protecting peoples money ( which I doubt) they did the oposit. corruption corruption

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