Leverage and Trade Size

If you don't know where to start, start here! Don't be afraid to ask questions.

Moderator: moderators

User avatar
eudamonia
rank: 500+ posts
rank: 500+ posts
Posts: 536
Joined: Thu Jun 15, 2006 9:50 pm
Reputation: 0
Location: Rocklin, CA
Real name: Edward Heming
Gender: Male
Contact:

Leverage and Trade Size

Postby eudamonia » Thu Nov 04, 2010 7:56 pm

I meet with a group of local traders about once a month to discuss various things. We had several folks there who astounded me with their lack of knowledge. This is not to be boastful but I realize perhaps I know more about trading than I even realize. Either that or the "average trader" is dumber than I realize. Either way it was quite a realization.

That being said I'm going to post a few threads with things every trader "should" know and mostly regarding risk and understanding your edge:

1) Leverage and Trade Size Concepts
a. Leverage is the maximum size your broker will allow. For stocks most trading is unleveraged (unless you trade options) or at most 5:1 (for daytrading). Futures are typically 25:1 (for overnight) and Forex is 50:1 (used to be 100:1).
b. Thus if you have a $10,000 account 50:1 leverage means you can control up to $500000 worth of a currency (50X). However, at this leverage each pip is worth $50. That means a single 200 pip move against you would wipe out your entire account. Certain currency pairs have been known to move 200 pips in less than an hour. The GBPJPY might do that in 5 minutes!
c. If you are risking 1% on your $10,000 account that means you risk $100. If your stop is 10 pips that would mean you are using 10:1 leverage (assuming you are buying $100,000 worth of currency). If your stop is 100 pips that means you would be using 1:1 leverage (assuming you are buying $10,000 worth of currency).
Eudaimonia (pron.: you-die-moan-e-a) (Greek: εὐδαιμονία) is a classical Greek word commonly translated as 'happiness'. The less subjective "human flourishing" is often preferred as a translation.

Please add www.kreslik.com to your ad blocker white list.
Thank you for your support.

User avatar
bredin
rank: 1000+ posts
rank: 1000+ posts
Posts: 1032
Joined: Mon Feb 16, 2009 10:41 pm
Reputation: 0
Gender: None specified
Contact:

Postby bredin » Thu Nov 04, 2010 11:51 pm

I keep running into guys that talk of trade size in terms of margin requirements: "I open a trade with 5% margin", etc.

I usually reply with something like "I dont understand you, how much risk are you taking?"

The usual response to my question is "??"

I get the feeling from this that few people actually understand how much they stand to lose if things go "not well".... and knowing if they are overleveraged or not....

A FB friend of mine keeps posting large % gains over very small pips (even smaller than TRO), and unsurprising to me (but surprising to her) was handing back all her gains over a month (38%!) in just three bad trades.... she blamed trading at the wrong time of day :lol:

G.
Welcome to the era of "Guns and Maskies" Trading!
The previous message contains discretion. Viewer nudity is advised.
Insanity Industries Indicators Here
Insanity Industries on YouTube!

Humble
rank: 500+ posts
rank: 500+ posts
Posts: 576
Joined: Fri Mar 20, 2009 10:29 am
Reputation: 0
Gender: Male

Postby Humble » Fri Nov 05, 2010 12:27 am

.... she blamed trading at the wrong time of day

Could have been worse! :oops:
Is price closing higher or lower than something? Simple yet powerful question. ..MO

User avatar
trueblueTEX
rank: 500+ posts
rank: 500+ posts
Posts: 532
Joined: Mon Apr 12, 2010 4:38 pm
Reputation: 0
Gender: None specified

Postby trueblueTEX » Fri Nov 05, 2010 12:36 am

FB??

User avatar
ajaymein
rank: 500+ posts
rank: 500+ posts
Posts: 885
Joined: Sun Nov 09, 2008 6:34 am
Reputation: 0
Gender: None specified

Postby ajaymein » Fri Nov 05, 2010 12:44 am

trueblueTEX wrote:FB??


Facebook

Please add www.kreslik.com to your ad blocker white list.
Thank you for your support.

User avatar
trueblueTEX
rank: 500+ posts
rank: 500+ posts
Posts: 532
Joined: Mon Apr 12, 2010 4:38 pm
Reputation: 0
Gender: None specified

Postby trueblueTEX » Fri Nov 05, 2010 1:20 am

OK, there was another expression I was aware of. If it was the other one, I was gonna ask for her phone number. ;-)

User avatar
ajaymein
rank: 500+ posts
rank: 500+ posts
Posts: 885
Joined: Sun Nov 09, 2008 6:34 am
Reputation: 0
Gender: None specified

Postby ajaymein » Fri Nov 05, 2010 1:22 am

Hahahaha...in that case, I want the number as well...I'll pip her all day long =P~

User avatar
MightyOne
rank: 5000+ posts
rank: 5000+ posts
Posts: 5248
Joined: Wed Dec 10, 2008 6:33 pm
Reputation: 46
Gender: Male

Postby MightyOne » Fri Nov 05, 2010 3:23 am

trueblueTEX wrote:FB??


The only thing that you need to know about Facebook is that you shouldn't sign up ;)

User avatar
pablo101
rank: 500+ posts
rank: 500+ posts
Posts: 841
Joined: Tue Jun 30, 2009 3:10 pm
Reputation: 0
Real name: Pete
Gender: None specified

Postby pablo101 » Fri Nov 05, 2010 4:15 am

I'm slow. FB as in uck muddy? What are you stars talking about? :lol:

ZEN
rank: 50+ posts
rank: 50+ posts
Posts: 96
Joined: Thu Oct 07, 2010 9:15 pm
Reputation: 0
Location: Romania
Gender: Female

Postby ZEN » Fri Nov 05, 2010 7:33 am

trueblueTEX wrote:OK, there was another expression I was aware of. If it was the other one, I was gonna ask for her phone number. ;-)


This is good, this is a good one!!! :lol:
Today it's better!

Please add www.kreslik.com to your ad blocker white list.
Thank you for your support.


Return to “beginners forum”