I would have to say that maximum leverage is the road to ruin for both the trader and the brokerage house. Lightning bolts come out of the blue all the time and if you get struck while maxed out, you are an ex-trader. It also increases the risk of unsecured debits which can take down a brokerage house. I've seen the former hundreds of times and the latter a couple of times. Searching out a house that will let you trade the most with the least says that you are a gunslinger and likely to end up dead. For a house to market the same tells me that they're willing to take excessive risk and could end up the dead as well.
of course trading past a certain leverage in the wrong market conditions by an inexperienced trader is going to blow up the trader - but what is maximum leverage? there is no such thing - there is a right amount for each trader and his trading style which includes money management all the points on here so far are failing to say what the absolute correct leverage is - since there is no absolute figure
maximum leverage: one MiniSP is currently worth about 55k. If you have a broker who lets you trade this one with 2k like IB (4%), this is the lower border of what still seems reasonable to me. If you are margined at an even lower rate (<1k/ct.) (as retail guy - not to mention pit traders), you will get killed so quickly you will not even take notice.
saschabr you mean - what seems reasonable to you - relative to your style of trading or a beginer or?
Stevet I can see what you are saying. I think we're caught in a tangle of terms. I think the right term for what you are describing is Optimal Leverage which would vary based on the trading conditions and what your method/system and money management. Max Leverage is the most # of cars your broker will allow you to trade based on your accouont size.
TriPack absolutly the point is that the amount your broker will allow you is just an amount to protect the broker and the opening leverage for a position is not the only factor - how far will the broker allow you to take a losing position is far more important and dangerous every trade carries risk - and your job as a trader is to evaluate that risk and then use the applicable leverage i have always made the most money when i have had a great day trading and then based on the profits i had made - take the leverage to the hilt - and then made a bucket more other days when the market chopped and i took the leverage down, since the risk/reward was low - i did not do well, but was still sitting on the big bucks i had made from high leverage days there is a lot more to leverage and risk/reward than just saying leverage is dangerous - its complex and probably trader dependent
Stevet, Reading what you've posted about taking your leverage to the hilt runs chills down my spine. It may have worked so far, but the day it doesn't may be your last day as a trader. When I was much younger I used to do this, "Why not make as much money as possible?", then one day I saw my trading account (and my livelihood) sliced in half in a matter of seconds. It took me a few minutes to close all of my positions, and a few more to recover from the terror. When I finally had a chance to try to figure out what happened, I looked and saw a one line item on the wire about a nuclear plant in Russia blowing up. After that I spent two months losing money one or two ticks at a time because I was too terrified to hold on to a position if it even smelled like it was going against me. I realized that trading for a living and consistently losing money are incompatible so I went into the catering business for a year and found out that I like to cook, but I hate to cook for pay. Take my word for it, those cute little appetizers you eat at a cocktail party are no fun when you have to make a thousand of the little buggers.
Stevet, Yes I am a trader, and I come from a trading family. I've heard about trading and managing risk all my life around the dinner table, but I still had to have the markets teach me a very harsh lesson before I understood. Fortunately all it cost me was half my account and a one year 'clear my head' break from trading. Many aren't so lucky. I understand what you are saying. When trading is going well and you are making money, you like to margin yourself to the hilt. When trading is choppy or there is a known market moving event such as a govt. report due, you scale back. My point is that it's the unknown event that strikes while you are margined to the hilt that will take your account away from you.
can't say that way... it is just my impression WHAT still is reasonable. e.g. if one owns 40k and has a broker where he trades 40 ES with this money (just trading - no say-so 70% safe system), this is never reasonable, however, it is my opinion.