Does it matter to go past such a leverage ? I am currently in the process with demo account, planning to go live in 6 months (yep, I belong to the cautious clan). I would say that 1:100 is perfectly OK, a bigger leverage would be hard to manage. Curious to know what you think of it ?
100:1 is too much. A much better ratio is 20-50:1 leverage - less chance of blowing out your account. Any broker who is giving you more than 100:1 is hoping you will use it because stats show those that use it will blow out their accounts, and thus dealing desk broker does not have to return your money. You are not part of the cautious clan if you are even considering higher leverage.
Think about it guys, what is leverage and does it really affect risk, or doesn't it make any difference? Do a couple of examples using say 50 and 500 leverage....
If you are using any leverage over 20:1, I want to be on the other side of your trades You are nowhere near ready to trade if you don't grasp leverage any better than this.
Leverage is good as long as you don't put all eggs in one basket. For example, you could use 25% of BP for trading 25% for averaging and 50% of it for hedging.
sometimes i will use leverage of up to 150:1 if i think its a great set up, that number to me means nothing. i ALWAYS know what my max loss is and use stops.
The issue with leverage is that most people give you an opinion based on the context on which they use it. In my opinion, leverage is only an issue when there is no liquidity or if trading futures the market gets locked limit up or down. I think most traders are far from running into liquidity issues and most don't trade futures but spot. LTCM leverage was never an issue until liquidity dried up. Then we have to discuss stop losses and % of capital lossed per trade....blah....blah....blah!
Exactly! Actual leverage used is a by-product calculation, risk is where the calculations start, not some arbitrary 20, 50, or 100:1 limit on leverage. There is no mandatory limit to leverage used or standard answer to the question 'what's the maximum leverage I should use'. The OP needs to work out his risk first, then work out how much price has to move to prove his analysis wrong (his stop), and from there work out the size of his trade. Not that it's important, but from those calculations he'll then be able to see what leverage he used for the trade if he really wants to know the number for some reason.