Strategies to use 10x (or 20x) leverage with good risk/reward?

Discussion in 'Prop Firms' started by GeorgeSoros, Aug 8, 2001.

  1. Hello everybody and in particular Pro traders,

    Most people are afraid by high leverage but I do think they are smart ways to use it.

    As studying for my Serie7 right now I wanted to discuss with other pro traders about ways of using high leverage(10x or even 20x) with a moderated to low risk , and a good reward.

    So guys what are your strategies , how do you use your high leverage ?

    Do you use for having lots of bullets active ? Or to put a lot of buy stop or sell stop on various stocks based on support/resistance levels ?

    Thanks for that, Matt.
  2. I tend to use my professional leverage with bullets, and high priced stocks. There aren't as many now though as 8 months ago when I was searching for a professional firm.

    I like to use really tight stops on the volatile over 100 stocks.

    Arbitrage is done a lot with professional leverage.

    The bullets are another.

    I personally haven't used more than 5 to 1 yet.

  3. Thanks Robert for your comments...

    How can you make money with arbitrage ? I never understood
    how it was possible...

    Can you give some example of how arbitrage with high
    leverage can be a profitable activity ?

  4. As this type of strategies only work with small #'s of people doing this email me for more info.

    This doesn't belong on a message board.

  5. High leverage... there are some essentials to remember when firing the big guns for the first few rounds... first forget that you have the leverage, and treat the money (full leveraged amount) as if you actually had that amount on account, or half that amount (using RegT 2:1 public customer margin)...

    Next, recall that basic self protection and simplistic risk manangement techniques suggest that you never commit more than 50% availalbe towards one position (i.e. one stock, irrespective of whether you leg in, step in, or jump into the position). Hence your 10x1 or 20x1 now becomes only half that amount, which allows you to handle at most two (2) positions. Once you realize that, you no longer are afraid of the leverage, nor the actual amount. Maintaining active awareness of two or three or four positions is very, very hard to do. Hennce you would never be that sure of the outcome of taking a position, even if the duration was for 2minutes, 20minutes or 200minutes. Since you must maintain no more than 50% in one position; not handle more than 2 positions, and certainly not at full leverage, then you will no longer consider yourself as having high leverage.

    You will quickly formulate a dollar based leverage strategy instead of a percentage based strategy. Remember the opposite equation that handling a trade size of 200 shares is different from 400 shares, and different from 800 shares and certainly different from 1,500 shares or 2,000+ shares. Hence, again, your high leverage is roughly down to 25% of your full leverage, per position.

    So, the question then begs the logic of: "how do you handle RegT margin/leverage". Simply put, successful prop traders wait for the target to be upon them before firing the big guns, and at other times, simply troll the waters with 200 share committments.

  6. Actually another strategy is to be running quite a few uncorrelated systems at once. A short/long trend following system, a channel trading system, an antitrend system, news based, scalping low volatility stocks.

    I personlly don't do all of these but eventually would like to program a computer to run a few systems while I do the bread and butter trades myself.

  7. Fletch


    When you start trading at a pro firm you will develop a different mindset. I never consider what the cost of my stocks are, I just figure how many shares I'm comfortable with in any given stock at any given time. My loss risk is always measured in cents or points and rarely in actual dollar amounts. It's great to not have to worry about margin limits.

    OFC, that also means you have to have the discipline to not get in over your head, too.

  8. I'm still looking at some older threads lately.

    What has changed since this thread originally began?