late apex, that's absolutely correct, but it's not quite the full story. With larger leverage offered to me, I can choose to use the same bet size but use less margin. This leaves me with more margin available to implement other, uncorrelated strategies. In theory this is true; in practice I doubt that more than 50:1 is ever very useful, based on that idea of diversification. Diversification is a bit limited in forex, I think. I have heard of people making big money using maximum leverage, but I'm sure that for every one of those there's a thousand who've lost it all the same way.
I respect the fact that different people experience reality in different ways. In my reality I have 2 accounts with different brokers one with 100:1 leverage and one with 200:1 leverage. When I make a trade with 25 PIPs profit in the 100:1 account my profit is $125 per lot. When I make a trade in the 200:1 account it is $250 per lot. Using a risk mananagement of say no more than 5% of my account, I will always make more money in the 200:1 account. The only way I would ever not make more money in the higher leverage account would be if I have a losing trading strategy in which case I should not be trading. Over a year I end up with almost 20 times as much in the 200:1 account with the same results in PIPS. There is some difference in the meaning of leverage. According to what traders consider 200:1 leverage, I have never used that if you base that on how much of an account is being used. I base the term leverage on the type of account and I get 200:1 leverage on the amount of the deposit in the trade although I am not leveraging my entire account at 200:1. That would be stupid. In a 200:1 account the results are higher with the same amount of risk and same # of PIPS profit. The higher leveraged account enables me to risk less to make the same amount of profit in dollars or it makes more profit with the same risk. And there is no "borrowed" money involved. So far the brokers have never asked me to pay back the 100 or 200X the amount of my deposit in a losing trade. At least that is how my accounts work. I'm not sure what others experience in their realities.
Agree. Besides scalping, simultaneously employing multiple weakly-correlated strategies is one case when higher maximum available leverage could be both justifiable and useful. We're talking leverage at the overall portfolio or account level, not individual strategy or trade level. At least Oanda gives you 50:1 initial and 100:1 maintenance leverage. In practical terms, it means that anyone is free to use every bit of that 50:1 BP for putting on trades (unlike, say, IB IDEALPro), without playing touch and go with a margin call. As you point out, most forex traders itching for leverage > 50:1 don't have multiple weakly-correlated strategies at their disposal and want it for anything but that (valid) reason.
MountainTrader, I am having some trouble with your math and your terminology. First, 25 pips is always going to be worth $250 "per lot", on any ---/USD pair, regardless of leverage. Second, it seems you might be using the terms "margin" and "risk" interchangeably. Risk (in %) of a trade usually refers to stop (in pips) x pip value (e.g., in USD) / account value (e.g., in USD). Risking "5%" at 100:1 and 200:1 leverage is nearly impossible, in terms of required tight stop size, barely above the spread itself. It would be helpful if you could provide a hypothetical example of one trade -- currency pair, trade size, leverage or margin used, account value, TP, SL -- done in a 100:1 account vs. a 200:1 account.
I would agree and second this. With forex, your broker takes the other side of your order--obviously a conflict of (your) interest. CME futures are exchange traded and regulated.
Having said all that you would still trade forex? I would say you are a sucker. Trade through regulated exchanges (i.e., CME)!
There are reasons not to. If you are a long term carry trader that doesn't want to close out a position for a profit/loss but would rather hold it long term (longer than 6mo). If you want the swap/Rollover/IRD added to your account during this period to grow your account size (open funds for other opportunities) rather than having the interest floating in the pip profit/loss. Also if you have a strategy to hedge or to stop out on a carry trade, then you have the exposure of the daily 1hr time when the currency futures are closed (I guess you could hedge your futures position in the spot market). I agree with you in a way... But it also depends on the type of trader you are. Just my opinion.
May I know why and what are the problems? Thanks. It seems IDealPro has changed and improved a few things since launching.
I'm sorry that I said that incorrectly. Here is a better way to explain it. Correct me if I'm wrong. In the 100:1 account with a hypothetical 10,000 capital at 5% risk with a 25 PIP stop loss you would be able to trade 20 lots. With 20 lots X $1.00 per pip X 25 PIPS your risk would be $500 or 5% of your capital. With a 1:2 risk to reward if you win 50 PIPs your profit would be $1000 or 10% of your account on one trade. That's not bad for one day. In the 200:1 account the risk would be the same. 25 PIPS X $1.00 per PIP X 20 lots still = $500. The only difference is your deposit in the trade is half as much. I think this is where some of the income calculators that I have seen are flawed. The 50 PIPS profit would also be the same. I need to think about this again when my brain is more oxygenated. Maybe I have been in the habit of equating risk with the amount of the deposit which is incorrect.
can someone enlighten me why everybody seems to suggest oanda over IB? is my faith in IB's performance misplaced?