By the way, could you please explain what you men by this: using 4-1 I just do not understand the expression. Thanks
When I used to do lots of back testing on stocks, I played around leverage to maximize performance. Even the best systems nulled the account with 4x leverage.
Hmm yes I see. The position must be sized reasonably. I started with 1:100 in FX and never had any problem, so I am still using it. It is true, though, that I always use carefully assessed position sizes and I think I never actually fully utilized this big leverage. I could have done the same performance with a much lower too.
================ Light marathon; It can work for a while[large leverage]; Bunker Hunt/silver, Bear Stearns/banking. LTC/trading, Lehman/banking/blaming shortsellers............................. Some do well with large leverage; but with a worst case scenerio of that[large leverage] being a small/very small % of capital.
True, it can work for a while beautifully, until a string of losing trades. Zoli mentions 100x leverage he uses in fx. It means that a sudden 100pip spike wipes his account almost clean, if he is on the wrong side.
Sure it would if I was that silly to put that large position. I always have pre-determined risk and I always use a hard stop just in case. In fx you do not need to worry too much about gaps like in futures. Yout SL order can get filled. So a 100 pip sudden spike sure erases my position if my SL order is in the way. In that case I lose what I already decided to be my risk. So, frankly I never got the margin call and account wiping thing. So easyexample, I want to long eurusd and I am willing to risk say 2% of capital. I put the SL to the level where the trade would be invalidated and I size my position accordingly. I also keep track on the amount of margin I need if I am in red. I have always done so. Do I do something wrong? Do I take an inappropreate approch? I am asking seriously and not ironically trust me. Maybe I am with a too small position in the market, would that be so? I am interested in your reply, remember, this thread is about "Wondering what is wrong or not good enough?". Z
Your account will tell you if you are doing something wrong or right. As far as your fx leverage: if per trade you risk no more than 2% of your equity and you avoid the news releases, than you are fine in my opinion. But if I understood your usage of 1:100 leverage correctly you meant the following: for example you have 10,000 usd in your account and you open a 700k eurusd position (about 1:100) than your stop must be 3.5 pips away so you don't lose more than 2% of your account. Yes, there are certain types of trades, when you can get away with such a small stop, but those are the exceptions, but most of the time such a small stop loss is taken out.
I rather put it this way: correct usage of that leverage is (in my risk management style) : I have 10000 usd in my account, I never ever open a 700000 usd position with that small ballance, that would be a 7 lot line. 3.5 pip movement in this market happens whenever Bernanke blinks or farts. So I consider min 50 pip or rather 150 pip SL level to a position which is to survive a day and get into the flow of a trend. In that case the correct size for me is 0.13 lot for 150 pip SL. So my risk is 0.13*10*150=200 usd, 2% of my ballance. But we understand each other.