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Leverage and risk multiplier

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  • Leverage and risk multiplier

    Hello guys,
    I have a question and perhaps there is somebody who can clarify:
    Iīm using leverage 1:200 and risk multiplier 1x
    I think about changing my leverage to 1:400. When I set my risk to 0.5x is it still the same like having 1:200 leverage and risk of 1x ?

    I donīt understand the ratio of these two factors.

    Thank you !

  • #2
    These are quite basic stuff that I feel anyway should have educated themselves before starting with real money.. A good place to start is babypips..

    No they are not the same. You are trading half the risk with twice as much leverage meaning each trade will be using margin that is 1/4 of your previous... Now I can hear you asking what's margin but educate yourself to protect yourself from making grand mistakes.
    They are not the same cause you are essentially trading at half the risk with less then half the DD. I actually don't feel comfortable explaining this knowing you are investing real money whilst not knowing what you are doing.

    @kmf NO you just risk twice as much with twice the DD.. Leverage only affects the margin used per trade.
    Last edited by Zuttasoxx; 01-07-2015, 04:54 PM.

    Comment


    • #3
      Originally posted by alexgrote View Post
      Hello guys,
      I have a question and perhaps there is somebody who can clarify:
      Iīm using leverage 1:200 and risk multiplier 1x
      I think about changing my leverage to 1:400. When I set my risk to 0.5x is it still the same like having 1:200 leverage and risk of 1x ?

      I donīt understand the ratio of these two factors.

      Thank you !
      Alex,

      As Zuttasoxx already wrote, you need to educate yourself more because there is no direct correlation between signal's risk multiplier and leverage - those are totally two different things. The only thing linking changed risk multiplier and leverage would be available free margin, well that's what actually leverage does. Increasing your leverage on your account allows you to trade more lots having the same amount of capital - at first it seems like it's pretty good thing but it's double edge sword - you can lose more of your capital. Read more here: http://www.investopedia.com/articles...x_leverage.asp

      Comment


      • #4
        Thanks Daniel for your answer,
        I already read many sites about leverage, margin etc. Thatīs nothing new for me, but in interaction with the signals itīs sometimes a little bit confusing.
        Iīll stay by my leverage and wonīt change it.
        Thanks again and Best Regards
        Alex

        Comment


        • #5
          Originally posted by alexgrote View Post
          Thanks Daniel for your answer,
          I already read many sites about leverage, margin etc. Thatīs nothing new for me, but in interaction with the signals itīs sometimes a little bit confusing.
          Iīll stay by my leverage and wonīt change it.
          Thanks again and Best Regards
          Alex
          Reading and understanding are two different kind of things.. Signals are basically placing trades.. And the risk you can use is basically saying how many times you want to risk more compared to the account of the signal you follow. It affects the trade sizes.. Meaning double risk is twice the trade size of risk 1..

          Here is why I think you haven't understood it.. In general the higher the leverage you can obtain the better. Reason is leverage gives you the opportunity to trade larger lot sizes, but that does not mean you have to. If you have 1000 USD with leverage 100 and you trade 0.1 lot of usd/jpy. Since 0.1 lot = 10 000 units that means you are trading 10 000 units of usd/jpy with a leverage of 100 means 10 000/100 = 100 USD. You need 100 USD to trade 0.1 lot of usd/jpy with a leverage of 100.
          With a leverage of 200 you would need 50 USD = 10 000/200.

          Conclusion with higher leverage trading the same risk as what you had will lower your DD. And you will have more free margin (more money at your disposal) to sustain either a higher DD or have more room to trade out of it.

          If you understood the material you read about margin and leverage you should be capable to deduct this for yourself.

          I'm sorry if I come over a little harsh sometimes. I just find that losing money cause of stupid mistakes that can easily be prevented if one does his due diligence are the worst kind of ways to lose money.

          Comment


          • #6
            Hello,

            Please give your opinion on my risk settings.

            Broker: IC Markets
            Leverage: 1:200
            Balance: 20k€

            I copy two signals:

            1. FX Viper with 3x Balance Risk
            2. Smart Scalper with 0,5x Balance Risk

            Are these settings safe?

            Comment


            • #7
              You should always have your leverage as high as possible. In this case that is 500. And I think it's safe. As in your account will not blow. But if you are able to digest the drawdowns. That is something else. Either way leverage change to 500 recommended regardless of your risk usage.

              Comment


              • #8
                In order to my personal observation, trading leverage facility is one of the most important trading facility for retail Forex trader! Nowadays, retail Forex traders can start their live trading willingly because of leverage facility! But, you can’t rely on big trading leverage facility instead of your trading knowledge and experience! Right now, I am using 1:400 trading leverage in my live in order to my demo!

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