Thread: Leverage in Jeopardy

Originally Posted by ;

I don't think Finra has any jurisdiction beyond the USA so if US brokers are not any longer capable of giving high leverage afterward you could may use a UK broker rather than

Yes, unfortunately many foreign brokers will not accept US traders.

Originally Posted by ;

Actually anyone trading with over 8-1 to leverage is asking for trouble in the long run.

$10000 account. 100 pip stop loss. 1% account risk. That's $100 risk, or $1 per pip.

.0001 * $100000 = 10
.0001 * $10000 = 1
.0001 * $1000 = .10


That means assuing a 1% account risk in a 100 pip stop loss you can tade $1 a pip or a miniature lot, aka a $10000 lot. That's a 1:1 leverage. That trading.

Many folks would trade 2% in a 50 pip stop loss, and can do so successfully. 2% is $200. $200/50 = 4 per pip, or $40000. That's 4:1 leverage.

So now what happens if I wish to have several uncorrelated trades? The risk per trade is still quite safe, but the leverage restricts squish it.

A 1.5:1 ratio, as suggested by FINRA, is absurd. Then we start getting in to fundamentals, although A 10:1 or 20:1 will be fine for me . Why should anybody have any say over what leverage that you would like to trade ? If you would like to risk blowing up your account then that is your best.

Originally Posted by ;

Anyone who's been trading long enough knows this. I doubt that reducing leverage is really going to help your newbie who will blow up his account anyway. It will just take him a little longer with less leverage which I guess isnt a bad thing.

No, it won't help him at all. Infact it will hurt new traders instead of help them. Why?

Think about it. Most brokers have a minimum lot size of 1000. At 2:1 leverage you would need $500 to control this transaction. That means you have to deposit more than this in order to trade. Since most new traders will blow their account, you can more or less write off the account as a learning experience. Whether that is $500, $100, $1000, or whatever.

Because bucket shops have very efficient margin procedures, it's difficult to wind up negative. The less leverage a individual has, the more they have to throw away in order to find out. That forex is an ideal teaching platform. You can learn to trade with forex far cheaper than you can w futures or stocks.

A person could trade demo for 6 months, deposit $1000, and exchange it with tiny lots for the following year. By the time they are done they will have more than a year of trading expertise for next to no cost. Anything that tries to make forex behave more like stocks do ends up hurting new traders by making the learning curve expensive.

Originally Posted by ;

Now with 1:500 leverage it's 30.000/500 = 60 USD.
What is the risk? 3%!! Is there a difference between
1:500 and 1:25? NO! Why? Because the RISK is the same.

If the stoploss retains, yes. You also get gapped, or if the stoploss gets fill that is bad , then your risk changes.

Originally Posted by ;

Now please say 20% risk per trade is not sufficient and I will laugh my ass off.

With margin it's not the per trade risk as far as it's the cumulative risk for all available trades.

Originally Posted by ;

Yes, regrettably many overseas brokers will not accept US traders.



$10000 account. 100 pip stop loss. 1% account risk. That is $100 risk, or $1 per pip.

.0001 * $100000 = 10
.0001 * $10000...

I have thought about this along time also. (Multiple Trades). I have come to the conclusion that it wouldn't make much sense boost the risk because you would like to exchange pairs. Your risk should stay let's say 3 spread this across the trades. Otherwise you can trade 1 pair with greater risk anyhow.

I concur with you about the principle stuff. You are giving away abit of your liberty.

Originally Posted by ;

In the event the stoploss holds, yes. You get gapped, or In case the stoploss gets bad fill , then your risk varies.

Right but that could happen with every leverage and since the amout on components traded is always exactly the same the result of such an event are the same using 1:25 or 1:500.

Also everybody should have a look in the institutional world. You will find anybody using more than 1:33 leverage.
Of course it's more difficult to get higher leverage should you exchange a 500 Mio USD Hedge Fund yet the other reason is because it just does not make sense.

Originally Posted by ;

I have thought about this along time too. (Multiple Trades). I have come to the conclusion that it wouldn't make sense increase the cumulative risk because you would like to trade pairs. Your risk should remain let us say 3 spread this across the trades. Otherwise you can trade 1 pair with higher risk anyhow.

Nod, surely should plan out the cumulative risk vulnerability. I don't have over 10% cumulative risk at any time, and seldom over 5%.

But sometimes taking numerous trades will benefit you. Have a look at the triangle transaction. Ie: two currencies against a base currency, and the two currencies as a cross. Like the GBPUSD, the EURUSD and also the EURGBP.

At any point in time a massive move in the dollar will force both based currencies to change, but times once the dollar doesn't move still may provide an opportunity in the cross pair. By taking the trade in all pairs at once you average from the net behavior. As long as you have an advantage to help determine what the net behavior will probably be, you can average a single losing trade out and simply play for weakness or strength.

Obviously there is an whole system there, and that is outside of the scope of this thread, but that is my point... some approaches actually benefit from trading numerous pairs. Limiting leverage to a level diminishes the type of egies we can use, and not in a way that is good.

Originally Posted by ;

Proper but that could occur with each leverage and since the amout on units traded is always the same the result of such an event are the very same with 1:25 or 1:500.

Depends if you're talking account leverage or effective leverage. The account leverage will have a backseat to your powerful leverage. I guess the theory behind that is if you cap the maximum account leverage you cap the powerful leverage too, but folks can do that in their by reducing lot size. I said something to that effect when I sent in my comment.

Originally Posted by ;

Additionally everybody should have a look in the institutional world. You will seldom find anyone using over 1:33 leverage. Of course it is more difficult to secure leverage if you trade a 500 Mio USD Hedge Fund but the other reason is because it does not make sense.

Very few surviving traders will ever use over 20:1. However, the cap must come in the trader, not a few almighty regulator. The key would be eduion. Teach people how (and why) to restrain leverage rather than forcing them suck a 1.5:1 cap.

There's a combination of issues here. The urge to regulate, the part of an oversight organization, the arbitrary ultra-strict cap they've chosen, the seemingly useless job of FINRA in forex, the power of the US to regulate it's own businesses in an international marketplace, just to name a few.

The dilemma is clear enough however: In case FINRA's 1.5:1 cap becomes the rule, which rule spreads to the NFA, then domestic US FOREX brokers are done and we'll all be moving our company abroad. That will be bad on so many levels.

Originally Posted by ;

Great when I was getting good!!

Precisely What I thought. .

I was planning to post this information... Mail them tell to stop this BS.

Again, email to

Originally Posted by ;

Yes and even if NFA enforces a 1:25 max that is more than sufficient.
There is no difference between 1:400 and 1:25 because everything is characterized by your Risk Managment.

Which isn't correct. The reduced the leverage the money you have to put up. The more cash you set up the more you risk to lose. The concept that reduced leverage is better never makes sense. A guy trading with 100 dollars and utilizes 400:1 leverage will need 1600 dollars to exchange exactly the identical way. His risk is a lot greater and his loss is a lot greater. Yet if he trades a 1.00 lot and losses 25 pips, he loses 25.00 dollars exactly the same as the guy with 1600. The difference is that the total possible loss is a lot greater for the guy with 1600. Plus if a broker ever goes out of business guess who loses cash.

Hello,

Though I do not live in the US (UK resident), I can't find this leverage proposal heading anyplace. It would be opposed by too many bodies in addition to the lobby for broking companies because they are connected with retail broking.

Price equilibrium in FX would totally change and what they call excessive speculation in that newspaper is nothing else but contributing positively to market equilibrium. Retail FX clients are limited specifically by those leverages from how that they can influence the market - when the margin is lost, they are out of the match anyway or they must refund.

Most of us know here that markets that have less contracts traded (or in other words less liquidity) are prone to more inconsistent moves and less price equilibrium.

Take a inventory such as that has insufficient sellers at the same point - the spikes involved in these kind of market state are a lot more extreme than in FX which is still the most liquid tool by daily transaction and daily turnover all included. Remove the retail part of it and your volatility can shoot up in a second if one player has to put a rather large order in the market.

The next thing is: this proposition resembles a planned economy to me. Individuals could recall this kind of market from the Soviet Union - strategy in other words. Control and dictation how much can be traded and of who - has nothing to do with totally free market economy that is the building block of the world that is free.

It will not happen in America. That is my firm opinion.

Regards


P.S. I had a look in FINRA's alphabetical members list and couldn't find any of the larger FX retail companies listed. Appears to be one regulatory body which wishes to stir things a little.

I give it everything stays the same and a chance that it's not going through. Plus leverage for Retail Brokers does not impact the market anyway. Our currency will in most cases never see the market if we trade with an MT4 broker.

Originally Posted by ;

Hi,

Although I don't reside in the US (UK resident), I cannot find this leverage proposal heading anyplace. It would just be opposed by too many regulatory bodies as well as the reception for broking firms since they are linked with retail broking.

Price equilibrium in FX would totally alter and what they call excessive speculation in that paper is nothing but contributing favorably to market equilibrium. Retail FX clients are limited specifically by those large leverages from the way they can help determine the market - when the margin...

With the respect to the way bankers and brokers are seen that the public would not care if they regulated them to the control. I've read some posts on TheHill.com discussing altering margins. All of the current thought believe that margins must be for the men that are big. The pols think we as traders are too dumb to understand what we are doing.

I'd say that everybody who reads this thread check back to see if the SEC comment period arises and should keep note of the matter. At this time a severe mobilisation should take place by as many traders as possible to submit reasoned arguments to the SEC against this proposed rule that is ailing thought-out. The acceptance of a rule by one regulator could open the floodgates.

I remember when the SEC opened a comment period regarding the Silver Users Association tips against the regiion of the first silver ETF. A massive mobilisation of discussions took shape against the SUA on the SEC comment webpage, and I think this made a significant contribution.

Keep watching the Matter.