How much leverage are you comfortable trading in FOREX?
Question:
Many FOREX brokers allow up to 200:1 leverage. My trading strategy is to take just very small gains (3 or 4 pips at a time) and set the stop losses way out there just to avoid a total wipeout. I never trade on Fridays either and of course close out before the market closes.
Because of the giant stop losses, I am only comfortable with around 20:1 leverage or maybe 30:1.
In other words, with a $500 margin account balance, I would only consider buying 0.1 lots of EURUSD (10,000) at a time; 0.2 lots with $700; 0.3 lots with $1100 and so on...
Does anyone out there use the same strategy as me and feel comfortable with higher leverage like 40:1, 50:1 or even higher?
Answer:
As you indicated, it is not just your leverage that you need to take into account...it is also your margin level that is important.
When I am drawn back to my technical analysis days I usually use a leverage of 40:1 unless I have a high probability setup occurring (based on pivot points and fibs). In that case I might go as high as 100:1.
Currently the majority of my Forex activity is based on conservative hedge trades (usually hedging the EUR/USD and USD/CHF). With my hedge trades I use a leverage of 400:1 and a margin of 10%. Hedging is awesome because the position can make profit regardless if the market goes up or down. I also get paid a daily interest payment, 7 days a week.
I have an analysis of the daily performance of 5 different hedge strategies over the past 500 days if you would like to see it. And these were all at 400:1 leverage and never anywhere near a margin call.
Paul
I also, do a 200:1 leverage and usally take small gains at a time.
Forex is too dangerous for my liking, but I know a professional Forex trader, that says most people get into trouble because of using too much leverage. So take that for what it is worth. Good Luck
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Leverage the higher the better. High risk high reward. The control is not in the leverage. Looks like you have to twitch your trade's risk/reward ratio. Something is wrong. You are risking too much [stop loss] for too little [profit]. Your trade selection theoretically should yield you 3:1 or at least 2:1. That means for a stop loss off 20points you should see a potential of 60 points gain or at lease 40 poiints.
2. The other ratio is your win/loss ratio. If to put it simply, if the professionals have a 70/30 win/loss and a novice 30/70 win/loss you will have to work out your own math on this.
3. Read some good books on Forex Money Managment techniques and trade managment techniques.
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