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Leverage and losses question (newb)

Discussion in 'Forex and Cryptocurrencies' started by Modest, Sep 19, 2014.

  1. Modest

    Modest $PEPE

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    Opened up a demo account with Pepperstone using their cTrader software this week. I love the platform.

    Excuse my arrogance but I having trouble understanding how brokers will give _anyone_ $100,000 to play with so long as they deposit $1,000...

    My n00b questions:

    What if a trader (with the above leverage example) opens up a position makes a loss of say, $10,000 and closes the position.

    The trader has lost $10,000 of the brokers own money!

    Does that mean the trader has a personal debt of $9,000 now which they must repay the broker with?

    I am just having trouble understanding how brokers can offer such massive amounts of money willy nilly style?

    How is the broker paid back? What does the broker get out of all this?

    mind = blown
     
  2. barney

    barney

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    The Demo account is only "play" money "Mod" ...... no need to lose sleep over it; go ahead and lose the Brokers, money:D

    Cheers.

    ps. Most "MT4" Brokers will give you a trial/Demo period without having to put up any cash up front ....
     
  3. Modest

    Modest $PEPE

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    Lol! Yeah yeah I will! Tell you what I I did some searching and found this video: http://www.learningmarkets.com/margin-vs-leverage-see-through-the-forex-hype/

    Everything is a little clearer.

    I actually moved from the MT4 Platform to cTrader Platform, and I don't think I will go back. I was practising on 1:1 all day today thinking that's what I would do to play it safe with real money in six months time ha ha ha.
     
  4. Modest

    Modest $PEPE

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    I spoke to the guys at Pepperstone basically they said you can go into debt if the market gaps, this generally happens around news, over the weekend and during natural disasters. In this situations they cannot execute SL and therefore balance can go into negatives.

    Luckily I do not plan to trade any news, I'll make sure to close my trades before the weekend and that just leaves natural disasters; am I missing anything else?
     
  5. tech/a

    tech/a No Ordinary Duck

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    News can come at ANYTIME.
    Positive or negative.

    You can also lose if your on the wrong side of any trade.
    What sort of capital backing do you have?
    Id suggest 5-10x margin requirement min.
     
  6. Modest

    Modest $PEPE

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    Well right now I am on a cTrader Demo Account via Pepperstone using 5:1 Leverage on a balance of $1,000USD (paper money).

    I opened the account Thursday last week and have had a total of 9 trades; 6 winning trades and 3 losing. I employ at least a minimum 1:2 reward ratio and only risk a maximum of 1% of my total balance per trade - I only have one position open at any one time.

    I feel pretty comfortable with the trading platform and discipline somes easy to me; I can stay and watch a play run from the sidelines for countless hours without having the urge to enter willy nilly and I think that may be beneficial for me since I plan to trade 5 - 15m charts.

    My plan is to open a Live account with 2.5kUSD 10:1 Leverage and umm sink or swim!
     
  7. Trembling Hand

    Trembling Hand Can be found on the bid

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    The bit I have underlined will make any leverage setting your account is at virtually irrelevant.
     
  8. Modest

    Modest $PEPE

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    Not good? I know it is conservative..
     
  9. Trembling Hand

    Trembling Hand Can be found on the bid

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    Well do the sums for us. Show us an example of a good trade you made and how you position sized it and I will show you why the leverage doesn't matter if you have done it correctly.
     
  10. Modest

    Modest $PEPE

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    Hey thanks for that I appreciate you taking the time to have a look mate!

    Short AUD/USD

    I opened a new account last night with 1:10 leverage (demo) and this was my first trade with that leverage. Unfortunately misjudged the swing but still managed to make a profit of $56AUD. I would have bailed immediately in any other circumstance but the prevailing trend for the AUDUSD was a well defined step down pattern so I let it run.

    Short AUD/USD $56 profit
    XWdwn.png

    I risked 0.5% of my balance on this trade. 0.28 Lot
     
  11. Trembling Hand

    Trembling Hand Can be found on the bid

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    Nah thats not what I mean. What I wanted to know was where was your initial stop and how you then sized the trade from that. Once you do that exercise you will see the the account leverage has no relevance.
     
  12. Modest

    Modest $PEPE

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    Ah okay let's try again. This is trade two of the day; immediately after AUDUSD I found another setup with the AUDNZD pair, went long.


    Stop Loss -11 pips
    Take Profit: + 23 pips
    R/r 2:1

    I ended up trailing my stop manually going by S&R levels before the SL was trigged one candle before the downward swing.

    Entry: 1.1053
    Exit: 1.1071

    Jtdwn.png
     
  13. Trembling Hand

    Trembling Hand Can be found on the bid

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    OK So your stop was 11 pips. Lets assume an account of $10,000 and you are risking 1% per trade.


    1% of $10,000 = $100
    Stop 11 pips
    $100 (Risk amount) / 11 pips (Stop amount) = $9.09 per pip.

    So you enter a trade which gives you a position size of $9.09 per pip. That is so if your stop is hit you have lost only $100 bucks. Where does the leverage come into it? It doesn't. The leverage your broker will give you should have no effect on how you position size your trades. Ignore it and just position size your trades off your % risk to account size.
     
  14. John Swift

    John Swift

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    Thanks and welcome back TH. This is a really good, simple explanation. You should write a book. Can you write a book, please?
     
  15. Modest

    Modest $PEPE

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    Ahh very true I see where you're coming from regarding the leverage, makes sense. I don't think I will use $10 per pip positions in the real account just yet!
     
  16. Andyasu

    Andyasu

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    Hey guys, I am a newb in Forex. Which platform do u recommend? Is spread really important in trading currency? How would you guys decide when to buy or sell?
     
  17. Modest

    Modest $PEPE

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    I would highly recommend Pepperstone they're an ECN Broker, Australian and regulated by ASIC. Being an ECN broker means you're not dealing with a bucket shop - Google ECN Broker to find out more.

    If you go with Pepperstone they offer MT4 and cTrader (I like cTrader but MT4 has a lot of guides/YouTube content). They have two accounts Standard and Razor.

    Ahhh the 64 billion dollar question. You can never know all you can do is increase your probabilities of a trade going in your favour. For this you will need to do a lot of research and reading. First start with the fundamentals; What is Forex > Candlestick Basics > Price Action > Money Management (Very important!)

    I've only started two weeks ago but it is NOT easy and you really need to put a lot of time reading and researching; In the last two weeks I've clocked about 150 hrs of Forex research and trading (demo) I like to stick with 80/20 - 80% of the time I am studying and 20% trading.

    Good luck!
     
  18. Modest

    Modest $PEPE

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    Thought I would continue to use this thread for my novice questions instead of starting another one.

    Thursday will mark two weeks of Forex demo trading and studying - it's been tough but thoroughly enjoying the ride so far. I tallied all my win/loss and with my current system I have a 55.8% win percentage. My question; is there both a good and realistic win percentage that one should strive for and if so, what is it?

    Secondly, when I decide to open a live account any issues with having the account base balance as USD instead of AUD since the AUD is weakening rapidly?

    Thanks!
     
  19. Modest

    Modest $PEPE

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    First day Live Trading using the same system and I am off to a rather bad start! :banghead:

    Down $20 /32 Pips

    All part of the journey :cool:
     
  20. >Apocalypto<

    >Apocalypto< 20.03.2012

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    main thing that changes from demo to live your mindset. most times you can't even tell its changed... don't worry about it just stick to your pre live plan.
     
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