Quote:
Originally Posted by Merrygoround  Hello Rick, can you pls explain what you mean by that (about not taking unnecessary chances)? Isn't the idea behind reducing the leverage  to reduce risk with large capital (both for the broker and the trader)? If one reduces leverage , how can one be more at risk? Or do you mean that you would need to increase lotsize to compensate for the reduced leverage ?  |
I was referring to using up a lot of the account equity on
margin . In a Martingale
money management EA, the lot sizes can be quite high. First some background.
Leverage affects the
margin amount set aside by the
broker . Lets say you have one standard lot in play (1.0) which is 100,000 units. At 100:1
leverage , the required
margin is $1,000 and at 500:1
leverage , the required
margin is $200.00 which represents a difference of $800.00 in available equity. A couple of times since I have been running Forex Hacked on a demo account the daily lots in play have reached 10.0 (1,000,000 units). Now that difference in
leverage is substantial at 100:1, the
margin required is $10,000 and at 500:1, the required
margin is $2,000 which represents a massive $8,000 difference. This difference is important when running EA's that can have a high lot size and high floating DD like scalpers and Martingale
money management trading systems.
This is why when the NFA rules came into effect (for US residents) which required (among other things) a maximum
leverage of 100:1 on major pairs and 50:1 on secondary pairs, a lot of people in the US screamed very loudly.
This is also why I need at least 500:1
leverage all the time no matter what the balance or the open lot size is when trading Forex Hacked. This is also the reason for my comment about GoMarkets and their floating
leverage which decreases as the balance increases. The difference between 500:1 and 300:1 with a high lot size and high floating DD can represent the difference between the account blowing and not.
Traditionally, the experts are correct. The lower the
leverage , the better because high
leverage can get you into trouble if you increase the lot size to high. But with scalping EA's and Martingale
money management EA's, the lot size is abnormally high by design. This combined with high floating DD is a killer so you need as high
leverage as possible.
I hope I have answered you question appropriately. I suggest reading about the relationship between
leverage , free
margin and lot size. Babypips.com is frequently recommended although I have not been there in some time.
Rick
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