More knowledge about leverage

As a trader, you must understand the benefits and pitfalls of leveraged trading.

with100:1Taking the ratio as an example, it means that you can enter every1Input up to in USD transactions100Trading in US dollars.

As long as your account has1000You can deposit in US dollars100:1Leverage ratio transactions10Ten thousand US dollars.

In this way, you may gain the equivalent of10Profit from $10000 transactions!

It's like a super skinny guy with a super long forearm participating in a wrist wrestling competition.

If he knew what he was doing, if his opponent was Arnold Schwarzenegger, he would usually stand out because of the leverage his forearm can generate.

When leverage works, it will significantly amplify your returns. Your mind has grown larger, and you consider yourself the greatest trader of all time.

But leverage can also be detrimental to you.

If your trading direction is opposite, leverage will amplify your potential losses.

You will be much faster than Mike Tyson's speed.

The chart below shows the balance changes of your account during price changes.

Assuming you buy US dollars/The price of Japanese yen has increased1%, by120.00Ascend to121.20. If you are trading with a standard hand, i.e10Ten thousand US dollars, the following figure reflects the impact of leverage on your earnings:

Assuming you buy US dollars/The price of Japanese yen has decreased1%, by120.00lower118.80。

If you are trading with a standard hand, i.e10Ten thousand US dollars, the following figure reflects the impact of leverage on your earnings:

The higher the leverage you use, the less breathing space you leave for market fluctuations before receiving additional margin.

You may be thinking, 'I am a day to day closing trader, I don't need breathing space, I only use20to30Stop loss and cut positions

Okay, let's take a look:

Example 1

You500USD opened a mini account for trading1$10000 Mini Hand, only required5%Security deposit.

You buy2Mini Hand Euro/USD. What is your actual leverage40:1(2USD 10000/500dollar). You set it up30The stop loss of point has been triggered. You lost60dollar(1dollar/spotX 2hand)。

You lost your account12%(60USD loss/500Total USD account amount). Your current account balance is440USD.

You think you're just unlucky. The next day, you felt good and wanted to recover from yesterday's losses, so you felt like working harder and bought4Mini Hand Euro/USD. Your actual leverage is approximately90:1(4USD 10000/440dollar). You set it up30Your transaction has been damaged due to a stop loss of point. Your loss is120dollar(1dollar/spotX 4hand)。

You lost your account27%(120USD loss/440Total USD account amount). Your current account balance is320USD.

You think the trend will change, so you trade again. You buy2Mini Hand Euro/USD. What is your actual leverage63:1. You set it up30The stop loss of point, you have suffered again! Your loss is60dollar(1dollar/spotX 2hand)。

You lost your account19%(60USD loss/320Total USD account amount). Your current account balance is260USD.

You are very upset. You tried to figure out what went wrong. You think your stop loss setting is too tight.

The next day, you bought3Mini Hand Euro/USD. What is your actual leverage115:1(3USD 10000/260dollar). Your stop loss setting is50Point, it has been triggered. At the beginning of the transaction, it was against you, it seems like you are about to stop losing again and leave the market!

But what happened next was even worse! You have received a margin call notification!

Because you260The US dollar account has been opened3Mini hand, your occupation deposit is150USD, your available deposit is only110USD. The transaction deviates from you37Point, because you're driving3Mini Hand, you have received a margin call. Your position has been settled at market price.

There is only one left in your account150USD, after receiving the additional deposit, your occupation deposit was refunded to you.

In total4After this transaction, your trading account will be transferred from500The US dollar has dropped to150USD.70%The loss! It won't take too long for you to lose the remaining amount.

It is not uncommon to lose four consecutive trades. Experienced traders also have similar or longer consecutive losses. The reason for their success is that they use lower leverage. The maximum leverage used by most is5:1But it rarely reaches that high, but rather in close proximity3:1The level of.

Another reason for the success of experienced traders is that their capital size is appropriate!

Although learning technical analysis, fundamental analysis, emotional analysis, system building, and trading psychology are important, we believe that asforeign exchangeAn important factor in your success as a trader is to ensure that your account has sufficient funds and use smaller leverage to trade those funds.

Below the minimum starting capital, your chances of success will be greatly reduced. The account amount is too small to mitigate the leverage effect.

Low leverage and appropriate capital allow you to minimize losses, not only allowing you to sleep well at night, but also allowing you to continue trading the next day.

Example 2

Zhang Sanyi5A thousand dollars can be traded10A standard account of ten thousand US dollars. another use20:1Leveraged trading. The currency he trades fluctuates daily70to200Point. To protect himself, he used a tighter one30Point stop loss setting. If the price deviates from him by more than30Point, he will stop losing and leave the market, losing300USD. Zhang San feels that30The point is very reasonable, but he underestimated the volatility of the market and found himself frequently stopping losses and leaving the market.

Stop loss exit4Afterwards, Zhang San had enough. He decided to give himself more space to deal with the swing and increased the stop loss setting to100Points.

Zhang San's leverage is no longer20:1Yes. His account has become3800dollar(Because every transaction loses money300dollar)He still trades as a standard hand. Now his leverage is26:1。

He decided to reduce the stop loss setting to50Point. He's driving again2Another transaction for Standard Hand, two hours later,50The stop loss setting has been reached, and he has lost money1Thousand US dollars. Now his account only has2800USD. His leverage exceeded35:1。

He tried two more standard hands. This time the market has risen10Point. He has obtained200Profit in US dollars. His account balance has slightly increased, becoming3000USD.

He has opened two new warehouses for standard hands. Market decline50Point, he left the field. Now all he has left is2000It's in US dollars.

He has opened a new warehouse again. The market is declining again100Point, because he has1000The US dollar is locked as a security deposit, and he only has1000The US dollar margin was available, so he received an additional margin and his position was immediately liquidated.

He now has1000The US dollar is not enough to open new positions.

8This transaction, the market has only changed280Point, he's lost4000USD or account80%. Market changes280Pointing is quite easy.

You're starting to see why leverage isForeign exchange transactionsAre you the number one killer?

As a new trader, you should consider limiting your leverage to20:1. Or very safe,10:1. Trading with excessive leverage is one of the most common mistakes made by foreign exchange traders. Before you become more experienced, we strongly recommend that you trade at a lower ratio