Parallel Universe: Expert's Guide to the Art of Losing MoneyDisclaimer:
Warning! The given tips are born from the minds of financial disasters and for entertainment purposes only. These are the results of the imagination of unsuccessful traders with a knack for making impressive losses. These master traders are known to make their financial mistakes by making huge losses. Unsuccessful traders are honored members of FRBF - Financial Ruins of Big Fortune with lifetime achievement of negative portfolios and returns. We do not recommend following the suggestions from the unsuccessful traders otherwise we have to add you to FRBF club.
Well, well, if it isn't the tired soul tired of seeing green numbers in their trading account. Can you believe it? I always have seen a dream of world's biggest loser trader. Apparently, 99% of traders out there are making money, and we're stuck in the miserable 1% who might be losing. But hey, if you're sick and tired of making money, you've stumbled upon the perfect spot. Get ready for a wild ride as I unveil the secrets to drain your hard-earned cash and proudly join the prestigious FRBF - the Financial Ruins of Big Fortune. Buckle up, my friend!
1) Borrowing Money:
You should borrow money from every possible resource. Remember that Saving money and working hard for financial stability is just for cowardly people. Debt is the only key to get success in the trading world. If you have bad luck, you can get your creditors good luck by borrowing their money. Imagine when your creditor will knock on your door, and you will be running and hiding from them! How thrilling is this! It's a surefire way to reach new heights of financial ruin.
2) Avoid Using Stop-loss:
We should totally ignore those stop-loss orders. There's this fascinating study that suggests traders who actually use stop-loss orders tend to have lower losses compared to those who don't. who needs that kind of useful information? Not us! We're not beginners here, are we? If you use stop-loss, it will exit the trade when market sentiments are changed. You will never be able to make huge losses. Let's just toss those stop-loss orders right out the window and dive headfirst into the exhilarating world of uncertainty. Because what's more exciting than watching our trades go haywire with no safety net? So let's embrace the thrill, ignore risk management, and revel in the rollercoaster ride of potential financial ruin.
3) Hold Losing Positions & Never cut losses:
Who needs to admit defeat when we can simply cling to hope and pray that the market will miraculously turn in our favor? It's such a fantastic strategy to hold onto those sinking ships, watching our losses pile up like trophies of our unwavering determination. Cutting our losing positions? Pfft, that's for amateurs who actually care about preserving their capital and minimizing losses. We, on the other hand, choose to ride the wave of delusion and hold onto our sinking investments with unwavering faith. After all, why learn from mistakes when we can repeat them endlessly? So let's keep clutching those losing positions tightly, and maybe, just maybe, the market will eventually bend to our will.
4) Avoid Managing Risk:
Risk management will not let you become an unsuccessful trader. Forget about preserving your capital and protecting yourself from substantial losses. Let's just dive headfirst into the deep end and throw caution to the wind! So, according to your brilliant logic, let's ignore risk management and trade in five stocks with a 1:3 risk-reward ratio. We'll lose $3 in three stocks and $6 in the remaining two trades. Brilliant strategy, right? Who needs profits when we can lose money consistently?
5) Never Pay Attention to News & Events:
Who needs to stay informed about current events and news when it comes to trading? Ignorance is truly bliss, especially when it comes to making informed decisions and understanding market dynamics. Let's just close our eyes and ears to all those pesky news articles, economic reports, and major events that could potentially impact the market. Who needs to know about interest rate changes, geopolitical tensions, or corporate earnings releases? They're just distractions, right? Instead, let's rely on our sheer intuition and gut feelings to guide our trading decisions.
(6) Overtrade Consistently:
Overtrading is the key to financial prosperity in the trading world. Forget about patience, strategy, and carefully planned execution. Instead, let's indulge in a frenzy of excessive trading and drown ourselves in a sea of transactions. Who needs quality over quantity when it comes to trades? Let's throw caution to the wind and execute as many trades as possible, disregarding any semblance of rational decision-making. Because, clearly, more trades automatically translate into more profits, right? Why bother with analyzing market trends, studying charts, or conducting thorough research when we can just click that "Buy" or "Sell" button incessantly? After all, trading is just a game of chance, and blind luck is definitely on our side.
7) Never Use Technical Analysis:
Technical analysis? Nah, it's all smoke and mirrors, right? Who needs those fancy charts, indicators, and patterns to make smart trading decisions? I mean, who has time for that? Sure, by using technical analysis, you could potentially have a better sense of when to enter or exit trades and where to set stop-loss levels. You might even be able to forecast market movements using theories like Elliott wave, price action, chart pattern analysis, or volume analysis. But who needs all that when you can just wing it and tap the buy and sell buttons without any plan or analysis? Who needs strategies or insights anyway? Forget about those losers who waste their time studying charts and analyzing market trends. Real traders, the ones who consistently lose money, don't bother with technical analysis or any other form of analysis for that matter. They rely solely on their gut feelings and blind luck. That's the way to go!
8) Emotional Trading:
emotional trading Is a brilliant strategy! Who needs logical decision-making when you can base all your trades on impulsive emotions? Forget about analyzing charts, patterns, or market trends. Just let your feelings guide you like a compass in a hurricane. Why bother with calm and rational thinking when you can succumb to the rollercoaster ride of fear, greed, and impulsiveness? It's truly a magnificent way to sabotage your trading success and ensure that your portfolio becomes an emotional wreck. So go ahead, throw logic out the window, and embrace the chaos of emotional trading. Because nothing says financial stability like making impulsive decisions based on fleeting emotions! Good luck on your wild emotional trading adventure!
9) Always Trust Unregulated Brokers:
Unregulated brokers are the epitome of trustworthiness and reliability. Who needs regulatory oversight and investor protection when it comes to handling our hard-earned money? Why bother with ensuring the safety of our funds or verifying the legitimacy of a broker? It's so much more exciting to entrust our financial well-being to anonymous individuals operating in the shadows. Who needs transparency, accountability, or adherence to industry standards? Unregulated brokers provide the perfect opportunity to navigate the treacherous waters of the financial world without any safety nets. It's like playing a high-stakes game of roulette with our life savings!
10) Always trade on others' advice
Trading on others' advice is the secret recipe for success in the trading world. Who needs to develop their own knowledge, skills, and expertise when we can rely solely on the wisdom of others? Let's throw out our own analysis, research, and intuition, and blindly follow the advice of random strangers on the internet or that "hot tip" from a friend's cousin's neighbor's dog. After all, they must be financial geniuses with impeccable track records, right? Who needs to understand the underlying fundamentals or technical aspects of a trade when we can just mimic the actions of others without question? It's so liberating to surrender our autonomy and decision-making abilities to the masses. It's a foolproof strategy that guarantees confusion, frustration, and, of course, financial ruin.
11) Never Ever Take Profit
It's such an intelligent strategy to watch our gains evaporate right before our eyes.
Why bother with securing our profits and protecting our capital when we can hold on to winning positions indefinitely? It's so much more thrilling to experience the roller coaster ride of market fluctuations and see our unrealized gains dwindle away. Let's ignore those pesky market indicators, trailing stops, and profit targets. After all, who needs a concrete plan when we can simply rely on greed and the hope that our winning trades will magically keep going up forever? And let's not forget the joy of regret when a once-profitable trade eventually turns into a massive loss. Who needs financial stability and consistent growth when we can embrace the unpredictable nature of the market and bask in the glory of missed opportunities?
12) Learning From Mistakes
Learning from our mistakes and evolving as a trader is overrated. Who needs personal growth and improvement when we can stay firmly planted in our cycle of financial self-destruction? Let's ignore those pesky lessons that losses teach us. Why bother reflecting on our trading errors, analyzing our strategies, or seeking ways to improve? It's so much more exciting to repeat the same mistakes over and over again, expecting different results each time. Who needs progress and development when we can remain comfortably stagnant in our trading endeavors? Let's embrace the thrill of consistent failure and pretend that we're on the cusp of a breakthrough while repeating the same ineffective tactics. And why stop repeating mistakes? Let's add a touch of delusion and convince ourselves that this time, things will magically turn around. Because, clearly, doing the same thing repeatedly without learning from it is the secret to unbounded success.
13) Fall for "Get-Rich-Quick Schemes"
"Get-rich-quick schemes" are the epitome of financial wisdom and stability. Who needs a long-term, sustainable approach to wealth when we can chase after elusive shortcuts to instant riches? Why bother with hard work, patience, and diligence when we can throw caution to the wind and blindly trust those promising overnight success? Let's believe in the magic of "secret formulas," "guaranteed profits," and "hidden strategies" that are conveniently packaged in flashy marketing campaigns. Let's not forget the joy of handing over our hard-earned money to these self-proclaimed experts, who undoubtedly have our best interests at heart. After all, it's not like they're preying on our gullibility and desperation for a quick financial fix, right?
14) Trade Based on Rumors
Baseless rumors and gossip are the most reliable sources of information for successful trading. Who needs verified facts, data, or market analysis when we can simply rely on hearsay and unfounded speculation? Why bother with conducting thorough research or verifying the authenticity of information? Let's just blindly believe every rumor that comes our way and make trading decisions based on pure gossip. It's so much more thrilling to embrace uncertainty and place our trust in unverified whispers. Who needs to understand the impact of real market drivers or economic indicators when we can make impulsive decisions based on the latest unfounded chatter? It's like playing a game of financial Russian roulette with our hard-earned money.
To be continued... :D
Idea by @Money_Dictators on @TradingView Platform
Leveragetrading
Trading &/or GamblingThe difference between trading and gambling.
This article will shine a light on the most frequent mistakes that traders make. These mistakes blur the thin line between trading and gambling.
Many people have spoken on this topic, but we truly believe that it is still not sufficient, and traders should be better educated on how to avoid gambling behaviour and emotional outbursts. When we speak about trading versus gambling, we define gambling as the act of making irrational, emotional and quick decisions.
Most of the time, these decisions are based on greed, and sometimes fear of the trader. Let’s dive into the exact problems we have personally experienced thousands of times, and want to help others avoid.
1 ♠ Bad Money Management
This is something that everyone has heard at least once, but seems to naively ignore in the hopes that it is not that important .
It is the most important . When a trader enters trades, it is exceptionally alluring to enter with all of their money, or close to all of it. In gambling terms, that is going “All in”, or “All or nothing”.
As a rule of thumb, both traders and gamblers should only place or bet money that they can afford to lose.
Thankfully, at least in trading one can limit their loss for that specific trade, by placing a stop loss or exiting before total liquidation. In Poker, you can’t fold when you are “All in” and take a portion of your money back. However, that does not mean entering trades with full capital, even with a stop-loss, is going to give you exponential returns and feed your greed for profits.
Traders should enter positions with a small amount of their full capital, to limit the damage from losses. Yes, you also limit the possibility that you win a few trades in a row with all of your money and… There goes the greed we mentioned.
The “globally perfect” percent of equity you need to enter trades to reach that balance between being too cautious and too greedy does not exist. There are methods, like the Kelly Criterion, as described in our previous Idea (see related ideas below), that help you optimize your money management.
Always ask yourself, “How much can I afford to lose?”. Aim for a balanced approach. This way you can position yourself within the market for a long and a good time, not just for a few lucky wins. Greedy money management, or lack thereof, ends in liquidations and heartbreak.
2 ♣ The Use of Leverage
Anyone who has tried using leverage, knows how easy it is to lose your position (or full) capital in seconds. Using leverage is mainly sold to retail traders as a tool for them to loan money from the exchange or broker and bet with it. It is extremely profitable for institutions, since it multiplies the fees you pay them ten to one hundred-fold.
In our opinion, leverage isn’t something that should be entirely avoided. However, it should be limited as much as possible.
We cannot deny that using 1-5x leverage can be beneficial for people with small accounts and a thirst for growth, however as the leverage grows, the more of a gambler you become.
We often see people share profits made using 20+ times leverage. Some even use ridiculous leverages within the range of 50-125x.
If you are doing that, do you truly trust your entry so much that you believe the market won’t move 1% against your decision and liquidate you immediately?
At this point, the gambling aspect should be evident, and it goes without saying that you should not touch this “125x Golden Apple”, like Eve in the Garden of Eden. Especially when you see a snake-exchange promote it.
If you use a low amount of leverage, and grow your account to the point where you don’t need it for your personal goals in terms of monetary profit. You should consider stopping the use of it, and at least know you’ll be able to sleep at night.
3 ♥ Always Being In A Position
Always being either long or short leads to addiction and becomes gambling. While we don’t have scientific proof of that, we can give you our own experience as an example. To be a profitable trader, you do not need to always be in a position, or chase every single move on the market.
You need to develop the ability just to sit back and watch, analyse and make conscious decisions. Let the bad opportunities trick someone else, while you patiently wait for all your pre-defined conditions to give you a real signal.
When you think of trading, remember that the market has a trend the minority (around 20-30%) of the time. If you are always in a position, this means that 70-80% of the time you are hoping that something will happen in your favour. That, by definition, is gambling.
Another aspect, that we have experienced a lot, is that while you remain in a position, especially if you have used leverage, you are constantly paying your exchange fees. You can be in a short position for a week and pay daily fees which only damage your equity, and therefore margin ratio. So why not just sit back, be patient and define some concrete rules for entering and exiting?
Avoid risky situations, and let the market bring the profits whenever it decides to.
4 ♦ Chasing Huge Profits
Hold your horses, Warren Buffett. Through blood, sweat and tears, we can promise you that you cannot seriously expect to make 100% every month, no matter what magical backtesting or statistics you are calculating your future fortune on.
Moreover, you will realise that consistently making 2-5% a month is an excellent career for a trader.
Yes, the markets can be good friends for a while, you may stumble into a bull-run and start making double-digit profits from a trade from time to time. Double-digit losses will also follow if you lose your sight in a cloud of euphoria and greed.
Many times, you can follow the “profit is profit” principle, and exit at a small win if the risk of loss is increasing.
5 ♠ Being Sentimental Towards Given Assets
You may have a fondness for Bitcoin and Tesla, and we understand that because we too have our favourites. Perhaps you’re deeply attached to the vision, community and purpose of certain projects. On the flip side, there may be projects that you completely despise and hope their prices plummet to zero.
What you personally like and dislike, should not interfere with your work as a trader. Introducing such strong emotions into your trading will lead you into a loop of irrational decisions. You may find yourself asking, “Why isn’t this price going parabolic with how good the project is?”.
This sounds, from personal experience, quite similar to sitting at a Roulette table and asking: “Why does it keep landing on red when I’ve been constantly betting black? It has to change any moment now”.
First and foremost, you may be completely wrong, but most importantly – it could go parabolic, but trying to predict the exact time or expecting it to happen immediately and placing your “bet” on that is again, gambling.
Don’t get attached to projects when trading. If you are an investor who just wants to hold their shares in an awesome company, or cryptocurrency, that is perfectly fine, hold them as much as you want.
The key is to make an important distinction between trading and investing, and to base your strategy on the hand that the market provides you with.
6 ♣ Putting Your Eggs In One Basket
We all have heard of diversification, but how you approach it is crucial. A trader should always have their capital spread between at least a few assets. Furthermore, the trading strategy for each asset must be distinct, or in other words – they should not rely on the same entry and exit conditions for different assets.
The markets behave differently for each asset, and you cannot be profitable with some magical indicator or strategy with a “one-size-fits-all” style. Divide your trades into different pairs and asset classes, and study each market individually to properly diversify. Manage the equity you put into each trade carefully!
Conclusion
The takeaway we want you as a reader to have from this article is that trading without consciously controlling your emotions inevitably leads to great loss and most importantly, a lot of stress.
We hate stress. Trading and life in general is exponentially harder when you are under stress. Control your risk, sleep easy, and let the market bring you profits.
Reaching this level of Zen will not be easy, but it is inevitable. Be happy when you make a profit, no matter how small or big. A lot of small profits and proper money management complete the vision you have of a successful business. Ultimately, trading is just that – work, not gambling or a pastime activity. Treat it as work and always remember to never rely on luck.
The advice we’ve included here is written by a few experienced gamblers… Oops, I meant traders 😉.
We hope that some of the lessons we’ve had to painstakingly learn through trial and error can now be shared with those who are interested. Of course, none of this constitutes investment advice. It’s merely a friendly heads-up.
Mastering CFD Trading: A Comprehensive Beginner's GuideContracts for Difference (CFDs) have garnered significant attention as derivative products that offer traders the ability to speculate on the price movements of various assets without the need to own them physically. These financial instruments emerged in the latter part of the 20th century, propelled by the advent of the internet revolution, which revolutionized trading by facilitating swift and convenient short-term transactions.
CFDs have since become an integral part of the repertoire offered by prominent brokers, providing traders with enhanced leverage and access to an extensive range of markets that encompass stocks, indices, currencies, and commodities. This broad market coverage has contributed to the popularity and widespread adoption of CFDs among traders seeking diverse investment opportunities.
The historical roots of CFDs can be traced back to the late 1980s and early 1990s. It was during this period that derivative trading witnessed significant advancements, driven by technological progress and regulatory changes. The introduction of electronic trading platforms and the availability of real-time market data allowed traders to execute trades swiftly and efficiently, leading to the development of CFDs as a viable financial instrument.
The operational mechanics of CFDs are relatively straightforward. When trading a CFD, the trader enters into a contract with a broker, mirroring the price movements of the underlying asset. This contract stipulates that the trader will pay or receive the difference in price between the opening and closing positions of the CFD. If the price of the underlying asset moves in the trader's favor, they stand to make a profit. Conversely, if the price moves against their position, they may incur a loss.
One of the key advantages of trading CFDs is the ability to utilize leverage. Leverage allows traders to control a larger position in the market with a smaller initial investment. This amplifies potential gains, but it is important to note that it also magnifies potential losses. Traders should exercise caution and employ risk management strategies when using leverage in CFD trading.
Furthermore, CFDs offer traders the flexibility to profit from both rising and falling markets. Through a process known as short-selling, traders can speculate on price declines and potentially profit from downward market movements. This ability to take both long and short positions provides traders with opportunities to capitalize on market trends and volatility.
However, it is crucial to acknowledge that CFD trading carries inherent risks. Due to the leverage involved, losses can exceed the initial investment, potentially resulting in significant financial losses. Moreover, CFD trading is subject to market volatility, and sudden price movements can lead to rapid and substantial losses.
Throughout this comprehensive article , we shall delve into the historical backdrop of CFDs, elucidate their operational mechanics, and present an evaluation of the advantages and disadvantages associated with trading these financial instruments.
History Of CFD:
Towards the conclusion of the 20th century, the landscape of exchange trading underwent a profound transformation, thanks to the advent of the Internet. This revolutionary technology empowered traders to engage in rapid short-term trades with unparalleled ease. Consequently, intraday trading emerged as a prominent trend, and astute brokers swiftly recognized the burgeoning demand for this segment among individual traders.
However, a significant predicament persisted within the trading realm - exchanges were highly specialized and compartmentalized. Currency exchanges, stock exchanges, and futures exchanges operated as distinct entities, precluding traders from capitalizing on opportunities across multiple asset classes. For instance, a trader operating with a currency broker lacked the means to profit from futures or stocks.
While opening multiple accounts with different companies was a possible solution, it was far from optimal. Furthermore, another obstacle loomed large: high leverage was imperative for generating profits through short-term transactions, yet traditional stock exchanges were averse to the risks associated with margin trading.
In response to these challenges, visionaries at UBS Investment Bank conceptualized a new trading instrument known as the contract for difference (CFD). This innovative derivative allowed traders to profit from the price fluctuations of various assets without the need to physically own them or conduct transactions on the underlying exchanges. Traders could now conveniently engage in trading shares, oil, and other commodities using a single broker. Additionally, CFDs provided the desired leverage for short-term trading, overcoming the limitations imposed by traditional stock exchanges.
Over time, CFDs became widely available, offered by popular brokers operating in diverse markets, including the forex market. Presently, this versatile financial instrument is successfully utilized by both short-term traders and long-term investors, catering to a broad spectrum of trading styles and planning horizons. The flexibility and accessibility of CFDs have made them an indispensable tool in the arsenal of market participants seeking to capitalize on price movements and maximize their trading potential.
CFD Leverage Explained:
One of the notable features of CFD trading is the availability of margin trading, which enables traders to borrow funds from their brokers. This concept is closely tied to the notion of leverage, which has a significant impact on the trading process. Leverage allows traders to control larger positions in the market with a smaller amount of their own capital.
To illustrate the concept, let's consider an example. Suppose a trader utilizes a 1:50 leverage. This means that with just $1,000 of their own funds, they can open a position equivalent to $50,000. In this scenario, the borrowed funds provided by the broker amplify the trader's purchasing power, enabling them to access larger market positions.
The level of leverage available in CFD trading varies depending on the underlying asset being traded. For instance, when trading shares, the leverage typically ranges up to 1:20. On the other hand, for commodities like oil, leverage can often reach as high as 1:100.
It is important to note that when comparing leverage in CFD trading to leverage in forex currency pairs, the ratios may appear different. A 1:20 leverage in CFDs might seem relatively lower when contrasted with the leverage commonly available in forex trading. However, it is crucial to consider these ratios within the context of their respective markets.
In traditional stock markets, equity leverage is typically limited and rarely exceeds 1:2. This means that traders in those markets have less flexibility in terms of controlling larger positions with a smaller amount of capital. In contrast, CFDs provide traders with significantly higher leverage, allowing them to amplify their potential gains and losses.
It is important to approach leverage in CFD trading with caution and exercise risk management strategies. While leverage can magnify profits, it also amplifies potential losses. Traders should be mindful of the increased risk associated with higher leverage levels and consider their risk tolerance and trading strategies accordingly.
Comparing leverage ratios across different markets provides insights into the varying degrees of flexibility and risk exposure available to traders. Understanding and utilizing leverage effectively is an essential aspect of CFD trading, enabling traders to optimize their trading strategies and potentially enhance their profitability, while remaining cognizant of the associated risks.
How CFDs Work:
Let's break down the scenario provided to understand the implications of trading CFDs compared to traditional stock ownership.
Assuming the Ask price per share is $171.23, a trader purchasing 100 shares would need to consider additional costs such as commissions and fees. In a traditional brokerage account with a 50% credit on margin, this transaction would require a minimum of $1,263 in available funds.
However, with CFD brokers, the margin requirements are typically much lower. In the past, a 5% margin was common, which would amount to $126.30 for this trade.
When opening a CFD position, the trader will immediately experience a loss equal to the size of the spread at the time of the trade. For example, if the spread is 5 cents, the stock price must rise by 5 cents for the position to reach the breakeven level.
If the trader owned the stock directly, they would make a 5 cents profit. However, it's important to consider that owning the stock directly would entail paying a commission, resulting in higher overall costs.
Now, let's consider the scenario where the offer price of the stock reaches $25.76. In a traditional brokerage account, positions could be closed at a profit of $50, resulting in a 3.95% return on the initial investment of $1,263.
However, in the case of CFDs, when the price reaches the same level on the national exchange, the bid price on the CFD may be slightly lower, let's say $25.74. Consequently, the profit from trading CFDs would be lower since the trader must exit the trade at the bid price. Additionally, the spread in CFD trading is typically wider compared to regular markets.
In this example, the CFD trader would earn approximately $48, resulting in a 38% return on the initial investment of $126.30.
It's worth noting that these figures are specific to the example provided and may vary depending on various factors, including the specific brokerage, market conditions, and the pricing dynamics of the underlying asset.
Why Trade CFDs / Pros And Cons Of Trading CFDs
Indeed, one of the significant advantages of trading CFDs is the expanded range of tradable instruments compared to the classical forex market. While the forex market primarily deals with currencies, CFDs provide traders with the opportunity to trade a wide array of assets. Most brokers now offer CFDs on various instruments such as gold, stocks, and stock indices, greatly diversifying the available trading opportunities.
However, it is important to note that CFDs are not a direct replacement for the underlying assets. Although the price of a CFD contract reflects the price movements of the underlying instrument, there may be differences in the actual returns. These differences can be attributed to factors such as spreads, commissions, and other costs associated with CFD trading.
Speaking of commissions, it is crucial to consider that CFD commissions may differ from those applied to the underlying asset. This distinction becomes particularly relevant in longer-term trading scenarios. Traders need to carefully evaluate the commission structure and any associated fees when assessing the overall costs of trading CFDs.
Now let's delve into the main advantages and disadvantages of trading CFDs:
Pros of CFD Trading:
1 ) Expanded Market Access: CFDs provide access to a wide range of markets, including stocks, commodities, indices, and more, allowing traders to diversify their portfolios and capitalize on various asset classes.
2 ) Leverage and Margin Trading: CFDs offer the potential for higher leverage, allowing traders to control larger positions with a smaller initial investment. This amplifies potential profits (as well as losses) and can enhance trading opportunities.
3 ) Ability to Profit from Both Rising and Falling Markets: CFDs enable traders to take advantage of both upward and downward price movements. Through short-selling, traders can speculate on price declines and potentially profit from falling markets.
Cons of CFD Trading:
1 ) Counterparty Risk: When trading CFDs, traders are exposed to counterparty risk, as they enter into contracts with the broker rather than owning the underlying assets. If the broker encounters financial difficulties or fails, it can impact the trader's positions and funds.
2 ) Potential for Higher Costs: CFD trading may involve additional costs such as spreads, commissions, and overnight financing charges. These costs can impact overall profitability, especially for longer-term trades.
3 ) Market Volatility and Risk: CFDs are subject to market volatility, and sudden price movements can result in rapid and substantial losses. The use of leverage in CFD trading can amplify both gains and losses, making risk management crucial.
It is essential for traders to consider these pros and cons when deciding to engage in CFD trading. Adequate risk management strategies and a thorough understanding of the underlying markets and associated costs are essential for successful and informed trading decisions.
Risks Of Trading CFDs:
Trading CFDs (Contracts for Difference) involves inherent risks that traders should be aware of before engaging in such activities. Understanding these risks is essential for making informed decisions and implementing appropriate risk management strategies. Here are some of the key risks associated with CFD trading:
Leverage Risk: CFDs allow traders to access larger market positions with a smaller initial investment. While leverage can amplify potential profits, it also magnifies losses. Traders need to be cautious and manage leverage effectively to avoid significant financial setbacks.
Market Risk: CFDs are directly linked to the price movements of underlying assets, which can be influenced by various factors, including economic indicators, news events, and market sentiment. Rapid price fluctuations can lead to substantial losses, especially if positions are not managed appropriately.
Counterparty Risk: When trading CFDs, traders enter into a contractual agreement with the CFD provider. This exposes them to counterparty risk, which refers to the possibility of the provider failing to fulfill its obligations. It is crucial to choose a reputable and regulated CFD provider to minimize this risk.
Operational Risk: CFD trading platforms can experience technical issues, such as system outages or errors, which may prevent traders from executing trades or managing positions effectively. Traders should be prepared for such operational risks and have contingency plans in place.
Liquidity Risk: In certain cases, CFD markets may lack sufficient liquidity, meaning there is a limited number of buyers and sellers. This can make it challenging to enter or exit positions at desired prices, particularly during volatile market conditions. Traders should be cautious when trading illiquid CFD markets.
Hidden Costs: Some CFD brokers may impose additional fees and charges, such as overnight financing fees or spread mark-ups. These hidden costs can reduce profitability over time, and traders should carefully review the fee structure of their chosen CFD provider.
To mitigate these risks, traders are advised to implement risk management techniques, including setting stop-loss orders to limit potential losses, conducting thorough market analysis, and continuously monitoring positions. It is also crucial to conduct due diligence when selecting a CFD provider, ensuring they are regulated and offer transparent pricing structures and reliable customer support.
By understanding and effectively managing these risks, traders can enhance their chances of success and navigate the complexities of CFD trading more confidently.
Choosing A Broker For CFD Trading:
When selecting a broker for CFD trading, certain parameters take precedence. These include:
1 ) Reliability and Reputation: When it comes to CFD trading, the importance of a broker's reliability and reputation cannot be overstated. Given the instrument's relative lack of popularity, there may be instances of limited liquidity, which increases the temptation for unethical practices such as manipulating charts or altering quotes. It is crucial to choose a broker known for their trustworthiness and positive reputation.
2 ) Variety of CFDs for Trading: It is advisable to thoroughly examine the broker's website and review the comprehensive list of available contracts. Ensure that the list includes the specific CFDs you intend to trade. Having access to a wide range of CFD options allows you to diversify your portfolio and pursue various trading opportunities.
3 ) Contract Specifications: Identify the CFDs in the broker's list that you plan to trade frequently. Pay attention to the contract specifications, including spreads, commissions, and swaps, as they should align with your trading style and objectives. If you require high leverage, verify the leverage availability for each CFD category.
By carefully considering these parameters, you can make an informed decision when choosing a broker for CFD trading. This will contribute to a more satisfactory trading experience and help you align your trading strategy with your goals.
Conclusion:
Contracts for Difference (CFDs) provide traders with a gateway to a diverse range of popular exchange-traded assets. Through a single CFD broker, traders can engage in trading activities involving stocks, indices, and even cryptocurrencies.
The key to achieving success in CFD trading lies in the trader's level of proficiency in understanding the intricacies of specific instruments. The most favorable outcomes are typically attained by individuals who concentrate their efforts on a particular asset class or even a specific instrument within that class. By acquiring comprehensive knowledge and a deep understanding of the various factors that influence prices, traders can surpass market performance and reap the rewards they rightfully deserve. This focused approach enhances their ability to make informed decisions, seize profitable opportunities, and maximize their potential gains in the CFD market.
How Leverage Really Works | Margin Trading Explained
Leveraged trading allows even small retail traders to make money trading different financial markets.
With a borrowed capital from your broker, you can empower your trading positions.
The broker gives you a multiplier x10, x50, x100 (or other) referring to the number of times your trading positions are enhanced.
Brokers offer leverage at a cost based on the amount of borrowed funds you’re using and they charge you per each day that you maintain a leveraged position open.
For example, let's take EURUSD pair.
Let's buy Euro against the Dollar with the hope that the exchange rate will rise.
Buying that on spot with 1.195 ask price and selling that on 1.23 price we can make a profit by selling the same amount of EURUSD back to the broker.
With x50 leverage, our return will be 50 times scaled.
With the leverage, we can benefit even on small price fluctuations not having a huge margin.
❗️Remember that leverage will also multiply the potential downside risk in case if the trade does not play out.
In case of a bearish continuation on EURUSD , the leveraged loss will be paid from our margin to the broker.
For that reason, it is so important to set a stop loss and calculate the risks before the trading position is opened.
Let me know, traders, what do you want to learn in the next educational post?
Leverage in Forex Trading | Your Main Tool
“Leverage” means using a small amount of your own money in order to control a much larger amount of money. Typically, you borrow the remaining amount through your broker.
For example, say you want to control a $50,000 position. Your broker might put aside $500 of your own money and borrow the remainder. You now have control over the $50,000 with just $500 from your own account, so your leverage ratio is 100:1.
Now, let’s say the $50,000 investment rises by $500, so the full position is now worth $50,500. If you were liable for the full $50,000 (representing a 1:1 ratio), this is only a 1% return on your investment. However, since you only put in $500 of your own capital, the $500 increase represents a 100% return on your investment – that’s way more exciting!
Now, it’s important to understand that this cuts both ways. If you lost $500 instead of gaining $500, you would see a -100% return on your investment. Yikes! If you had a 1:1 ratio and put in the full $50,000 you would only see a -1% return.
How Much Can You Leverage in Forex?
Before you open an account with a broker, you’ll want to check the maximum leverage ratio that you’ll be able to use. The higher the ratio, the bigger your potential gains or losses. Brokers will usually offer 50:1, 100:1, 200:1, or 400:1 ratios.
A typical ratio on a standard lot account is 100:1, and a mini lot account will often offer a 200:1 ratio. If you start trading at 400:1, be wary of using small deposits to control large capital, as these can disappear quickly with the volatility of large sums. Lower leverage keeps you safer from mistakes, while higher leverage could bring in higher rewards.
How Leverage Affects Your Trading ✅
As we’ve seen, leverage is a powerful tool that can help you win big in the forex market. You can use less capital to control greater positions, giving you flexibility and amplifying your profits. However, it can just as easily amplify your losses.
At very high levels, leverage starts to damage your odds of success. Transaction costs represent a higher percentage of your margin the greater your position is. This means that transaction costs already put you at a disadvantage with excessively high leverage.
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Hey traders, let me know what subject do you want to dive in in the next post?
EXPLAINED: Gearing and how it worksThere is one tool with trading, which you can accelerate your portfolio, compared to with investing.
I’m talking about Gearing (or leverage).
To wrap our head around this concept, here’s a more relatable life example.
When you buy a house for R1,000,000, it is very similar to trading derivatives. Initially, the homeowner most probably won’t have the full R1,000,000 to buy the house with just one purchase.
Instead, they’ll sign a bond agreement, make a 10% deposit (R100,000), borrow the rest from the bank and be exposed to the full purchase price of the home. This is a similar concept for when you trade with gearing.
Gearing is a tool which allows you to pay a small amount of money (deposit) in order to gain control and be exposed to a larger sum of money.
You’ll simply buy a contract of the underlying share, use borrowed money to trade with and be exposed to the full share’s value.
Let’s simplify this with a more relatable life example:
How gearing works with CFDs
Let’s say you want to buy 1,000 shares of Jimbo’s Group Ltd at R50 per share as you believe the share price is going to go up to R60 in the next three months. You’ll need to pay the entire R50,000 to own the full value of the 1,000 shares (R50 X 1,000 shares).
In three months’ time, if the share price hits R60 you’ll then be exposed to R60,000 (1,000 shares X R60 per share).
Note: I’ve excluded trading costs for simplicity purposes throughout this section
If you sold all your shares, you’ll be up R10,000 profit (R60,000 – R50,000). The problem is you had to pay the full R50,000 to be exposed to those 1,000 shares.
When you trade a geared instrument like CFDs, you won’t ever have to worry about paying the full value of a share again.
A CFD is an unlisted over-the-counter financial derivative contract between two parties to exchange the price difference of the opening and closing price of the underlying asset.
Let’s break that down into an easy-to-understand definition.
A CFD (Contract For Difference) is an
Unlisted (You don’t trade through an exchange)
Over The Counter (Via a private dealer or market maker)
Financial derivative contract (Value from the underlying market)
Between two parties (The buyer and seller) to
Exchange the
Price difference of the opening and closing price of the
Underlying asset (Instrument the CFD price is based on)
Let’s use an example of a company called Jimbo’s Group Ltd, who offers the function to trade CFDs.
The initial margin (deposit) requirement is 10% of the share’s value. This means, you’ll pay R5.00 per CFD instead of R50, and you’ll be exposed to the full value of the share.
To calculate the gearing (or leverage ratio) you’ll simply divide what you’ll be exposed to over the initial margin deposit.
Here’s the gearing calculation on a per CFD basis:
Gearing
= (Exposure per share ÷ Initial deposit per CFD)
= (R50 per share ÷ R5.00 per CFD)
= 10 times gearing
This means two things…
#1. For every one Jimbo’s Group Ltd CFD you buy for R5.00 per CFD, you’ll be exposed to 10 times more (the full value of the share).
#2. For every one cent the share rises or falls, you’ll gain or lose 10 cents.
To have the exposure of the full 1,000 shares of Jimbo’s Group Ltd, you’ll simply need to buy 1,000 CFDs. This will require a deposit of R5,000 (1,000 CFDs X R5.00 per CFD).
With a 10% margin deposit (R5,000), you’d have the exact same exposure as you’d have with a conventional R50,000 shares’ investment.
Here is the calculation you can use to work out the exposure of the trade.
Overall trade exposure
= (Total initial margin X Gearing)
= (R5,000 X 10 times)
= R50,000
With an initial deposit of R5,000 and with a gearing of 10 times, you’ll be exposed to the full R50,000 worth of shares.
In three months’ if the share price reaches R60, your new overall trade exposure will be R60,000 worth of shares (1,000 shares X R60 per share). If you sold all of your positions, you’d bank a R10,000 gain (R60,000 – R50,000).
But remember, you only deposited R5,000 into your trade and not the full R50,000. This is the beauty of trading geared derivative instruments.
If you want any other technical trading or fundamental term explained, please comment below. I'm happy to help.
Trade well, live free
Timon
MATI Trader
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What Every Trader Should Know About Margin
Margin can be a powerful tool to leverage your investment returns or to finance purchases apart from your portfolio.
Margin is an extension of credit from a brokerage firm using your own eligible securities as collateral. Most traders typically use margin as a means to purchase additional securities, but there are other uses too. Interest is charged on the borrowed funds for the period of time that the loan is outstanding.
Benefits of a Margin Trading Account:
Use the cash or securities in your account as leverage to increase your buying power.
Get the lowest market margin loan interest rates of any broker.
Diversify trading strategies with short selling, options and futures contracts, or currency trading.
Borrow against a margin account at any time and repay the loan on your own schedule.
Margin borrowing is only for experienced investors with high risk tolerance. You may lose more than your initial investment.
Before trading on margin, understand the following risks:
Trading losses may be greater than the value of the initial investment
Leveraged investments create a greater potential risk of loss
Additional costs from margin interest charges
Potential margin calls or liquidation of securities
Hey traders, let me know what subject do you want to dive in in the next post?
What is margin trading & How does it work?
Margin trading is when you pay only a certain percentage, or margin, of your investment cost, while borrowing the rest of the money you need from your broker.
Margin trading allows you to profit from the price fluctuations of assets that otherwise you wouldn’t be able to afford. Note that trading on margin can improve gains, but increases the risk and size of any potential losses.
But what is the margin in trading? There are two types of margins traders should be aware of. The money you need to open a position is your required margin. It’s defined by the amount of leverage you are using, which is represented in a leverage ratio.
There are also limits on keeping a margin trade running, which is based on your overall maintenance margin – the amount that needs to be covered by equity (overall account value).
Brokers require you to cover your margin by equity to mitigate risk. If you don’t have enough money to cover potential losses, you may be put on a margin call, where brokers would ask you to top up your account or close your loss-making trades. If your trading position continues to worsen you will face a margin closeout.
Hey traders, let me know what subject do you want to dive in in the next post?
WHAT IS LEVERAGE IN FOREX?
“Leverage” means using a small amount of your own money in order to control a much larger amount of money. Typically, you borrow the remaining amount through your broker.
For example, say you want to control a $50,000 position. Your broker might put aside $500 of your own money and borrow the remainder. You now have control over the $50,000 with just $500 from your own account, so your leverage ratio is 100:1.
Now, let’s say the $50,000 investment rises by $500, so the full position is now worth $50,500. If you were liable for the full $50,000 (representing a 1:1 ratio), this is only a 1% return on your investment. However, since you only put in $500 of your own capital, the $500 increase represents a 100% return on your investment – that’s way more exciting!
Now, it’s important to understand that this cuts both ways. If you lost $500 instead of gaining $500, you would see a -100% return on your investment. Yikes! If you had a 1:1 ratio and put in the full $50,000 you would only see a -1% return.
How Much Can You Leverage in Forex?
Before you open an account with a broker, you’ll want to check the maximum leverage ratio that you’ll be able to use. The higher the ratio, the bigger your potential gains or losses. Brokers will usually offer 50:1, 100:1, 200:1, or 400:1 ratios.
A typical ratio on a standard lot account is 100:1, and a mini lot account will often offer a 200:1 ratio. If you start trading at 400:1, be wary of using small deposits to control large capital, as these can disappear quickly with the volatility of large sums. Lower leverage keeps you safer from mistakes, while higher leverage could bring in higher rewards.
How Leverage Affects Your Trading ✅
As we’ve seen, leverage is a powerful tool that can help you win big in the forex market. You can use less capital to control greater positions, giving you flexibility and amplifying your profits. However, it can just as easily amplify your losses.
At very high levels, leverage starts to damage your odds of success. Transaction costs represent a higher percentage of your margin the greater your position is. This means that transaction costs already put you at a disadvantage with excessively high leverage.
How much leverage should I be using?Understanding how to trade forex requires detailed knowledge about economies, political situations, all the individual countries, global macroeconomics, the impact of volatility, it goes on and on. But the reality of the situation is this isn't what makes most new traders fail. What makes most traders fail isn't the lack of knowledge or understanding of what it is they're actually trading. It's the lack of knowledge and understanding on leverage.
As most of us would have heard, there is very obvious statistic out there that majority of retail traders fail. Now, most people will see this as a lack of competence and just purely not willing to put in the effort to be successful. But a lot of the time it is people not understanding the risk their undertaking and what it is they're actually doing with their money when they enter the market. It really highlights this when traders come to a firm like ours, and question leverage or they have so many questions about leverage that even though they've been trading for three to four years, they still don't fully understand the actual risks that are at hand when they are opening certain positions that they really can't afford to open.
Today I wanted to jump into leverage. Let's really dive into depth what it is, why we have it, how we can use it. Then, finally touch on what is the right amount of leverage for you as a trader. So you can be exponential in maximizing your profits, but also ensuring that you're not damaging yourself long term.
LEVERAGE RISK
Firstly, I think it's important for us to have a look into leverage. Leverage is the process in which an investor or trader borrows capital in order to invest or purchase something. Typically we borrow capital from a broker and we buy into positions with money that we didn't have in order to be able to gain more profit from those positions. Most traders are blindsided and constantly think the more money I have, the more profit I can make, which is true, but they fail to recognize that the more risk it carries.
Carrying higher leverage is an exponential increase in risk. Most brokers out there will probably offer you something like 50:1, 100:1 or even 500:1 leverage. This giving you a buying power of 50, 100 or even 500 times whatever the amount of money you have in your account. Which means a trader with just $100 in a brokerage account could open a position with $50,000 in the market. Now, while that may sound advertising, believe me, that's a trap and we're going to chat about that today.
HIGH LEVERAGE EXAMPLE
So let's dive into an example. Let's imagine we have a trader who has a $10,000 account. They decide to use 100:1 leverage, which now means with that $10,000 cash, they can trade up to $1,000,000 in the forex market. Let's assume that the trader opened a position with the full available capital which would relate to 10 lots, and they opened the position on a currency with the USD being the quote currency. That means that each PIP movement is equal to $100. So for a simple equation, if they were to enter a trade and that trade went against them by 50 pips, they would have lost 50% of their account because that 50 pips would have been equal to $5000. So in one wrong trade they lost 50% of their account.
So many people in this industry is so quick to look at what the realized gains could be, but they rather tend to ignore the actual risks that come with that. If you don't have sufficient evidence that your investment strategy is going to provide consistent and stable gains long term, do not look to trade with higher leverage, as you will be gambling and it is extremely risky.
LOW LEVERAGE EXAMPLE
Now let's use the same example, but in a lower leverage situation. The trader has $10,000 cash only this time he is trading on an account with 5:1 leverage, resulting in a buying power of $50,000. This means on a pair with the US dollar as the base currency that you can open a maximum size of 0.5 lots. Let's go ahead and take the exact same trade, only this time with a 0.5 lots, each pip is equal to $5. Should the investment or trade fall the same 50 pips this time the trader will only lose $250, which is a mere 2.5%. Same trade, different leverage, one lost 50% the other lost 2.5%.
It is a common trick out there that traders feel they require more leverage to really make money in the market. It's not true. Yes, it can help you get more profits from those smaller moves. Yes, it is really beneficial if you have a proven strategy. If you are still coming to grips with trading or you're fairly new and you haven't achieved consistency and profitability yet, focus on lower leverage. What it will actually do is make you focus on long term goals. Focus on the process this giving you more sustainability in the market and therefore more maturity.
CHOOSE THE RIGHT LEVERAGE
Choosing the right leverage is a very important step in Forex trading. You can be tapered in by fancy numbers and big brokers trying to get you in, Or, you can realistically dive into what it is you actually need and what's going to benefit you more in the future. There's no right answer to how much leverage you need each strategy in each individual require different things, but what I will do is share some tips and some knowledge on how to choose the right one that benefits you.
1. Always try and maintain the lowest leverage you possibly can for your strategy. If you manage to pull it right the way into where you can only just open the positions on the risk you have allowed yourself, and you can't open more than, lets say three positions, what you actually do is limit yourself to focus on only the good positions. You've prevented over trading from occurring and you can really focus on your risk management.
2. When you open positions or you talk about opening positions instead of going to people saying, "yes, I opened 0.35 lots." Use the actual dollar value when you open a 0.35 lot position. Instead, say "I opened a $35,000 position." Talking in that language that you have placed your bets with $100,000 or $1,000,000 will make you realize how much risk you're actually exposing yourself to and the capacity of what it is you are trading.
3. Limit your overall risk, at absolute Max, I risk 0.25%. This allows me to go into large drawdowns and it not be an issue. I can still manage it accordingly in it actually keeps me nice and calm and focused on the analysis rather than the running profit and loss.
The bottom line is selecting the right Forex leverage depends on the traders experienced risk tolerance and comfort when operating in the market. You want to ensure that it's not out there to harm you, but rather it's there to help. You do not want be trying to get really high leverage so you can make large profits, when you know realistically, there is no evidence to prove that you will make those high profits. Start small, gain consistency, gain exposure and gain experience, and then you can start looking to expand your equity and buying power.
When you should use leverage in your trades?When you should use leverage in your trades? I’m going to answer this question, but first, we have to mention two other questions to be answered.
Q1: What is a reasonable trade?
An order in which the entry point, stop loss, and take profit are already pre-defined based on a good return strategy or rules.
Q2: What is money management?
Money management is to determine the percentage of risk on the total balance in each order and to know what your position size will be and how much your potential loss will be.
We need to do some calculations to answer the first question.
Let’s suppose your account balance is $100 and the maximum risk on your balance for each trade is 5%. This means that on a reasonable trade, your loss will be $5 at most. Besides that, you have a good trading opportunity with an entry point at $10, stop loss at $9, and profit point at $12, i.e. 10% potential risk and 20% potential reward for the position.
Since we cannot lose more than $5 of our balance, we need a position size where the potential loss will not exceed $5. Which we can calculate with this formula: (Max risk on balance / position risk * 100). Which would be $50 in our case.
This means that we are only allowed to include $50 out of $100 in this trade; this would be $5 after a 10% loss.
Everything is normal and we can afford it, so we will do the trade.
Now, let’s increase the max risk on balance to 20%. It means our potential loss would be at most $20. By doing the same calculations considering the same reasonable trade with 10% risk, our position size will be $200 while we do not have more than $100, so where do we get $200 from?!
Yep! Leverage would help you in this case. So benevolent, isn’t it?
In this case, your leverage would be 2 and you can open a $200 position, but don’t forget you increased your account risk from 5% to 20% already.
Note that the risk will be applied to your real asset. If your balance is $100 and the leverage is 10, the exchange will give you about $1000 to buy or sell. While the 5% of $100 is $5, the 5% of $1000 would be $50, which is 50% of your real asset. So calculating the risk on leverage balance is practically meaningless!
What if we had 10 orders simultaneously? It means $100 will be split between 10 orders. For ease of calculation, we consider every 10 trades to be the same as what we had above, while each trade would have 10% of $100. In these conditions, each trade would again have a $50 position, but leverage will be 5!
Having said that, we can conclude that leverage alone is meaningless and finds meaning alongside reasonable trade opportunities and money management.
In the above explanations, for the ease of calculation and context understanding, I used rand but not necessarily correct values. For example, a risk ratio of 5% on balance is a really high risk or in the example of 10 trades at once, it is wrong to consider your balance as $100 at the start of each trade. In the worst-case scenario, you should deduct the loss of the previous trade from your balance for the next trade.
From the link below, you can access the tool I prepared to calculate the position details.
bit.ly
Feel free to give your constructive feedback.
Finding Effective LeverageKnowing the link between leverage and equity is important. Now, you have to decide how much you are
willing to risk and set your trading capital accordingly.
To find effective leverage, consider two inputs: trade size and equity.
Use effective leverage of 10:1 or lower.
Only risk 10% or less of your account balance at any given time. Add the cash value of your entire exposure
to the market (all your trades), and never let that amount exceed 10 times your equity.
To calculate leverage of a single trade, divide your trade size by your account equity.
Advantages And Disadvantages Of LeverageAdvantages
*Enhances Capital Efficiency: In forex, capital efficiency is the comparison of how much money is being risked relative to potential profits. High degrees of leverage help traders maximize the potential of their risk capital and turn minimal investments into substantially larger returns.
*Extraordinary Profits: The greater the applied leverage, the greater the potential profits. Through opening inherently large positions in the market, beneficial moves in pricing can produce extraordinarily positive returns.
Disadvantages
*Risk: Make no mistake—applying leverage exponentially increases the trader's risk exposure. As position sizes grow larger, per PIP values also grow. In the case of sudden volatility , capital drawdowns on heavily leveraged positions may be severe. If margin requirements aren't able to be met due to unrealized losses, margin calls and premature position liquidations are possible.
*Stress: The physical and mental stress associated with trading highly leveraged forex positions can be intense. As leverage is increased, the "stakes" of each trade go up dramatically. Subsequently, trader psychology often changes, with big profits leading to a state of euphoria while sizable losses prompt desperation. When in a euphoric or desperate state, traders are more inclined to make emotional decisions rather than strategic ones.
How to trade levels? How to play price? How I made 30x in 2 yrs!In this video:
I draw out a hypothetical initial investment.
I should how you can multiply your net profit by trading out and back in along the way to your final projected target.
This video is all about trading levels, a strategy I have developed from years of experience that has helped my to multiply my crypto profits exponentially.
I have 30x'ed my initial cash reserves over the period of 2 years.
I think you can too. I am going to show you how I did this.
Important for any new futures traders!Going to keep this simple here.
The price of bitcoin has sky rocketed these past few months. During the spring & summer time a few hundred dollar move in price would be crucial!
Now the price of BTC is lingering around 50,000. Those small movements that where only a few hundred dollars are now thousands.
👉 My point here is that anyone using anything above 5x Leverage is critically risking there portfolio.
💀These shake outs & wicks are future traders death call.
📈 Lets took a look just recently when BTC had closed above its critical resistance level at around 49,400.
Many individuals had purchased or over leveraged thinking price will move up after confirmation. (Bull trap)
On average the price shifted down about 3%. Anyone more then 20x leverage would have for sure gotten a margin call or suffered liquidation.
👇👇👇
My point is price is too high for individuals to think that over leveraging will yield them higher returns.
Trade futures with risk management and the correct way.
The reasons exchanges offer up to 100x leverage is so they can make money.
What is Leverage - Margin - Margin Calls, Etc...Hello Everyone,
I had some questions recently asking me to explain leverage and margin so that's exactly what I'm explaining in today's video.
Feel free to drop a comment below if you have any questions.
Regards,
Michael Harding
Main Logic of Leverage TradingHello, in this educational idea, I tried to explain the logic behind leveraged transactions and the hedge effect of the leverage in a few sequential trades.
I hope that will be useful.
Best regards.
Daytrading Leverage Strategy for Bigger Accounts on Forex[R:R 3]Hello everyone,
Many of you wonder how it feels to trade bigger accounts, and keeping it short: stop thinking punctual.
Whenever you think I'm buying HERE and getting out exactly THERE. Forget it, never again.
There's simply not enough volume for your positions - so what you do?
You break it up and you start thinking the final average price. You stop thinking on static numbers and you start considering regions for entry and exit.
Larger institutions take WEEKS to close their positions, so I think you get my groove here. It's hard to think tops and bottoms when you need to buy and enter all over the place - the art of market making(but that's a whole other story).
So when I started struggling with such a problem, all my strategies were basically at their maximum capital capacity. The main symptom was that my entry limit orders were being filled partially all the time.
Since I'm a very thrill guy when it comes down to the strategies I like to have every single step very well written before I start opening positions. Not only entry and exit points but also position sizing are crucial for me.
The solution was to break my position in smaller positions that I called ACU's.
Let's say we have a 10% ACU, that means that each ACU that I buy that is equivalent of 1/10 of the total position size I initially wanted.
The second step was changing my algorithms to things that triggered more often across a zone and not super price and solid signals that trigger only once.
So now I'm buying a little bit here and there, with the goal of having a better final average price.
Another secret factor for success here is being quick on or fingers or if you're tech savvy enough getting an execution bot for you.
Which means you can further break your ACU's across a buying zone.
Let's say your buy-zone goes from 1 to 2, you will spread your ACU close to what I'll explain next.
Imagine something around 10% of 10% of your total position size, yes only 1% of total
Because you will break your ACU in 10 smaller positions across the 1~2 range, similar to this
Buy 10% ACU at 1
Buy 10% ACU at 1.1
Buy 10% ACU at 1.2
...
Buy 10% ACU at 2
I know it sucks and it takes time, but the more you break your position is better and I'll tell you why. BECAUSE IT GUARANTEES YOU THE BEST POSSIBLE ENTRY PRICE.
The price hardly ever go all the way down to the bottom of the range and if does your avg price will be 1.5
But let's work with MOST of the times, that the lowest it goes on your buy-zone is around 1.3-1.7
It will always allow you to catch the best avg entry price, I know some of your limit orders won't be filled but this makes the risk a lot smaller for you, so be patient and master your greed.
This also allows the usage of leverage since operating like this makes you REALLY hard to get liquidated, the tools and the settings I used on Spectro M2 are Xconf on aggressive mode(arrows above/under candles), Spectro Warnings on Moderate(gray warnings), Adaptative Fibonacci Levels( pivot levels) & Scalper Exhaust Reversal Tool(blue background).
Also to make the stop-loss rules clear:
If the price just touched #1 Target - Do nothing
If the price just touched #2 Target - Move up one level
If the price just touched #3 Target - Move up SL to #1 target
If the price just touched #4 Target - Move up SL to #2 target if you think there will be a break-out otherwise close your position
Let me know if you have any doubts!
