The last time I say that with the use of clarity, we must distinguish between what is available (100:1, 200:1, 400:1, 500:1) and what you can choose to use. I show how the marketing people deceive operations assistant with very high leverage, and assured them that this is a good thing. These people are not aware of the adverse effects of leverage on your account. It's like speeding on a mountain pass, but I think they are on the floor. You can terminate a way ... disaster.
We conclude that:
- What is commonly known as leverage is really necessary margin expressed as a ratio if you use all the power brokers will allow you to borrow.
- The real influence is determined by dividing the capital into the value of your position.
- Real influence will vary from trade to trade and promote trade with the simultaneous (open position).
- The margin requirement has no effect on the risk, if the trade properly with modest influence within your means and should not be used as a principle for calculating the risk margin.
I also want to cover, on the more fundamental question of leverage, ie the exact calculation.
Leverage is about to borrow money. To calculate the leverage you need to know first how much you have, and then divide the amount to be negotiated with (a measure of where purchased, or in substance, loans).
Say you have € 20,000 and make a change (buy EURUSD 100,000). The lever is 100,000 / 20,000 = 5.1. For each € 1.00 you really trade with € 5.00.
Now, more precisely, the euro is one example I want to make sure they understand the difference between "leverage operator" and "use the teacher". I saw this in part 1, but only in passing, and this is important because I want to make very sure you understand what I mean.
I think many readers BWILC (book) has adopted Part 3 - "All that Jazz" or flipping quickly and missed the part where I explain leverage. Also may have lost a very important little paragraph in the base currency and exchange agreements. Distributors for real money in the room of the bank comes to these things are very important and it is second nature to them, but for some reason, to retail currency speculators see as less important and therefore creates a major error in the calculation of risk.
You see, if you look at the operations to leverage on the futures market or the stock market is really the only calculation - as in the example above. If you live in India and make a leveraged transaction in the stock market of India and the rupees you got a few rupees and you trading stocks listed on the stock exchange. This is a very obvious calculation: divide what you have in the value of your offer. But things are not so simple in the currency market.
Minor complication is making sure you know what you have. In other words, the currency of your account? Suppose the U.S. dollar. (I think a lot of traders in the United States should diversify their trading accounts to other currencies as a way to reduce the risk of having all your eggs in one basket.)
The problem with the calculation of debt in foreign currency must be divided apples to apples. Accordingly, you should express the base currency of the currency pair you are trading in the currency of your account.
So, back to basics. What the hell is the base currency? This is not the currency of your account. The base currency is the currency called for the first time in the quote currency. When we say that EURUSD, Euro is the base currency. When we say USDJPY, the U.S. dollar is the base currency.
When we say that the price of the EURUSD is 1.2755 / 8, then it means that for every dollar you have to pay U.S. $ 1.2758 if you buy euro and sell euro if you do, you will receive 1.2755 U.S. dollars. Say it with a $ 10,000 account to trade our money to buy a "standard lot" of (€ 100,000) EURUSD. The value of transactions in U.S. dollars is $ 127, 580. We have $ 10 000 and because our loan is 127580/10000 = 12.75:1. For every dollar that we are negotiating $ 12.75 - made use of, or 12.75 hours directed to our account. (There is no difference between "influence" and "loan".)
However, it has become commonplace in the world of Forex retail to express this operation just to get leverage of 10:1. This ignores the fact that there are two apples and pears and divide only 10K to 100K. It is interesting to ask why it has become common practice, and I take the time to explain why I think it is.
A little history
In December 2003, the U.S. regulator, TFCC, which in terms of the Commodity Futures Modernization Act (2000) began to oversee the OTC (Over The Counter) rules on the exchange of foreign bank issued new requirements. I think so far assistant advertising marketing leverage of 100:1 or 200:1 (or a margin requirement of 1%) without understanding what is the base currency of a particular transaction has a significant impact on the the margin they need. They do not care. All the money in U.S. dollars and charge only 1% of the total 100,000 units of currency and U.S. dollar both. At that time, most of the currencies traded in the pair - EURUSD - worth less than a dollar per euro, this has no effect, because the margin was more than 1% of the contract value. For example, when negotiating EURUSD at 0.9250 a contract valued at $ 92 500 and $ 1,000 more than the 1% ($ 925).
That changed when the euro has significantly increased in value by $ 1.00 per euro, and suddenly the margin they charge less than 1%. CFTC also issued rules in 2003 that the margin requirements for retail Forex broker OTC (OTC vs exchange-traded) must be compatible with currency futures. This caused a stir because of the margin required to be up 4% - 8% and minds marketing wizards who lose money to companies that are not regulated.
The objections which they work (as we all know now), because the margin requirement is only 0.25% depending on the size of the transaction, the most common of about 1%. What the regulator does the force calculation (exact) in the right margin as a percentage of the amount of the basic contract.
Understanding the initial amount is fairly substantial trade, people will think. You might also think that retailers pay a good price for business advice, or training, e-book for a classroom course or courses of study at home, receive the proper guidance in this area . Unfortunately, this rarely happens.
Using very strong trading career kills potentially promising
Leverage amplifies the volatility in the market trading account with leverage by leverage.
Let me explain this with the story of two friends, Frank Buck and Sterling brands.
Frank was a professor of history and do a PhD on ancient civilizations and Buck is a computer programmer. Annual leave, Frank decides to visit Stonehenge in England, and has consulted Buck began exploration in currency trading, helped by the eBook "Forex Trading for idiots."
They went to a free seminar, but Frank is not decided by him. Buck, but branched over $ 1500 for a weekend, with free prices, charts, without that, and the system is to raise $ 3,000 to $ 1,500 for trading days through the open book "in London "thereof.
Buck struggled at first, but recently, they have no control and earn less than $ 70,000 demo. Frank Buck asked a little surprised at how well he did and what the essence of this system. Bucks respond? "The rules of the game to their friends, the leverage effect". (I should also add that Buck had a gambling $ 50,000.)
So Frank, consciously delayed his trip to England to ask Buck to let you know when it is best to change money per pound and requires Buck, he showed 5 minutes, 15 minutes and 60 minutes, when the current graph was to buy sterling - stochastix screaming "buy" and Fantastix promises of wealth. At the top of the hour, Frank was quick to the Exchange Office and pay $ 1.88 for each of its 5,000 pounds. Global paid $ 9400. Buck, who wrote a software demo money on your Easy-Forex has just 15,000 pounds of money overnight. Frank becomes jealous.
Buck explained to Frank that the crocodile was reversed with a white flag hanging from the rope that hung Doji yesterday, the resistance is the launch of their weapons, while support is building new bases close to the action on the daily chart, and lucky star was in the right iliac fossa, because the Czar became paralyzed right hand brake. Translated, the Frank Buck said, means that if Frank bought another € 5000 when I was in what he will make a small profit, because "" the trend is the pound sterling and the trend is your friend "said Buck paging through Forex for idiots.
Frank rushed to the Exchange Office and others to buy £ 5000. Buck is right now, Frank paid $ 1.89 per pound. Total income: $ 18 850 to 10,000 pounds. At the time of Frank on the plan, Buck launched the careers of real money trading, commission free funds, two pips on the majors, commercial accounts 200:1 leverage Capital Partners money to a deposit of $ 20,000.00 clock.
A few weeks later, Frank had a wonderful time in England and decided to revisit one week before the Arlington Racecourse and play the horses. USD is currently trading at 1.95. Of course, Frank Buck think rolling in money - the trend is a friend. Frank has his fortune and win £ 10,000 by Long Shot Pick Six after winning 6 races with a wet nose.
At home a few days later change (10,000 euros) for a dollar at the airport to the level of 1.92. Frank has received $ 19 200. He made $ 350 after a holiday. Not bad. Buck, however, have to be a millionaire today!
First day back at work by Frank Buck is absorbed into a computer program. Trade in the second blank screen.
"You're right," Frank said with admiration. "The trend is your friend." He put the gift on the desktop brand of Arlington. "I have an exciting vacation and after that I was in the dark, thanks to you are a genius .. What the book trade at the moment?"
"I do not know," said Chief Buck.
Frank asked a little surprised by the Tsar paralyzed, if the resistance is still building a base, and if the executioner was very busy. "I do not know," says Buck, "I'm not interested." He looks sad. Wed to Frank.
"How much is lost Buckey?"
"Twenty-K". Frank Buck was surprised to delete an answer.
"The rules of the game to their friends, the leverage effect".
Then, a conversation between two with more detail and reveals the sad story. Buck said:
"The problem is that at first I was a little too conservative I made a bargain with a leverage of 50:1 few .. In other words, I made $ 100.00 per pip . Success 1.9500 pounds, I have $ 40 000. So I decided to up the ante a bit and I took advantage of the 40K 80:1, in other words, I will 320.00 $ per pip. I have to put the stop bit closer, because it is the work of an idiot Money Management. So I put a stop 15 pips idiot, what happens first? I can get 3 times the same day, U.S. $ 14.400 in the tube .. What happens next market turned? and head toward me, just after he leaves aside. In fact, my third stop took place in the march down and 20 minutes of the last two I will be trading in the money ".
"Well, the next day and bought the tendency of 80:1 Now another 30K, 240.00 per pip then I realize that this is a bit volatile EUR - The King and I always stop, this time Well call 30 pips stop me .. I did for only 5 pips This is worth $ 7200, I realized that the double top at 1.95 and has a sign that the trend has changed - .. Parabolic SAR. . min 15 is very clear to me ..... time selling $ 200 per pip.
So what happens then? I'm not sure at some point, I was 50, then all hell broke loose and good, I left the road well. It is $ 6000 and from there more or less long. I have to use a tight stop because I did not do much in my account and is thus held time and again. I began to realize that the volatility of the real money is a bit different from the volatility in the money demo. I can not explain, it seems larger. I stopped looking like a magnet attracts the market. Ping! Order, the market turned and went my way. Well, two days after he left 3K. The Capital Partners own cash-for-clock the rest.
Let me tell you something Frank, leverage is a double edged sword -. It is the bloody guillotine and my head on the block"
Buck has faced changes in your account has been created by market volatility and amplified by leverage. Frank apparently kicked the ball, and Buck lost money in a hostile market. In fact, both are games of chance, the only difference is that Frank knew that his victory in the horse is a matter of luck. This is part of our psychology that we do well when you consider that with our talent and when we do wrong is supposed to bad luck. Often it is just luck, nothing more and nothing less.
The cost of debt
This story, with different nuances, but the same theme, repeated every day, as on behalf of a prospective forex trader on the fire.
Besides the fact that high leverage to force him to stop coming - the bread and butter income forex broker - and dramatically increase your chances of being victim of a random very short-term foreign currency market, but also cost you a stroke.
Many traders think that there is no cost to trade because of the spread does not look good, other than loss or glitches glitches they do. This is wrong because the transaction has two parts. The cost and income below. Cost is the amount deducted from its capital account, if you close your trade is opened immediately, without any change in market prices.
Say you have an appointment GBPUSD 1.8650/55. You buy at 55 and if you sell will sell quickly at 50. The cost of management is 5 points. His agent sold to 55 and you buy at 50. We can say that the real market is 5 points from your position. You can not ask spread, unless you perform a winner - if the market moves in your direction, it becomes widespread. But if you make a losing trade is 5 pip cost, in addition to what has been lost due to adverse price movements. The higher the cost of distributing more debt than you are, bleeding money from your account
Let me give you a concrete example. Currency speculators leveraged very detail will jump at the opportunity to use the trading system is not 35% of the time, but due to reduce losses and run profits are sure will succeed. They are wrong.
If you're anti-leverage, the only way you can lose all your money if you keep the currency loses value.
Operating expenses from the perspective of Frank, when he bought it possible to pay £ 15 pips on the Office of images. Because he lost all his money on something that would have happened in sterling made him lose all their value - a meteor in the sky to eliminate England. It's impossible. Thus, the value of GBP Frank remains relatively stable. But when you add a lever to strengthen their own, creating instability, as the story of Frank Buck and illustrated.
But what I really want is this: If you take a high degree of leverage from a dealer who is not on, say, in the 40 months of trading on the leverage of 20:1, the real cost of trading before gains or losses due to price fluctuations start to play a role. Mathematics is as follows: trade 40 pips x 5 x 20 (min) = $ 4,000 lot. If he had used the wrong trading system for 35% of the time (which stands for a short stop) costs which can not afford the $ 1.400 or 14% of its capital. This is a direct cost to your business, and it is these costs that the attack - this is the "head" is very questionable if you think that trade is a business.
If a trader uses a trading system equilibrium point is a very good operator. But in the long run end up losing support, in addition to everything he does, which deplete the account.
If you understand the randomness of you know that are 35% of the trading loss can come at any time. They can be the first 14 months of negotiations. The impact of the loss of high indebtedness of operator actions, once by running very bad, can destroy your account. To maintain the "system" that it should drop the size of your transactions, especially after a difficult period. Therefore, there will be many more to make a loss. In this process, despite their small transactions, leverage its always the same (very high), because of its low margins.
If you really want to work with you, then you have to work the back, is not expressed as a percentage of their range, but as a percentage of the value and the total cost of the transaction.
Leverage amplifies everything in your account - at the same time, we have not changed much in the market.
Another consequence of the influence is that it strengthens its capital variance account. And it (the variance) has nothing to do with an ongoing lucrative business.
In the short term, days, weeks, months, (some would say a few years) if you see the results of the company, there is a good possibility that everything you see is random variation hidden under the appearance of the system commercial smart. The data are insufficient to show that what you see is the result of any edge or skills you have.
Go absolutely crazy for Frank, after a visit to Arlington, to begin a career as a bet. But as it was just a little less naive Buck thought he had broken several weeks of positive change in the demo account.
If you know something about the possibilities that you know the chances are very high that a series of coin tosses will expire 50/50, either heads or tails. But did you know that if you take a series of 100 develop the range of 50/50 will be mainly between the 38/62 with very little outside of this parameter.
Unfortunately, it seems part of human nature (behavioral psychology has shown that) that we tend to see a model or series that do not exist. And we used to do on the basis of insufficient data. Novice traders who so dearly want to do well are very likely to read a brief set of benefits that have a certain edge and the edge of the success of long-term career in commerce. Once you open a real account, the possibility of lifting the head and bite.
I want to be very practical.
8:01 p.m. Say you use the lever to all trade shows and reached a circulation of good luck and a positive end, so that 20% this month. Remove the harness and reinforces the variance of the equity in your account and earnings may be 2% - and is good for the short term. What if you have a longer period, say, four months with three "bad"? Where are you from. If you maintain a high degree of leverage that will be losses in bad times that may outweigh the benefits for good racing.
With the task of deciding the final good leverage height is now ready for real trade is exactly the kind of thing that Capital Partners money-for-clock wants you to do, because they know they will receive money for jam - of you.
What I mean is how the change in the strength of your account after changing your thought patterns and negative. You can not focus on the market, which is a trader should always be done. Instead, they are obsessed with the clutter in your account. What is the price you have, what factors you should know about? I do not know. Your energy is used in the wrong place altogether. In short, you have lost a kind of perspective you need to trade successfully.
You are in a situation where you can not manage the natural changes that occour and setbacks in market trends.
The variance of this magnitude due to the increase not only steal from your cash account, which deprives them of the opportunity to negotiate meaning. In short, be able to buy low and sell high, you must have an idea of what is base and which is high on the market. But, is that you lose perspective, paralyzed by fear of further losses on their own instead of "losses" in other currency markets.
Can you make money trading with low leverage?
Well, some would say, with low leverage of the system, do not miss much, but can you really make money? The value of your time? I think I can, and most of the trajectory in BWILC where I show how I do 74% in two months because of trade with low leverage, which can show how others are doing. To make the strategy forex money trading should be based on the original edge to overcome the possibility of 50/50 on a commercial basis.
I developed a strategy that offers benefits. I call my strategy 4x1: one currency, one way, a lot-one percent. This is my E = mc2 and Einstein's formula was like some of the things taken for granted the positive side, this formula is the kind of orthodoxy and wisdom in books sold as Forex trading for idiots.
The following is an interesting story, if one of my clients. When he started with the mentoring program to answer the question - assuming that you fought so far, what do you think of that? - East:
Most of the struggles that I have to believe what I read in the trading system. The biggest problem was stopping too close to random price moves to limit my risk% of the general account. You are the first to expose this madness to me. However, now worry about how to make "real" money with so little gear.
That was in January 2006. In March 2006, funded a trading account of $ 5,000 in late August 2006 and his account is already high. After five months of negotiation, using the above formula and low leverage right saw an annual return of 278%. Your actual result is 129% - in the book to all who should be considered as money "real".
Oh, and accuracy of their trade is 90% (eg 10% loss of trade), operating loss is generally higher than the typical commercial profit and the biggest benefit is 4% of capital investment original, indicating that there is a real advantage, not a one night stand on a large scale operation which ensures the "brightness" had just discovered.
Posts
