• The soul of forex trading - leverage

    read:2023/2/26 10:33:31

    True forextradingaccountstype cashback forex a variable value When profit, our true leverage will gradually decline Example: the principal of $100,000, forextradingaccountsregister traded 10 lots (1 million contract value) of the U.S. forex trading accounts Japan, then we are using 10 times the leverage, when we make a profit of $ 10,000, then our principal grows to $ 110,000, while When we make a profit of $10,000, then our principal grows to $110,000 and the contract value is still $1,000,000, then our true leverage is only 9 times When we make a loss, our true leverage will gradually increase Example: $100,000 in principal and we trade 10 lots ($1,000,000 contract value) of US-Japan, then we are using 10 times leverage, when we make a loss of $10,000, then our principal falls to $90,000 and the contract value is still 1 million dollars, this time our real leverage will be 11 times due to such mathematical relationship, will make us feel in the transaction, when making money slower and slower, while losing money faster and faster, which is also the root cause of greed and fear margin and leverage due to the different margins of each platform, now also many platforms can adjust their own leverage, so look at the margin balance to do position management is It is easy to make a mistake Example 1: In 200 times the leverage platform, 100,000 U.S. dollars to operate 20 lots of the U.S. and Japan, then the required margin of only 10,000 U.S. dollars, the account available margin of 90,000 U.S. dollars, it is easy to feel that the position is very light, but in fact has used 20 times the leverage, when the market fluctuations reach 3%, the capital gains and losses floating will Example 2: On a 50x leverage platform, $100,000 to operate 20 lots of US-Japan, then the required margin is $40,000 and the available margin in the account is $60,000, at which point the trader will realize that he is using close to half a pod of margin, but in fact "only" using 20x leverage, and when When the market volatility reaches 3%, the profit and loss of funds will reach 60%, so in different leverage platform, the same amount of positions, the traders feelings are different, the distance of the strong level is also different, in the first example the account can withstand 450 points (to the U.S. and Japan point value of $ 10, the strong level of 100% margin calculation), while in the second example the account can withstand 300 points; when the account a When account one is forced to level, the account balance is $10,000, and account two is forced to level, the account balance is $40,000, but account one and account two are 150 points away from the market distance of the strong level, so in the case of not having a complete strategy, the account with high leverage is much riskier than the account with low leverage, and when the account encounters a strong level, the account with low leverage will have more money left to fight again real Leverage and holding costsTrue leverage and holding costs determine the distance we can fight. When we reach 20x true leverage, we start to incur a significant amount of risk. In extreme terms (not considering margin requirements), with 20x leverage and 5% volatility, account funds will double or go to zero, and if we reach 50x true leverage, then 2% volatility will allow us to If our real leverage reaches 50 times, then a 2% fluctuation will allow us to double or zero our account funds, and 100 times real leverage with only 1% fluctuation, the same situation will occur Since the real leverage is gradually decreasing when profits are made, and gradually increasing when losses are made, most textbooks caution us not to increase our positions against the trend, because that will make our leverage heavily aggravated; but in an effective set-up trading strategy, it is not necessarily the case The key is to calculate in advance the true leverage we will use when we slingshot to the furthest end of our position against the trend; conversely, when we add to our position against the trend, our cost of ownership will gradually increase and get longer and longer from the original defensive line, and we should also calculate the change in our cost of ownership and the true risk factor between the defensive line and the true leverage used after adding to our position. Once we can clearly calculate the true leverage and our cost of ownership, we need to understand the position of our cost of ownership in the volatility, as volatility inherently limits the maximum true leverage we should use. If we use 20 times the true leverage and trade an instrument with a daily volatility of 2%, then our maximum intraday return and risk is only 40%. In the middle of the market volatility, in the relative low buy, in the relative high sell, so when we do price, we have to consider our cost level in which range of volatility, buy when the price is too high, sell when the price is too low, because the market is deceptive, when the inter-cycle trading, originally we do price in the daily high range, but after the next day, our price may be in the daily cycle of the low range. So when we do price are sure to do a step to think about three steps, the better case is to do the whole set-up and then start to make the price how to calculate the real leverage forex margin trading, in the calculation of the real leverage, we do not have to go first think about the margin occupancy rate, especially now the platform various types of leverage are available, we just need to calculate our real leverage, and we want to fight the interval can Pre-calculated our return and risk may foreign exchange margin trading is a contract-based trading model, when our principal is 100,000 U.S. dollars, with how much we do the amount of U.S. dollar contracts can calculate our true leverage, example: in Europe and the United States exchange rate of 1.1200 traded 10 lots of Europe and the United States we traded 1.2 million U.S. dollars, the true leverage of 12 times in the Australian and U.S. exchange rate of 0.7500 Traded 10 lots of Australia and the United States we traded 750,000 U.S. dollars, the real leverage is 7.5 times in the pound U.S. exchange rate of 1.3200 traded 10 lots of pound U.S. we traded 1.32 million U.S. dollars, the real leverage is 13.2 times in the U.S. and Japan exchange rate of 107 traded 10 lots of U.S. and Japan we traded 1 million U.S. dollars, the real leverage is 10 times and in the cross rate, leverage we directly use In the cross rates, the leverage is calculated directly with the most leveraged currency in the previous calculation. If we want to trade with 10% risk tolerance, in exchange for 30% gain, then we have to look at the current price, the distance we can set the stop loss price is suitable for us to make the price, and then decide the leverage, for example, we intend to short the Australian New Zealand at 1.0740, stop loss target above 1.0810, 1.0740-1.0810 distance is 0.65%, and we are only willing to bear a 10% loss, then we can only Use 15 times the leverage, and 15 times the leverage to the principal of 100,000 U.S. dollars, that is, 1.5 million U.S. dollar contracts, assuming that the exchange rate of Australia and the United States is 0.75, then our maximum position that is 20 lots of Australia and New Zealand contracts, and if we consider the multi-shot transactions, the higher the sale, then in the first position 1.0740, we will not be able to place the full 20 lots of contracts, to consider the higher the later If we end up with an average price of 1.0760, only 0.46% away from 1.0810, then the maximum position we can hold is 21.7 lots, as our position adjustment may be constantly changing, how to make the best holding cost will determine the maximum position we can use, the premise is that the limit defensive level cannot be easily changed