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MadMarketScientist

I Can't Believe They Took Away My 400:1 Leverage

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New realities are setting in as the latest regulations come into effect.

 

Have you been getting emails from your forex brokers? The 50:1 (or lower) leverage is about to take hold here shortly.

 

Funny to think at one time we had 400:1 -- which was completely ridiculous and a marketing gimmick but that has slowly been stripped down. I personally still feel there is more than enough leverage being given, and actually think 10:1 in forex would be perfectly workable for most strategies unless you're doing something more exotic.

 

What about those of you who pushed your accounts outside of the U.S. when the prior round of regulations took away hedging and added that FIFO rule -- many went to the UK offices and others but it appears that the major US brokers are having to bring you back to the U.S. due to the new regulations.

 

Anyone expecting any changes as a result for forex? Personally I think maybe it gets rid of some of the really small players, the ones who open accounts for $25 or $200 hoping to make it rich and usually just wipe that out in a few days. Otherwise I'm not forseeing any real changes to our trading.

 

I've been doing more CME FX Futures of late anyway personally.

 

Good trading to all!

 

MMS

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...10:1 in forex would be perfectly workable for most strategies unless you're doing something more exotic.

 

10:1 would not be enough for me, and I don't do anything particularly exotic. Let me explain...

 

For this example, we'll just use a $10,000 account...

 

I just glanced at the EUR/USD quote, which is currently 1.35912...

 

So let's say I want to risk just 1% of my account on a position with an intial risk of just 10 pips...

 

That would allow me a position size of 100,000 units...

 

With the current EUR/USD value at 1.35912, that means a position size of $135,912...which would require 13.4912:1 leverage.

 

Of course, with the same situation, if you risked 2% of your account on the position, that would require 26.9824:1 leverage...

 

Or, if you had an initial risk of 5 pips, and risked 1% on the trade, that would also require 26.9824:1...

 

And these examples are just one position...if you had multiple positions on at the same time, that would require more.

 

Just my :2c:...or maybe more like $0.001

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...EUR/USD...is currently 1.35912...

 

...13.4912:1 leverage...

 

...26.9824:1 leverage...

 

I just glanced back at this thread and realized I made a typo...

 

With the EUR/USD @ 1.35912, that would be 13.5912:1 and 27.1824:1 leverage...but you get the idea...LOL

 

(Sorry...I couldn't stand to just let it go...;))

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Cory,

 

Thanks for the input (and the correction - no worries there)

 

I guess I view it a bit different. 1 full sized EURUSD controls $100,000. With a $10K account you'd be able to purchase that at 10:1. If you lose just 25 pips that's a $250 loss or 2.5%. Not too bad but you can see if your risk was larger, like 40 or 50 pips you'd quickly get high on the risk side to 4% - 5%. And, if as you mention you wanted to trade multiples that could get to double digits.

 

That's why I think 10:1 can work just fine -- it forces you not to let things get out of hand. Not that it's a problem anyway with 25:1 and 50:1 being the numbers so they still have given everyone more than ample opportunity to blowout their accounts quickly :)

 

Anyway, we're coming at it from the same side -- the key no matter how you slice it is to keep your risk to 1% - 5% (absolute aggressive max) -- which is too easy to break when the leverage given is so high. I can virtually guarantee you people are putting up $1,000 now and trading 10 minis or 1 full size and losing 30% - 40% on their account in a single trade all the time at these brokers. Now they'll just bleed it out a bit slower - which is a good thing.

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The new regulations really don't affect me as 50:1 has been my mainstay for quite a while. To be honest, I don't buy that leverage is the problem. The problem is rookie traders who have not taken the time to educate themselves in even the basics. The regs are really designed to protect people from themselves. That is not something I am a huge fan of in general but that is a different topic and outside the realm of this forum.

 

Traders who were blowing themselves out at 100:1 will do the same thing at the lower amounts...just with a slower bleed and without an entire paridigm shift, forced to the sidelines.

 

As for the question, I don't think there will be any large changes. For the majority of brokers, it will keep many $100.00 account balance traders out of the market. For example...at this moment, @ 50:1 it would take about $3170 to trade one standard of the GU.

 

Personally, I hope this forces many hobbyists to approach trading with a professional mindset so they can enjoy the fruits of what trading can give you.

 

The issue is also that all this can be revisited. We shall see what other regs come down the pipe.

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