Using High Leverage (to Win Big) With a Small Position Size!

in this video traders we are going to look at using high leverage with a small position size does that make sense stay tuned

hey guys welcome to all right so question came in from a subscriber a viewer on one of my videos forex student his name is

and or he or she and i said would you possibly recommend high leverages very small position size

i can’t get my head around how leverage is so risky

of people place a stop-loss equivalent to one percent of their account size i don’t see why you kind of stop and say one atr and have a small position size within that can you explain or elaborate on whether i’m what i’m saying makes sense

uh i’m only a year into studying this and i really want to knuckle down with it for

20 20. so appreciate uh that question actually a good question

because very often we talk about leverage as being such a negative thing and you know we’ve got to be careful about leverage and maybe

um we need to reframe the way that we look at this maybe we need to look at this from a different perspective because actual fact the issue comes with the risk you’re taking if you look at leverage as

a tool and you look at capital risks completely separate metric

so leverage is just something the broker says hey if you want to control 100 000 pounds worth of stock worth of currency worth of commodity we’ll let you put up 10

000 or 1 000 or 500 or or whatever that number may be

that’s your leverage now that’s just a tool the advantage of having access to higher leverage allows you to control more

notional value so it allows you to control more bigger positions with a smaller account size

that’s it now the decision then is up to you as to how much you control now if you start going crazy and you start saying well i’m going to use the maximum leverage

that’s available to me then you can be in a tricky position

because if you are offered a high amount of leverage and you use that tool to its full extent

that’s when you can get into trouble we’ve heard forex brokers offering a thousand to one and some crazy leverages and the trouble with high leverage then is that when you have a really high position size relative to how much you’ve got in your account

it only requires a small move in your actual position

to make a devastating impact or really good impact and that’s where the challenge is into your account you know it can move up a little bit you can double your account or you can lose it in one trade

so that’s the danger of leverage if you use the tool

and you turn the volume right up now the issue we have there is that you can still

use that as a tool but you don’t have to go crazy with it so

if we look at this example right let’s say you’ve got 10 grand risk capital just for argument’s sake got 10 grand in an account

one percent if you’re risking one percent is a hundred bucks on a trade two percent is two hundred bucks on a trade

if you do ten trades you’ve got a thousand dollars risk now

regardless of what the leverage is even if the leave region was a thousand to one

if as long as you are still using the risk parameters that you’ve set out for yourself

it doesn’t matter if it’s a thousand to one a million to one

if they let you control a billion pounds worth of currency

for two quid it it doesn’t make any difference if you are still sticking to your global risk rules the leverage is just

it’s irrelevant you know the only issue you have with leverage is

can i get enough leverage from the broker to enable me to trade this i want to take five trades at a time i want to take 500 bucks risk at a time can i control however much i need to control and the answer to that is probably

yes unless you’re going crazy with your risk but now if you look at this instance

example let’s say you’ve got 10 grand again you want to risk 10

of your account 10 trades is going to wipe you out

this would be using too much risk and too much leverage

because even if you could find a broker that would allow you to do this you’re probably pressing too hard now i know i’ve done videos where i’ve talked about sometimes you’ve got to take additional risk and you’ve got to press the throttle a little bit

let’s put that to one side for now let’s just look solely on

a kind of textbook style of risking one to two percent per trade

this is using the tool too much you’re basically now leveraging yourself right up and even if we put those two separate the actual problem isn’t with the leverage that just a tool the broker’s offering you

the problem is with the risk that you’re putting per trade or per day per week or whatever you’ve got and by the way the final thing guys with this is that

this may be your risk capital but you may need more in your account to manage the positions you want

you may need 50k in your account but just because your account says 50k or 100k

doesn’t mean that’s risk capital you might say well i need to have more capital in because i need more leverage maybe you’re trading some items or some markets that the broker doesn’t offer you big leverage in which case you have to have more capital in but you might still be only wanting to risk 10 grand worth of risk capital so risk capsules are different to trading account balance is different to trade our risk is different to leverage so the question going back to using high leverage and small position size yes perfectly fine and that’s the way to do it that’s the that’s the key to do it is to say okay well i may well use high leverage even if i’ve got a 10 grand account

i might use all of the leverage that they offer but i’m still only having a small position size

that means my deposit is going to be small so it means the margin required is going to be small

it might only be you know 500 bucks or something

that’s fine but the key is the risk capital

it’s the amount you’ve got at risk or the risk you’ve got per train so you can use the leverage just means that don’t go crazy

don’t start adding and adding and stacking stacking loads of different position sizes just because you can so in summary guys

leverage is the tool and your risk is what you’re really the metric you should be paying attention to because that’s the key

if leverage is high fine use it if you need it when you need it

but the risk per trade the risk per week the risk risk per quarter

total risk capital is the number one thing you should be focused on and that’s the thing you can protect and that’s something you can control appreciate your question take care guys bye-bye you

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