This IS WHY Most BEGINNERS Lose Their ACCOUNTS (What Is Leverage?)
Published: 2020-04-02
Status:
Available
|
Analyzed
Published: 2020-04-02
Status:
Available
|
Analyzed
Predictions from this Video
Incorrect: 0
Prediction
Topic
Status
The speaker outlines four common leverage ratios offered by forex brokers: 1:10, 1:20, 1:50, and 1:100.
"we have one to ten leverage one to twenty one to fifty and one to one hundred leverage"
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The speaker personally uses 1:50 leverage for their forex trading.
"fifty to one leverage is what I use"
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The speaker states their personal risk management strategy is to risk between 1% and 2% of their account balance per trade.
"I risk between 1 & 2 percent of my total account balance per trade"
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To risk $10 (2% of a $1000 account), a trader needs to determine the number of pips they are willing to lose on a trade.
"if I want to risk ten dollars let's say I want to risk two percent of this which is ten dollars on a trade I need to know the amount of pips I'm going to lose or could possibly lose in order to create this ten dollar loss"
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A formula is presented for calculating risk per pip: Risk amount ($10) divided by Stop loss in pips (100 pips) equals risk per pip ($0.10).
"the equation is the amount of dollars you want to risk which is ten dollars and this ten dollars has to be divided by the amount of pips we're going to lose ten dollars divided by 100 pips equals ten cents per pip"
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Correct use of leverage in forex trading allows traders to enter more positions simultaneously with a smaller initial deposit, rather than facilitating quick riches or gambling.
"if you use leverage correctly it's not going to allow you to trade with this massive size and risk all this money and essentially gamble it doesn't allow you to get rich in three days it doesn't allow you to triple your account this week leverage allows you to be in more trades at one time and to put an initial deposit down of a small amount in order to purchase a larger position"
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Combining risk management with leverage is presented as the only correct way to use leverage in forex trading.
"as long as you have this risk management in place so that's how you combine risk management with leverage and that's the only way you should be using leverage"
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The speaker personally risks between 1% and 2% of their account balance per trade when using leverage.
"for me I risk between 1 & 2 percent of my total account balance per trade"
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When using leverage with a $1000 account at 50:1, the correct approach begins with establishing a risk management plan that defines how much to risk per trade.
"if you have a one thousand dollar account and fifty to one leverage what's the correct way of using that leverage well its first to decide what your risk management plan is gonna be how much are you gonna risk per trade"
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A specific example trade (Euro USD) uses a 100-pip stop loss, meaning the maximum potential loss on that trade is 100 pips.
"with 100 pip stop loss okay the euro dollar 100 pip trade the same one we've been discussing during the entire video so this euro USD trade has a maximum loss of 100 pips"
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To calculate the required price per pip, divide the desired dollar risk ($10) by the stop-loss in pips (100 pips), resulting in $0.10 per pip.
"the equation is the amount of dollars you want to risk which is ten dollars I don't know why I put percent right there ten dollars and this ten dollars has to be divided by the amount of pips we're going to lose ten dollars divided by 100 pips equals ten cents per pip"
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A target of ten cents per pip necessitates trading one micro lot.
"this means you need one micro lot"
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Due to 50:1 leverage, a trade that would typically cost $1000 now only requires a $20 margin deposit.
"instead of 1000 this now only cost me $20"
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A $20 deposit with 50:1 leverage allows control over 1,000 units of currency.
"your twenty dollars is equal to a thousand units"
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In a scenario where the Euro dropped 100 pips from an initial value of $1104, the investment value decreased by $10.
"so therefore because of that your investment dropped ten dollars"
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In a scenario where the Euro rose by 200 pips, the investment value increased by $20.
"your investment actually went up twenty dollars"
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Leverage enabled a 100% gain, turning a $20 initial investment into $40 profit.
"you now have made twenty dollars on an initial twenty dollar investment because of the power of leverage"
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The correct use of leverage allows traders to enter multiple positions simultaneously with a small initial deposit for larger positions.
"leverage allows you to be in more trades at one time and to put an initial deposit down of a small amount in order to purchase a larger position"
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With proper risk management (e.g., $10 risk per trade), a trader can hold 20 trades and still only risk $200 of their account.
"you can be in 20 trades and you're still only risking 200 bucks"
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