Tuesday, 9 October 2007
leverage spam
someone has been spamming me with forex articles. I thought this one was actually the best of the lot, even if they are punctually challenged
100:1 leverage means pretty well what you think it means - your buyingand selling power is multiplied by a hundred times. It's like buying aMerc for a 100 dollar bill. For traders it means having the tradingmuscle of $20,000 for just $200 down.This massive trading advantage is where the power of leverage reallystarts to show its fantastic potential to increase your earnings.Let's say that you buy $20,000 worth of Euros with your Dollars.It doesn't actually matter much what the exchange rate was when youbought the Euros - it's the movement after that counts. Let's say youbought at a EURUSD rate of 1 - that means there was one Dollar exactlyto the Euro. Now let's say the rate ends the day at 1.01, or oneDollar and one Cent to the Euro.Not a massive change you'd have thought. However, that one Centincrease in the value of the Euro means that your $20,000 holding ofEuros is now worth $20,200 ($20,000 x 1.01). That's an increase invalue of $200. If you sell your Euros right away you'll receive that$200 as straight profit.However, you only had to lay down a real $200 to make that $200profit, so you've made 100% profit in a day!Only one comes readily to mind and that's to do with the leveragealready mentioned. In fact, the 100:1, and even 200:1, leverage that'soffered is the extreme that traders are allowed to work with - it'suseful to have it there but a much more realistic limit to work to is20:1 or 30:1. Excellent profits can still be made but without thedownside risks if sudden reversals occur.To those of you used to holding stocks for weeks and months at a time,with all the additional risk that entails, day trading forex will comeas a refreshing change. Most times you will be in and out of trades inthe same day, happy to go to bed at night knowing you're not carryingforward any risk.It's the ultimate very quick profit market.Why is it then that around 90% of all the people who ever starttrading forex lose money and end up leaving the business? Answer -they make the wrong trading decisions."So", I hear you say, "it's just a buy or sell decision each time andstill 90% of people get it wrong?". Yep, that's about it. The majorityof people entering this very simple business get it completely wrongand end up flat on their faces.
100:1 leverage means pretty well what you think it means - your buyingand selling power is multiplied by a hundred times. It's like buying aMerc for a 100 dollar bill. For traders it means having the tradingmuscle of $20,000 for just $200 down.This massive trading advantage is where the power of leverage reallystarts to show its fantastic potential to increase your earnings.Let's say that you buy $20,000 worth of Euros with your Dollars.It doesn't actually matter much what the exchange rate was when youbought the Euros - it's the movement after that counts. Let's say youbought at a EURUSD rate of 1 - that means there was one Dollar exactlyto the Euro. Now let's say the rate ends the day at 1.01, or oneDollar and one Cent to the Euro.Not a massive change you'd have thought. However, that one Centincrease in the value of the Euro means that your $20,000 holding ofEuros is now worth $20,200 ($20,000 x 1.01). That's an increase invalue of $200. If you sell your Euros right away you'll receive that$200 as straight profit.However, you only had to lay down a real $200 to make that $200profit, so you've made 100% profit in a day!Only one comes readily to mind and that's to do with the leveragealready mentioned. In fact, the 100:1, and even 200:1, leverage that'soffered is the extreme that traders are allowed to work with - it'suseful to have it there but a much more realistic limit to work to is20:1 or 30:1. Excellent profits can still be made but without thedownside risks if sudden reversals occur.To those of you used to holding stocks for weeks and months at a time,with all the additional risk that entails, day trading forex will comeas a refreshing change. Most times you will be in and out of trades inthe same day, happy to go to bed at night knowing you're not carryingforward any risk.It's the ultimate very quick profit market.Why is it then that around 90% of all the people who ever starttrading forex lose money and end up leaving the business? Answer -they make the wrong trading decisions."So", I hear you say, "it's just a buy or sell decision each time andstill 90% of people get it wrong?". Yep, that's about it. The majorityof people entering this very simple business get it completely wrongand end up flat on their faces.
Labels: leverage
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