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If you can buy 100, 000 euros with $1,000 you are using a 100 to 1 leverage, period!
How much money you have in your trading account or under your mattress is totally irrelevant!!
You are right about that! One of the things to look for when evaluating system risk is per trade drawdown. Letâs say there is system with high return (over 40% a year) and a 30% max drawdown. 30% is not such a bad max drawdown for a really high return system. But then you look at the per trade drawdown and see that it is often 10-15% and these trades were not hedged by other negatively correlated trades. This is the type of system that will likely have much bigger max drawdown in the future.
Max drawdown, per trade drawdown, & max leverage used are all things to consider when evaluating a system.
You say the account balance doesnât make a difference in calculating leverage yet you use the account balance to calculate your stop. You canât have it both ways. Either itâs a 2% stop based on the minimum margin required or you need to calculate leverage based on the account size.
No, there is no leverage because you have enough cash in your account to cover the costs of the shares. If you had $10k worth of cash and bought $100k worth of google then you would be 10:1.
Whatâs wrong with you?? Size of position = $10,000 / size of equity =$100,000. Is 10,000 / 100,000 = 10x ??? What kind of mathematics is that? If you have $10,000 position size and $ 100,000 equity then you have 0.1 x leverage ( 10,000 / 100,000 = 0.1). How do you even trade with this kind of mathematics?
If with any forex position the leverage used the leverage used is always the max leveraged allowed by the broker (lets says 100x) then how does c2 get stats like âaverage leverage usedâ and âmax leverage usedâ. All the forex systems would have the same stat for amount of leveraged used (100x).
Also most equities brokers offer 2x leverage on equities in a margin account. Does that mean an equities trader is using always using 2x leverage, even if total positions are less than the equity in his account? Is the person with $100,000 who buys $10,000 Google using 2x leverage if the margin requirement is $5,000?
I just agreed on equity systems many times have high per trade drawdown. High leverage systems blow up much more often.
Iâm out. I didnât want to get sucked into a worthless debate but I did. Iâll tell you I would have trouble investing my money with any manager who believed that you can leverage as much as you want without any additional risk. I wish you luck on your strategies that employ that philosophy.
Yes you did, but if NO leverage was used (which is true), how come it still has a value (0.24 in your example)?
See the problem here?
Anyway, have a good weekend too.
If thatâs the definition that C2 uses and we are on the C2 forum then thatâs what all the forum posters are using when discussing leverage vs risk.
Sorry, 0.1, not 0.24, and I was quoting Ethos (sorry for the mix up), he wrote:
âIf you have 10,000 position size and 100,000 equity then you have 0.1 x leverage ( 10,000 / 100,000 = 0.1â
If you have no leverage (you buy without a loan), then leverage is zero (some traders prefer to use 1 to 1 leverage, also a correct way to express no leverage).
So if zero leverage has a value of zero (or 1), how come you find 0.1, even though zero leverage was used(you bought Google shares with your own money)?
Ugh. Because anything under 1 means no leverage. Canât understand what is so hard about understanding that. 0.5 means your only using half your cash. 2 means you are double leveraged.