I think I have seen roughly 10+ people get into this same conversation with @LiveForexSignals and the result is always the same. It eventually dies out and no minds are changed. However, it is entertaining every time! Also every time I have to politely disagree with you @LiveForexSignals. Sorry if I ever get heated. You are certainly entitled to your opinion.
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Some of the best ideas come precisely from these seemingly mundane conversations, and each trader can profit from them somehow, even if we still disagree with each other.
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Yes, if we use the wrong definition of leverage then we get these numbers.
In reality, leverage is zero or some value greater than 1. If you donât borrow money from your broker to buy stocks, futures contracts or currencies then your leverage is zero.
Otherwise itâs 1, 2, 10, 100 whatever.
You are either leveraged or you are not, so a 0.1% âleverageâ does not make any sense at all.
If C2 prefers to use another definition of leverage itâs fine too and thatâs not the problem here, as long as traders know what these numbers truly mean.
In fact here is the C2 calculation for leverage:
âExample of calculation:
The Strategy buys 100 shares of stock at $12 per share.
The Model Account equity during that day is $5,000.
The leverage is: $1200 / $5,000 = 0.24â
Future contracts never require borrowing of funds from the broker. Just some of your funds are blocked by the broker for the margin requirement. Yet with futures you can have much more leverage ( control a much bigger position) than with equities.
What?? Say that again please.
If you can buy oil futures with 5% down (margin) for instance, where is the other 95% coming from?
Your friendly futures broker, who just gave you an implicit loan.
If oil futures drops or becomes negative (it happened recently), you now must pay the entire loan back.
Margin call, Gentlemen:
It makes perfect sense. A 0.1% leverage number means the strategy only employs, or leverages, an average of 10% of capital.
The sooner you realize this the happier youâll become because youâll understand that C2 isnât calculating it incorrectly but is using the number to give greater transparency. 
That much is true, I agree.
@MaxTor is correct. Futures margins are not like stock margins. Youâre not borrowing. The required margin in futures is a performance bond.
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Have you never traded in your life? When you buy a future youâre not really buying anything, youâre just entering into a contract. The futures exchange requires a certain margin per contract (to guarantee that the contract will be fulfilled). When your position starts losing then you need enough money in your account to cover the margin plus the loss (Otherwise you can have a margin call). There is no âloanâ from the broker or paying interest to the broker for holding the futures over many days. Now if you buy equities with leverage the broker loans you the funds for the extra equities and charges you interest on that.
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As I said, the loan is implicit.
Otherwise, how can you possibly lose more (much more!) than your deposit?
Where is that extra money coming from?
Think about that for a moment⌠
What about the guy on the other side who sells the future? Is he also getting an âimplicit loanâ?
A futures contract is a contract to buy or sell something for a pre-determined price at specific time in the future. There is no actual buying, or selling happening.
Some investment banks even directly enter into futures contracts ( their own non-exchange contracts ) with big clients. If I directly enter into a futures contract to sell to a bank a certain item in the future, is there any loan necessarily attached to it?
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It is not a loan. I have never paid a cent of interest on the futures trading Iâve done, even though it would have required hundreds of thousands of dollars in loans according to you.
Please take a minute and try to learn from people who may know more than you about some things. Simply arguing just to prove youâre r right isnât going to help you expand your knowledge in the long run.
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Behind ANY leveraged trade there is a loan (an implicit loan in the Futures market).
In the Forex market you PAY (or receive) interest on that loan.
Same thing with stocks, you have to pay interest on your leveraged position (loan).
Come on, this is basic stuff, you should know that by now.
I NEVER said we have to pay interest on futures contracts, whatâs the matter with you??
Why do you suppose you donât pay interest on futures, unlike forex and stock margins? Perhaps because there is no loan 
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What if one person directly enters into a futures contract with another person without using a broker or an exchange, is there a loan involved?
Besides, according to you if a person with $100,000 equity buys 100,000 euros (at a 1.00 exchange rate) heâs using leverage of 100x if the margin requirement is $1000!! What is the loan amount in this case?
In Interactive brokers if I buy 100,000 euros with $100,000 (at 1.00 fx rate) they will give me interest on the 100,000 euros while charging me interest on the $100,000 short position. If both interest rates are similar there is is a chance of them cancelling each other out.
You are talking about basic stuff and you donât even know how to divide 10,000 by 100,000!!
Initially the discussion was about how risk relates to leverage used by a system. This is different from the max leverage allowed by the broker which will be the same for every system! When we are looking at the risk of a strategy, obviously the risk is related to the max leverage actually used by the system (position size in relation to account size). And that is why C2 gives these statistics so an investor can use them to evaluate a strategy. The investor already knows what the max leverage that his broker allows!
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Leverage = debt = loan.
But feel free to think otherwise.
I already answered that question (but obviously you donât even bother to read the answers).
If you buy 100,000 euros with $1,000 down, that means your broker is lending you 99 grand.
You have to pay interest on that $99K (or you can receive interest if the currency you borrowed from your broker gives a higher interest rate than the other currency).
Just to be clear you are stating that if a person with $100,000 in his account buys 100,000 euros ( at a 1.00 exchange rate ) with a margin requirement of $1000 then according to you his account is leveraged 100x?
Yes, thatâs what a 100 to 1 leverage is.
Leverage can also be expressed as percentage. In this case the margin is 1%.
