How Much Leverage Should I Be Using?

REDDIT QUESTION OF THE DAY
How Much Leverage Should I be Using?

Ok so first off, I get asked ALL THE TIME about leverage. People care so much about leverage it’s insane. The reason being is because they use it to execute high lot sized trades that are way out of proportion with their account size. Ultimately this leads to them blowing their accounts.

Leverage is literally just a credit card for trading. Here’s a good example of using leverage correctly.

You entered into a trade on the EUR/USD 5 min chart with a risk of 2% of the account balance. Now you’d like to also enter a trade on the AUD/JPY 1 hour chart, also with 2% of your account balance at risk.

Assuming the size of your account, you might have only been able to take one of those trades. But since your broker is kind and wants you to blow your account, he gives you 100X leverage. You’re smart so you just use it to open another trade but with appropriate risk.

Be Smart.

If you’re smart with a credit card you do the same thing. Use the card, collect the points, never pay a cent in fees, and you get free money for using your card.

In trading, you just get to take more trades at once than you normally would.

That’s all!

So on a £250 account pick a risk amount and stick to it. For example, many people do 2%. That means on any given trade you set your stop loss so that you can’t lose more than £5.

Next we’ll look at how much I personally risk on each trade and how its not the standard 2%.

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PRO INSIGHTS
How Much Do I Personally Risk on Each Trade?

I don’t follow the typical approach of risking 2%. It’s smart if you’re trading a very large account and looking to grow it slowly.

What I like to do is take a smaller account (anywhere from $1K to $5K) and divide the account by 30.

So for example, $5000 / 30 = ~$160.

So if I had a $5000 account I would risk $160 per trade.

There’s a ton of reasons behind this. First off I don’t have to do all the complex math every time I enter a trade to figure out what 2% of my account is. This is especially important for someone like me who likes to scalp the 1 min chart everyday.

Next is the fact that if you use a %, the more your account goes up or down, the more or less you risk on each trade. I don’t like that. I like to risk the same amount on each trade and know that I can lose up to about 30 trades in a row before blowing the account (and thats not including if we made profits or not. For example if our equity went up, now our risk also diminishes).

Another big reason I do this is because I don’t trade accounts longterm. What I mean by this is some people trade an account for years and slowly compound it.

I’m an active trader, I make my profit at the end of each month and then reset the account back to the initial balance.

For example, if I started with $5000, and I get the account to $11000. I’ll pay myself $6000 and start again from $5K next month.

Now at the end of the day, you do you, as long as you have a solid plan. But this is what works best for me.

STOIC QUOTE OF THE DAY

This quote reflects the Stoic belief in the power of knowledge and self-awareness. It suggests that true freedom comes from understanding, wisdom, and the ability to think critically, rather than from external circumstances. This emphasizes the Stoic view that inner mental and moral development is key to personal freedom and fulfillment.