Role of Leverage in Trading.
Almost Every Trader Trades on Some form of LEVERAGE.
But, Most of the times, We fail to Understand the Nature of this Double Edged Sword.
Listing here Few Facts u should to understand If u Trade on Insane Leverage.
Almost Every Trader Trades on Some form of LEVERAGE.
But, Most of the times, We fail to Understand the Nature of this Double Edged Sword.
Listing here Few Facts u should to understand If u Trade on Insane Leverage.
1) Every Broker Offers Some Leverage to trade with.
This involves lot of interest of a Broker. Bcz, The Brokerage will be Calculated for 'Total Turnover' Value of Trades. And Due to leverage, This will tend to Generate more Brokerage for the Broker.
This involves lot of interest of a Broker. Bcz, The Brokerage will be Calculated for 'Total Turnover' Value of Trades. And Due to leverage, This will tend to Generate more Brokerage for the Broker.
2) For Intraday, 10x leverage is Common. But, Some Brokers Go Out of the way to Give 30x++..
Now, What does 30x leverage Exactly Means...??
If stock Goes up 1%, u make 30% return.
Wow...!! Sounds Awesome..Right..??
Now, What does 30x leverage Exactly Means...??
If stock Goes up 1%, u make 30% return.
Wow...!! Sounds Awesome..Right..??
But What Happens when stock Goes down 1%..??
U loose 30% of ur Capital...
But we don't Think that way.
It's the Excitement of 30% return within 1% move that gets us Pumped up And Clouds our Judgement For "Making more in less time"..
U loose 30% of ur Capital...
But we don't Think that way.
It's the Excitement of 30% return within 1% move that gets us Pumped up And Clouds our Judgement For "Making more in less time"..
3) So, What should we do..?
Not Use Leverage..?
No. if You're looking to trade INTRADAY, Then It's necessary.
Else It would be Lot Harder to Make Intraday Profits.
But, How Much..?? That's the real Question.
Not Use Leverage..?
No. if You're looking to trade INTRADAY, Then It's necessary.
Else It would be Lot Harder to Make Intraday Profits.
But, How Much..?? That's the real Question.
--- Decent returns can be generated with just 6-7x leverage. Don't run Behind 15x-30x. It may give u instant Gratification, But will result in huge Failure over time...
Few Brokers offer 30x in Futures.
Futures are already Risky. So, Leverage only increases Risk By HUGE Margins.
Few Brokers offer 30x in Futures.
Futures are already Risky. So, Leverage only increases Risk By HUGE Margins.
4) Leverage Should be divided in 3 Phases Always. 1/3rd or 30% Should Be Used in the First, 2nd and 3rd Should be added Gradually as the Position turns in ur Favor and we get confirmed about the Direction... Apply this Rule For Position Sizing as well.
This is Basically Pyramiding.
This way, we can Cut the loss with only 1/3rd of Original Position, if get Proven Wrong. And Ride the Trend If get Proven Right..
This way, we can Cut the loss with only 1/3rd of Original Position, if get Proven Wrong. And Ride the Trend If get Proven Right..
There is a new Trend Of Selling Options with huge Leverage on Expiry Days. These sellers are the First ones to Get Butchered on Wild Premium swings on Expiry Days. Broker never Cares if u r Loosing money or Making money. He just Cares for his Comission. He is not ur Friend..
As Mr. @Singh7575 said,
"As Smoking is Injurious to Your Health,
Leverage is Injurious to your Wealth.."
"As Smoking is Injurious to Your Health,
Leverage is Injurious to your Wealth.."
