Leverage and Margin in Forex Trading (Podcast Episode 8)

This is the forex q&a podcast This is VP professional Forex prop trader answering your user submitted questions every Monday morning now I will answer a question for you.

If you want me to you go to nononsenseforex.

com Slash ask VP and fill out that little form ask me whatever you want as long as it's forex related I will answer it and get back to you usually within 48 hours now we're gonna jump into the question for episode 8 her sooner than usual because I want to make sure that everybody is crystal clear on this and I don't know how long the podcast is going to run but I always want to keep it under 15 minutes But I think we may have a lot to talk about here and just so you know Too if there is ever anything we cover on this podcast that is unclear to you The show notes are the blog and I list the blog down below on every single episode I got asked before so where are the show notes for your episode? I'm likeIt's the blog click on it And I really do feel if you want to nerd out on this and I kind of hope you do Because I want all this to sink in if it does you guys are going to be set up for success like you won't believe and For me at least the best way to do that has always been to not only hear it But then also see it catch a visual read text go back and reread things that I didn't understand the first time That's always how things have sunk in the best for me Plus I write the blog after I do the podcast and often There's a lot of things too where I think oh, man I wish I would've mentioned that in the blog and so instead of trying to go in and edit the podcast I just write it in the blog So you'll often find little points there that I'd forgot to mention, but can also really help So just know every podcast has a corresponding blog almost every YouTube video I do has Corresponding blog to go with it as well and honestly writing was my first love Anyway, I think I write much better than I do make a video.

It's pretty obvious My video making skills are quite limited and I'm sure my podcasting skills Leave a few things to be desired too, but I always feel like I've been a pretty good writer So check out the blog when you get time.

It's really clean Very basic very easy to read and there's no distractions Which fantastic I think because every blog ever tried to read, you know, there's always that push notification pop-up You gotta get rid of and often There's some kind of shiny blinky ad going off to the side and I have ADD So if I'm trying to read an article There's no way I can focus on any of it if I got something blinking off to the side and Then as I'm reading here comes another pop-up right in my face that I have to get rid of and then there's the exit pop-up At the very end, that's a thing now right as you're trying to leave and here comes another offer You have to click off of you know bloggers have taken all the pleasure out of reading their blog They've whored themselves out and try to get all these offers and people on their list and I guess it works That's probably why they do it, but it just completely ruins the user experience and on the blog I'd like your user experience to be pleasant and Informational and I want you to absorb it and that's really hard to do with a bunch of distractions in your face So go check out the blog if you haven't already You may find that the information sinks and even better than it would in the videos or the podcast But either way it's there for you, so go check it out now Let's go ahead and get to the question for episode 8 and this week.

We have Julian from Avignon France Now Julian's email to me was pretty long and I you could tell that English is not his first language But he did his best and I understood what he was asking, but I'll just take a little piece of the question He did ask just so it all makes sense and his question was What should my leverage be when trading Forex? I don't want to lose all my money Now I laughed at that last part.

You can lose all your money No matter what your leverage is, but with bad leverage, you're just gonna do it faster But this is a question that this is the first time I've ever been asked this question And it's kind of disturbing and you guys know how big I am about money management it is the single most important concept in forex trading and it is one of the least talked about concepts and This is one of the major reasons why that 99 percent number is so high the number of traders that can't make it trading forex It's one of the biggest reasons why you were set up to fail People spend so much time teaching you about fundamental analysis and trade entries and they just gloss over the money management part So I want to get you guys educated on this and give you a really good blueprint to follow and there are two ways.

I Recommend going about this you can choose either one Unless you live in Europe Something happened this year in Europe that is similar to what happened in the United States Yet another law to protect us from ourselves Which is completely ridiculous the European securities and markets Authority also known as ESMA Passed a law saying that if you are in the European Union your leverage options have gone way way Down if you are in the European Union The limit that you can go to for your leverage when trading any major currency pair is now thirty to one Used to be able to go some brokers allow all up to five hundred to one Which is completely ridiculous and nobody should ever do that.

But at least you had the option to go as high as you want it Now you can't Thirty to one is now the limit and if you go outside of the major currency pairs of drops down to 20 to one The same goes for gold 20 to one And we here in the states also had a very short-sighted bill called the dodd-frank act that it went into effect in 2012 I want to say kind of on the heels of the recession and a lot of irresponsible fund managers taking their leverage all the way up to a hundred to one on things like Forex and gold and the dodd-frank Act came in and dropped the leverage on Forex down to fifty to one maximum and Gold all the way down to one to one We can't even really trade gold here in the United States.

At least not at leverage not spot gold Which really sucks because I love trading metals and actually do very well at it but I can't really make a lot of money from it and Speaking of I actually found out about this whole esma ruling from my gold account I have a European account a practice account through Oanda, a demo, where I decided to track my results trading metals for the year of 2018 and I had to make it a European account because Like I said before in America You can't trade spot metals so they just don't give it to you.

But here I am doing really well I was on pace to clip about 20% return for the year and I only trade four different pairs I trade gold silver platinum and palladium against the US dollar and that's all I do So I was very pleased with the way it was going I was gay ready to enter a palladium short at the beginning of the week and It wouldn't allow me to do it and I called help support and they said well, no, sir.

Uncertain terms You're gonna have to shut that account down and open up another one all because of this ESMA ruling so that was a bummer I missed out on that short and now I'm gonna have to combine two different accounts to see what my result would actually be I'll provide a screen shot down below I was Approaching 12% and that short would have hit my first profit target by now – so really not happy about any of this But then I thought about all my friends and listeners in the European Union who trade? Forex and gold and things like that and you guys are really getting the worst of it So don't play the violin for me in my fake money account you guys are the ones that are really getting screwed here, but it's only going to Eliminate the second option as far as the two.

I'm about to give you now You don't even really have to understand what leverage is start-to-finish just know that you have something in your account called margin and You only have so much of it to use before your broker is going to say, okay You have used too much and you cannot trade anymore until you shut one of your trades down The higher you set your leverage the more margin you have to play with alright that's really if you understand that you Understand what leverages if you have your leverage set at one hundred or one or even all the way up to five hundred to one Then you can make these huge Gigantic trades that are completely irresponsible and at some point are gonna bring your entire account down but if those really high leverages you could actually Do them without worrying about running out of margin and that's what these rules are trying to prohibit but all you need to do is this Go into your account set your leverage at twenty to one Walk away and never worry about it.

Again that is option one.

And that is the option that I use I trade the daily chart and as you guys know tune into episode of three if you haven't already and you'll understand why and the most amount of trades I think I have ever had open at one time is six and even when I did that I'm pretty sure I had a good amount of margin still to play with if I wanted to but real soon I'm gonna make the risk of it which tells you how much percentage-wise you should be risking on every trade and Why and how to use the world's best indicator if you haven't seen that video, it's the ATR and how to use that to Decide how much risk you're gonna put on every single trade you make from now in till eternity But I want all of you guys to have your leverage in place first I'm glad this question came up when it did twenty to one for almost all of you out there Set it forget it and you're good now Here is option two If you are the type of trader that does not want to put their entire trading capital Into their brokerage account, which I can understand Let's just say you have fifty thousand dollars worth of trading capital to trade with but you only put twenty five thousand into your brokerage account keep the other twenty five thousand in the bank if That is the case.

You are going to want to double your leverage again, if you're allowed to two forty two one because the sizes of your trades are not changing but the amount in your trading account has and You need to balance that out and the way to do that is to move up to 40 to one now again, this is certainly not a bad way to go because even highly capitalized gigantic brokers can go under as is the case with fxcm you guys remember that I was a client and in January of 2015 the euro Swissy crashed and Fxcm was on the hook for a lot of money as a result and A company called Leucadia came in and bailed him out thankfully But but things were never the same They had to get rid of all of their American clients for one so I couldn't use them anymore, which sucked I loved fxcm It's a great platform They had a convention here in Vegas and I got to meet a lot of the people that worked for them They're all really great intelligent people and a lot of them lost their jobs that day.

But if Fxcm didn't get bailed out I could have easily lost everything I had in there and again fxcm was a giant broker So if you wanna take the half in half out approach, that's not a bad idea either but just know if you do you're going to want to double your leverage and So that's really it.

I'm gonna link a lot of stuff below Of course, you're always gonna have the blog for the show notes But I'm also going to put the ESMA ruling there for you to read too I hope I understood it, right it just popped up on me today Which is perfect timing for the podcast So that's gonna be down there a screenshot of my account because I'm still salty about that and I will also link below the videos for the money management Playlist and for the ATR because I really want you guys to see those if you haven't yet if you're spending most of your time Worrying about the best way to actually enter a trade you're going to be very very disappointed in the end so we're gonna spend a lot of time on this but as far as the YouTube Channel goes if you want to know what's coming up there.

I also made a video.

I'll link this down below to why not? about the Dirty Dozen twelve technical analysis tools You should never ever use and people have been asking me to do the videos for each one of those twelve Like I said I was going to do so that's probably coming up really soon I'm not sure which one I'm gonna start with but be on the lookout for that and If you haven't already subscribe and give me an awesome review on iTunes if you would but for now As soon as this is over and you have access to your account go into it set your leverage of twenty to one Thank me later.

Have yourself a great week of trading and go get it.