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Effect of ESMA leverage limit when trading in percenta

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 Sander Burggraaff, Independent SAS consultant

 Wednesday, June 27, 2018

So I’ve been trading in Forex since 2012 and I’ve always had 100:1 leveraged accounts. I never paid much attention to the leverage limit because I’ve always traded in percentages. I use MT4 and that gives me the option to calculate the value of a single pip move in the currency of my account. So for instance I place a trade with a 100 pips stoploss and calculate the lot size so that I don’t lose more than 10% of my account on that single trade. In that sense it doesn’t matter if I’m on a 50:1, 100:1 or 200:1 account. The lot sizes are different but my risk stays the same. (The only thing I wonder about is if there would be a difference in the commission fee my broker charges. I have to ask them that.) It allows me to do things that some people might call extreme. For instance, I run a strategy that risks 40% percent of the account on single trades with a 100 pips stoploss. It has only one open trade at a time. At the end of the week it always closes out, so no open trades during the weekend. I can do this safely. I never run into margin calls and even under the new ESMA 50% margin close out there is no problem. However, if the leverage of my account is lowered to 30:1 I expect to run into problems. Maybe I’m allowed to open that trade with a lot size that is 3.33 times higher, but I expect that the trade would be closed out before hitting the stoploss. Am I right in assuming this? Can anyone shed some light on this?


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TRADING FUTURES AND OPTIONS INVOLVES SUBSTANTIAL RISK OF LOSS AND IS NOT SUITABLE FOR ALL INVESTORS
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