View Full Version : Trading with Leverage.

04-05-2011, 08:49 AM
I've got £1000 sitting around doing nothing in an account that no longer pays any interest and have been looking at Leveraged Trading the past few days.

I understand that at 100:1 I would be commanding £100,000 of capital.

What I'm not too sure on is the fees and profit system of this trading method.

Let's say I put the £1K in and get control of £100K. Is the way I think it plays out below correct?

I invest the £100K in Silver at £23.69 an oz and aquire 4221.19 oz.

Silver goes up £1 spot.

I sell all 4221.19 oz at £24.69 and my total cash amount is now up from £100K to £104,221.18

I pay back the Leverage of £99K and pocket the initial £1K plus the profit?

04-05-2011, 12:25 PM
Don't do it, is all I'll say! Unless that was purely an example... but don't use that much leverage if you can. :eek: Imagine it goes the other way and you have taken a 400% loss on your account.

Not very helpful, but how about sticking it in a stock paying a 5 or 6% dividend. You always think little of amounts like £1000 and want to risk them, but imagine taking that attitude with every 'spare £1k' you find yourself with. It would soon add up with compounding reinvested dividends.

If you're still dead set on going for speculation, ETFs are probably a better bet due to the small trading costs. Spread betting companies are notoriously difficult to trade with. They always make out that they're providing this brilliant trading platform, but the vast majority of their 'clients' lose money consistently. CFDs are much the same story. ETFs, on the other hand, can be traded like shares, and there are plenty around with some form of leverage built in, should you be interested.

04-05-2011, 06:40 PM
Think about it the other way. You bet on Silver to go up. And you turn out RIGHT, but before it goes up it goes down by 25 cents. Your account has been wiped out, the broker has closed your trade to protect himself. You were RIGHT and got completely wiped out.

I don't know if leveraged accounts work like futures, but in the USA the broker would close out this kind of trade with more like a ten cent move against you. They would not wait until every penny was gone, because they want their own margin of safety that they do not have to cover your losses.

When using any kind of leverage the first consideration has to be what happens if it goes against you? How much pain can you stand? How often do you have to be right to make money? If you are just gambling, the casino is a lot more fun.

04-05-2011, 07:01 PM
galtbob is right.
a 100/1 bet works both ways.
Win big or lose big!
How lucky do you feel ??

04-05-2011, 07:06 PM
Used properly, leverage gives you far more upside potential than downside risk.

04-05-2011, 07:14 PM
Used properly, leverage gives you far more upside potential than downside risk.

In the hands of a trained professional ,yes, but in an inexperienced investor?
In my chosen profession I feel confident in making a judgment call
thru experience and training
But I won’t bet my life on changing my own brakes on my car; I leave that to a professional

04-05-2011, 07:26 PM
Have you ever considered trading currencies on the forex? I know leverage is now limited to 50:1 in the US, but elsewhere, the sky's the limit. I've seen 400:1 advertized. If you only want 100:1 on some trading action, then the forex is the way to go. Seriously, multiple billions of dollars change hands on this 24 hour market and provide for some real trading opportunities.

And, as posted by so many others, the real and present possibility always exists at those levels to lose everything in a small and meaningless market move. But you could also make a pretty penny too depending on how you trade it. If you look at longer term charts like daily and weekly, there are some pretty defined trends you could have ridden for some insane profits if you got on the right side of the trade with even mild leverage. Some millionaires do nothing but this for a living.

04-08-2011, 02:25 AM
I invest the £100K in Silver at £23.69 an oz and aquire 4221.19 oz.

Silver goes up £1 spot.

I sell all 4221.19 oz at £24.69 and my total cash amount is now up from £100K to £104,221.18

I pay back the Leverage of £99K and pocket the initial £1K plus the profit?

Yes, theoretically this could happen, but here's reality. Margin can be called at whatever level the broker determines will keep his money safe. Some call in their money at your 50% loss, some at 100%. Does this make sense to you? Every time silver drops a penny in price after your monumental purchase on margin, you just lost 4.2% of your margin. 23.7 cents and you are done, margin called at 100% loss. This is not accounting for spread, fees, slippage or anything. Realistically, you will be margin called for 100% loss after about a 18 cent down move.

I have never seen silver be that rock steady even in a strong uptrend. I wish this kind of trading were possible, but we'd all be rich if it was. Most guys will open an account with 10X the money they intend to trade with if they use margin. Even then, given their stop losses which necessarily need to be wider than we'd like, they only risk a few percent on any given trade. Sure this cuts into your profits since it means a big 5% move only gives you a 10-20% profit. But it's the long term trading with average successes that makes your money grow, not a one time lucky deal that is physically next to impossible.

Wizards get struck by lightning.

04-08-2011, 09:38 PM
Good Evening All,
I knew I’d find a thread here on my new passion for achieving higher benefits from the PM markets. I’ve been reading quite a bit about trading silver on the Forex and I must say it is quite attractive especially after trying to learn about the miner stocks, now that was complicated and risky against the trend of the market which was a turnoff.

So my wee bit of insight here as I am about to open an account. The risk is there to be sure but I personally would only margin about 20:1 to mitigate the downside. I do believe with the bull market we are engaged in and should be for the next 5-10 years that a person could do well here if for one thing leave the EMOTION out of it.

So far my strategy would be:
1. to stick with Silver\Dollar pair.
2. Margin no more than 20:1 probably start with 10:1
3. Keep trading resonable during the learning curve so I’m in for the long term not getting wiped out on a one shot get rich quick deal
4. Trade with a comfortable account equity, with enough buffer to weather a dip without having my position closed out by the broker
5. Learn stop loss techniques thoroughly!! Especially “trailing stop loss”
6. Set profit goals that are not too greedy. Better to make a tidy profit than to be greedy and then lose it by waiting too long, use sell controls
7. Trade with discipline and regularly
8. My own thing (I’m US) is to set up a trading LLC in Canada so when the SHTF in the US I’ll have a place to go J, by the way do any of you realize that if one just held their currency in Canadian Dollars as opposed to US dollars over the past 10 years or so you'd have nearly 30% more buying power, that’s not doing a thing nor any interest just the depreciation in the USD alone.

This is what I’ve learned so far.

Now looking into a platform, http://www.oanda.com (http://www.oanda.com/) was one recommendation I’ve come across so far. The spread was a little high but looked like a solid platform and they have been around since 1996. I was going to use Questrade but I don’t think they do metals.

Anyway look forward to exploring this dimension of Precious metals. I’m in the Kitco pool waiting to do some ratio trading but that hasn’t really been moving enough to be profitable. Also solid in physical but that’s the other SHTF account.;)

04-09-2011, 10:44 AM
Thanks for all the advice.

I know the downfalls and know less than 10% of people actually realise a profit doing this. I'm comfortable with the amount of knowledge I have regarding the Silver market and this was an idea that entertained me.

I think if I were to do this I would do it through a business in order to protect myself. I was unsure of the leverage to take too. I've been offered 400;1 :eek:. Don't think I would go for that though.

In terms of the swings I know how it works which means I would only short trades no longer than 5 minutes to be safe.

I'm gonna spend some more time considering this and read up some more.

04-09-2011, 07:26 PM
Yeah we are all in this together, globally! That's why this forum is so great. A place to work thru ideas and feelings regarding our financila futures. People willing to help each other it's awesome.

Funny so happens I'm at the car wash today, said hello to a women and we ended up chatting about the Forex and how she had doubled her money in the last 12 months. She is running under a group that follows Jack Bernstein
http://www.trade-futures.com/ (http://www.trade-futures.com/)

Don't know if any of you heard of him or not, I hadn't. The intersting point was that she was sort of blindly following this person. I can't quite do that I need to Know and make decisions for myself, though the knowledge and information may be great and I would certainly absorb all I could.

Any success stories out there???:D

Be nice to start a thread dedicated to metals in the Forex, hmmmm