Leverage and Margin in Forex Trading (Podcast Episode 8) - YouTube

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 like It'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