Lately I have been reading a lot of tweets about leverage trading. There are some who use it in all their trades and others who do not. Both sides are very passionate about their choice of trade.
As with everything, the answer is not black or white, but something like grey. With leverage you can make tonnes of money, and at the same time you can go short in a matter of minutes
We always need to do good risk management, and to do that we first need to assess what our goals are in our trading plan.
(Quota Loss / Positions)= Loss per trade [LPT]
$50 / 5 (open positions) = $10
LPT / [Leverage x Stoploss(%)]= Margin
Example: x10 lev and 4% SL
$10 / [ 10(lev) x 4%(SL)] = $25 (margin per trade)
X50 lev and 2% SL
$10 / [ 50(lev) x 2%(SL)] = $10 (margin per trade)
Alternative Risk Management: (Safe Trade)
Leverage 10x Use 5-10% margin
Leverage 20x Use 3-5% margin
Leverage 25x Use 2-4% margin
Leverage 50x Use 1-2% margin
Leverage 75x Use 1% margin
Leverage 100x Use 1% margin
Leverage 125x Use 1% margin
I follow this rule when I trade with levers.
Example: for a portfolio of 10000K I put 100 dollars. This is a small margin compared to the total amount, but with leverage the pressure will be enormous if the trade is successful
Although I prefer cash trading, leverage trading is a useful tool for maximising profits, but as with anything that can drive up your profits, great care must be taken.
Useful links
https://www.cmcmarkets.com/en/trading-guides/what-is-leverage-trading
https://www.investopedia.com/articles/forex/07/forex_leverage.asp
https://www.binance.com/en/blog/margin/how-does-leverage-trading-in-crypto-work-421499824684903497
Used phot from here