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How to adjust leverage


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How to adjust leverage

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  #1 (permalink)
Aberdeen/Scotland
 
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Posts: 32 since Dec 2016
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Hi,

I guess some ppl will have a good chuckle about this but I'd like to confirm how to adjust the leverage one uses.

From what I have understood, the leverage of a position is fixed with the following:

Leverage = Nominal Value / Initial Margin.

Am I correct in assuming from an account point of view, it becomes:

Leverage of account = Nominal Value of a contract x Number of Contracts / Account Balance

Thanks for clarifying the above for me.

Fraz

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  #2 (permalink)
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You can trade different products with smaller or larger tickers and varying volatility, you can trade more or less contracts, or you can spread and hedge. These will all vary your risk


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  #3 (permalink)
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Yes you are correct.

While it is possible to trade highly leveraged, you will find reference to a kind of 'rule of thumb',
where for any position you should not risk more than 2% of your account..

Example :
If you have 10K in your account, 2% = 200$
if your stop is 10 ticks and the tick value of the instrument is 10$
you would trade maximum 2 contracts

While the same 10K might easily give you the possibility to leverage up to 10 contracts and more
it is not a good idea to do ...

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  #4 (permalink)
Aberdeen/Scotland
 
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@rleplae thanks for clarifying. Could I ask one more follow up question please.

With regards to margin calls, If you had the following:

Account balance: $10k
Initial margin to open one position : $1k
Maintenance Margin: $500

Is the $500 dependant on your $1k position only, or do they take into account your total account balance?

Ie
1)10k at start
2) long 1 contract for 1k.
3) contract drops to $500 (Margin Call?)

Or

Is it triggered once my total account value drop to $500? (So I can loose $9.5k)

If it's the 1st then I'm assuming my stop should b between the initial entry point and the $500 point otherwise its guaramteed that i would need to top up that position before it reached my stop.

Thanks again for your help.



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  #5 (permalink)
Gits (Hooglede) Belgium
 
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Trading: 6A, 6B, 6C, 6E, 6J, 6S, ES, NQ, YM, AEX, CL, NG, ZB, ZN, ZC, ZS, GC
 
rleplae's Avatar
 
Posts: 2,990 since Sep 2013
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FrazMann View Post
@rleplae thanks for clarifying. Could I ask one more follow up question please.

With regards to margin calls, If you had the following:

Account balance: $10k
Initial margin to open one position : $1k
Maintenance Margin: $500

Is the $500 dependant on your $1k position only, or do they take into account your total account balance?

Ie
1)10k at start
2) long 1 contract for 1k.
3) contract drops to $500 (Margin Call?)

Or

Is it triggered once my total account value drop to $500? (So I can loose $9.5k)

If it's the 1st then I'm assuming my stop should b between the initial entry point and the $500 point otherwise its guaramteed that i would need to top up that position before it reached my stop.

Thanks again for your help.



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Maintenance margin is a minimum balance, your account should not drop below

Stretching your account to maximum leverage is a very bad idea...
The 2% rule should keep you in safe waters

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  #6 (permalink)
Aberdeen/Scotland
 
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Trading: Crude cl
 
Posts: 32 since Dec 2016
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Perfect, thanks for clarifying bud

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