Warren Buffett quotes

[psytrader]

Thst is a point that I think a lot of people miss.

Lets say a trader has 10,000 in risk capital and his broker tells him he has 400:1 leverage. Trader opens one standard lot. What is the traders leverage?

10:1 (100k/10k)

You would not, however, open a 40 lot position.

Your risk money would be gone in 25 pips,...mabey less depending on margin call policy.

[wozdan]

Originally Posted by psytrader

Thst is a point that I think a lot of people miss.

Lets say a trader has 10,000 in risk capital and his broker tells him he has 400:1 leverage. Trader opens one standard lot. What is the traders leverage?

10:1 (100k/10k)

You would not, however, open a 40 lot position.

Your risk money would be gone in 25 pips,...mabey less depending on margin call policy.

Exactly PSY. I keep about 90% of the risk capital in cash, bills, equities and savings bonds. The remaining 10% is leveraged 100:1 which gives me a maximum trade of about 1 mio. However I rarely open positions bigger than 500k, usually 100-250k, so I have plenty of space left. The return on the 90% is used to cover my trading losses. Simple and safe. I strongly believe this is the proper way of using leverage and I suggest all newbies or leverage-addicts try it. As for the real leverage involved it is obviously usually between 1:1 and 10:1.

w