Leverage Trading Explained (Forex, Stock, Crypto) in depth! [Tips and Tricks] BITCOIN LIVE EXAMPLE
Hello fellow traders it's Rafal Zuchowicz and welcome to my channel. In today's video we will talk about extremely important and underestimated by traders topic leverage why am i making this video because I've been in touch with some people recently that they are very excited about this hype with cryptocurrencies forex and the stock now in 2021 it's crazy like in 2017, but they don't understand leverage and they killed their accounts within one week so it's very sad very upsetting because that's their savings so, i decided to make this video there is one already on my channel the previous one very short one but in this one i want to get in very like deep topics so whether you are a beginner or an advanced trader, I think you will find a lot of good information in this video so let's talk let's see if leverage is a blessing or is it a curse what will you learn in this video so as i said we will talk about first we define what's leverage we will go through examples so it's easy for you to digest to understand if you are the beginner but i know that a lot of experienced traders they still don't know how to use it how it really works so this is very surprising how to use it why to use it how not to use it we'll talk about tips and tricks so make sure you stay until the end because i will teach you something and how to set it correctly in your trading platform this is very very important because your trading platform it can tell you exactly where you are how much you're risking and you need to learn how to use your tools so what is leverage leverage is the ratio between the amount of money you have on your trading account and the amount of money you can trade this is different so leverage allows you to trade positions larger much larger than the amount of money in your trading account this is very important sentence you will see on how many levels leverage is expressed as a ratio one to x number and we will see how it works let's go through some leverage examples we will use 100 dollars account let's say you have a small account or you don't want to put a lot of money on your trading account you want to learn and you want to see the power of leverage if you decide to have one to one account you will be controlling only 100 no brainer here so if you decide to buy shares worth 25 dollars each then you would be able to buy two of those if you decide to have account with one to five leverage then you will be controlling 500 so 1 to 5 that means that 5 times more so you would be able to buy 20 of those shares which is quite a lot already not 2 but 20. now if you decide to go with one to 100 you can control assets worth ten thousand dollars of course this won't be possible with controlling shares but maybe there are some brokers that would allow you but this is mostly for forex trading one to 100 these bigger numbers next one one to 500 and that's possible of course as well i know it sounds crazy but they are even one to one thousand one to two thousand used to be these days um it's not so easy to get a trading account with 1 to 500 i will leave the link below for you if you want to open one to 500 and experiment then you can control 500 times more than you have so fifty thousand dollars amazing you've got only one hundred dollars on your account you just put 100 and the 50 000 is what you can control so what does it mean for us that we can control all these big numbers we can make or lose money much quicker in that way so let's go again through some examples if we have this 100 accounts with the one to one ratio we can open a none a lot so it's called nanoload which is 0.001 with the with like no leverage so basically one two one we decided no leverage and then on eur usd let's use this with this currency pair as an example one pip would be worth a 0.01 dollars so one cent so to make one dollar we would need to make 100
pips so 100 pips movement would earn for us uh one dollar and the peep is the fourth digit after the comma so it's quite a move it's a it's doable during one day but as you can see that would give us only one dollar so one percent of our account which is not much but now if we decide to use the account with 1 to 100 which is possible with trading forex so now our 100 accounts you we can already trade one mini lot which is 0.1 and that means that one pips is worth one dollar so every movement of one pip will gain for us or we will lose one dollar so making 100 pips we will make 100 dollars easy now if we use the 1 to 500 and we max up so we will use a half a lot in that case because we are controlling 50 000 that means that one pip movement up or down will be worth five dollars so making a 100 pips would make us richer 500 dollars so this is quite exciting isn't it if you you just invested 100 and using this massive leverage you can go all the way to 500 so that's why forex and the leverage um instruments are so popular among traders retail traders with small accounts because they can make money so quickly really like 100 pips movement with a good news it can move very quickly and then you can have 505 times more than your account and recently like two days ago or i think yesterday i spoke to one of my subscribers he was very excited that he made a 100 of his account using one of the strategies from my youtube channel and he was thanking me for that but i told him like listen if you made 100 i think you are over leveraging your account and half an hour later he told he told me you were right i just lost this and this much because i use the too much of a leverage so you need to remember it work it works both ways so leverage is a double-sided sword exactly you will be losing your money with the same speed so the subscriber of mine is a very good example you need to remember this always that it's not all only working up making your account but as well damaging your account plus bear in mind that starting every trade you are already on a losing position because you've got the difference between the ask and beat price so so called spread so you are already minus one or two pips let's say let's say one pip so five dollars already minus five dollars so bank bank this is a warning for you you need to be really really really careful with the leverage and that's why i'm making this video to warn you guys and show you how to use it in a smart way let's go through a losing examples as well so we can make our lose money much quicker so 100 accounts 100 account with one to 500 a half lot so one pip worth five dollars if the price goes back 20 pips so before we were trading and it went 100 pips in our direction but of course it doesn't have to go in our direction it can go again it can go against us and it takes only 20 pips not even only 20 people because with the spread you are already minus so even less than that and you lost 100 and 100 this is your account so zero you don't have account at this point just 20 pips just 20 percent of what you were aiming in the previous example so this is how it works you need to bear in mind always that this is double sword double sided swords and you can lose money very very quickly as quickly as you are making this money very often traders would ask me what leverage should i choose or should i use so there are two different questions actually because you can choose the leverage up to the maximum so one to five hundred on your account but it doesn't mean you will be leveraging your positions one to five hundred these are two completely different things what leverage you are using and what leverage your broker allows you to use so for example if you have this account with one to five hundred and you deposited one hundred dollars as we said in the previous example you can trade half a lot euro usd but you don't have to do that you don't have to go to the maximum and trade half a lot you can trade still none a lot a mini lot micro lot you name it you can just go much smaller use one to one leverage or you can use one to ten leverage one to 30 leverage you don't need to max out but you can have it available on your account so the leverage works not only for the certain position so not only will allow you to to trade big in this one position that you started with but it means that it will leave more margin for you for the future trade so for example if i have this half a lot a possibility to trade on euro dollar i can open just 0.1 of lots and i still have 0.4 available for me to trade so if i decide that okay there is a confirmation of this trade i want to add i want to make a pyramid that's when i can use the remainings or i see another opportunity on australian dollar to new zealand dollar for example and i want to go long on this one then i still have some money left to to trade so you don't need to max out everything in one trade not even in in 10 trades it's up to you this is just the maximum available so it's quite tricky still because there's a psychological aspect to all of that when you have this one to five hundred and you are a smart guy you don't use 1 to 500 you just have it available but you are trading with 1 to 50 for example a using just 10 percent of what's available but then the trade is going against you this is the biggest mistake that traders do and how they wipe their accounts and then you have this leverage this one to 500 available so you add another position because you think that you will you will like average the price in your favor and then the trade goes even more against you so then you add another position because you think that no no this this has to go in my direction i'm sure about that so then you are minus more and more and more and because you have large leverage available on your accounts and you are like completely stupid at this moment you don't know what's going on you are losing money and you're trying to rescue your accounts rescue your trade you keep adding to this losing position but imagine you didn't have this leverage you were restricted only to 1 to 21 to 31 to 10 then you wouldn't be able to make this stupid decision let's call it stupid and you would survive because your account your i mean the trade would need to go really a lot pips against you for you to lose your account but because you are adding to new positions then it doesn't need much to wipe you out so this is the thing that let's sum up one to five hundred you don't need to use everything you can use smaller but sometimes you keep forgetting you don't know what you are doing even the system might be tricky your platform you restarted your platform you were trading just mini lots but then your platform restarted and it put one lot you were in a hurry you traded you didn't check it i know stories like that as well a friend of mine in front of my eyes she plays the trade on five lots and she lost everything basically because she uh she could put this five lots the leverage allowed her to do that but she shouldn't she shouldn't have done that and the trait went completely against her she didn't close it she was waiting for it to come back and it wiped out her account so unfortunately sad story but that's how it works if she wasn't allowed to to have it then it would never never happen so my advice is actually to use smaller with experience i learned that that it's not worth to you to use all this massive leverage unless you have a specific strategy for that and you want to be very aggressive you know what you are doing and you know either all or nothing that that's your that's your policy then be my guest go for the large one okay no need to deposit all your funds this is the another idea you don't need to put everything at once in your account you can have for example you have one thousand dollars that you want to trade but you can use 100 put 100 on your accounts keep 900 on the site and use the leverage 1 to 10 and now you have 1 000 available on your account right right but you might say yeah but i was thinking you know putting 1000 and using 1 to 10 on 1000 okay so put 100 and use 1 to 100 leverage and then you will have your 1000 on leverage 1 to 10 but if the trade goes against you if you act like in a stupid way then you will lose only 100 and you will still be in control of this 900 that are on your bank in your bank accounts on your pocket and you can put another hundred next time once the emotions are gone related to this particular trade so this is very good strategy i should actually make a separate video on that one explain it properly so bear that in mind so pros and cons of leverage so no need to have all your money in the brokerage account so this is good thing if you have a leverage you don't need to use everything you can just put a little a little bit and have control over the rest in a safe place uncapped unlimited profits so with the leverage as far as the price goes in your favor that's how much you can earn it can go up to the sky basically um to the moon some would say and then you can earn really loads of money so um limited loss this is good things that you can earn a lot but lose only so much of course only with the right broker because some of them might not allow you i mean they they might put you in minus they should close it but there might be slippage so be careful make sure you use the right broker you can quickly wipe out your accounts that's the thing so that's what we said this is the accounts on the cons side with the big leverage starting the trade is you are already on a little bit of minus um because of the difference and then you know very quickly 20 pips move as we said before in our example and your account is gone do i have to use it no you don't have to use it you can choose what leverage your account would have a so when you choose the account you are choosing it with the broker that I'm using that you see me using on the on this channel there is a 1 to 30 you can get up to one to 100 but you need to prove that you are a professional trader and i think this is very smart they are very responsive being very responsible doing that because anything one to thirty is already plenty it's really really pretty trust me having one to five hundred doesn't mean you have to use it to the maximum that's what we said before you can have one to five hundred but you can use much smaller leverage actively so it's it's not a must let's jump into the trading platform now i have just opened a ticket for euro usd and the information card for euro usd as well and from the information card we can see that our leverage on my account is 1 to 30 and as i said before this is plenty it protects me from making stupid things to over leveraging and 1 to thirty it's already a lot and it means that i only need three point thirty three percent of all of what i want to trade so that's uh the size of my margin let's have a look at the tickets and what it means in in practice so it means that if i want to trade one lot which is a lot that's a 100 000 euro value if i want to make a trade of this size i don't need 100 000 i only need my account is in british pound so i only need 2880 british pounds on my account and i can already control 100 000 a euro and if we want to see what it means in making profits that means that the pip value would be 7.14 british pounds so each time this digit will this six will change to seven eight i will be earning every time seven point uh fourteen ah there's some commission spread so it tells you zero point two that was the spread i was talking about that just by opening a a trade you are already minus so in this case you are minus a 143 british pound because there is a spread involved in this trade and some daily daily swap but what's interesting we can set up the stop loss and take profit so if you are not familiar with leverage you don't know what leverage you are using and what it means for your take profit and your stop loss it's very useful to use this kind of cards by placing a trade instead of just placing it you know from the quick card on the left hand side so now i can set the take profit and i can go pip by peep or just you know if i want a 100 pip straight i just need to change this one digit and it already sets here you see 100 pips profit and it tells me that i would earn 714 almost british pounds having on my account uh only 2880 so that's plenty i would have seven over 700 uh risking only only this one making i mean not risking but having as as a margin because the risk i set up in a separate window so this is my stop loss and let's say i play a trade way one to two so meaning that i risk 1 to gain 2 so if i'm gaining 100 i will be risking here 50 50 pips and doing so if i hit the stop loss that means i would lose a 357 british pounds so half of of this one am i right something around because there is this spread so you know exactly how much you are risking and if you are willing to take this risk because it might be a lot for you 356 if you have only 2 880 on your on your account but this card is here for you and you can see um the risk that you are that you are taking you can drop all these values if we can go to 0.5 then everything will change and you can see that now you will be gaining only 356 and if you lose you will lose much less so that's how you can control if you if before you made the real realization that okay this is too much i don't want to lose so much if if the trade goes 50 pips against me so either i'm changing my pip size and then i'm losing less 214 i'm risking not losing because we this is not the losing trade yet i'm risking much less but you might this might be not enough 30 pips for the currency pair that you are trading you might need to set it to 50 pips but if you are not comfortable with such a big number then it's easy just change this one you can either change one by one and you can see how it's changing so you can see that half a lot you are risking 178. if this is too much you can go lower you can go and drop the risk at this point so you can put only okay i want to risk 100.
so then it tells you that okay if you want to risk 100 just minus i mean 28 pips but as we said before now we want 50 pips so this is your risk so you need to change the volume you need to change your your leverage so don't go mad to the maximum with this leverage and then you go to just experiment 0.3 you can go 0 27 uh 28 and this gives you a 99 pounds of of risk and you might be happy with this one then your margin would be a 806 and you might have on still on your account is 288 that was before but you don't need to go to the maximum you don't need to squeeze uh everything from your margin so from your account so this merging is basically what size of your account you have and for example, you have ten thousand so you are can see uh we can see here that with the ten thousand pounds how much you can you could okay three-four so around three uh 75 let's say 70 60 3.5 45 okay so around 345 this is the maximum if you have 10 000 British pounds but then again you don't need to always go to the maximum you can lower it and you will have all the numbers here so come to this platform uh link below if you don't have a platform that allows you to calculate all these things there are some online calculators you can refer to that leverage calculator the pip calculator in the platform I'm using everything is built-in already and it's easy as that so I think 1 to 30 is plenty be careful with your leverage that's the main message here just protect your profits let's have a quick look into the bitcoin as an example of the power of leverage in both ways so let's say you entered at this scandal at the bottom with leverage one two three so you got your bitcoin from 11 300 let's say 11 000 and now it's at 56 000. so you made a 45 is 45 000 on each leverage so one two one one two two one two three so you made three times forty-six thousand so you made 130 uh 000 if I'm calculating right and you are a rich man so instead of making this only 46 000 only you made so much but imagine you did the same trade you missed this movement your friend told you that he is in this movement and you are super excited uh he made already all this money the price is at 42 000 he entered at 11. he's telling you man
I made 41 000 already profit it's crazy four times my investment this thing is going up to 100 easily and you are like screw it, I want to be a part of this movement but since he already made so much so if I just enter one to one I will never catch up with him so let me enter with the leverage one two three only one two three and the price was at 42 000 at this point and you were unlucky to enter at this local top the price made a small pullback just two candles weekly candles but just two candles it made a pullback to 28 so it's 14 000. which means it's 30 and you entered one two three at that moment this 30 per cent just wipes out your accounts and you've got zero so the bitcoin that you got for you spent forty-two thousand here and the pullback of fourteen thousand fourteen times three gives you exactly 42 and goodbye depot so you just lost 42 000 and later the price beautifully went all the way up to 57 giving 15 so 45 000 profits if you didn't miss uh on this opportunity so this is the power and we are talking uh talking only about leverage one two three not one to five hundred as i mentioned before you just leverage three times your money only three times and this for two weeks was enough to to make you lose forty-two thousand dollars so think about it um and consider this example with uh as a warning let's let me put it this way okay all the best with your trading uh use your leverage uh to your advantage and make loads of money take care bye you