Join our investing community

The Power of Leverage

Discussion in 'Trading' started by jeromanomic, 28th Jan, 2015.

  1. jeromanomic

    jeromanomic Active Member

    Joined:
    20th Jul, 2014
    Posts:
    30
    Location:
    Perth, WA
  2. Tropo

    Tropo Well-Known Member

    Joined:
    17th Aug, 2005
    Posts:
    3,423
    Location:
    NSW
    I would not recommend it to the inexperienced people.
    Leverage instruments are for players who do have a knowledge, experience and proven system/rules.
    If you never traded ordinary shares successfully, this game is not for you.
    Before you'll try to fly, first learn how to walk properly.
     
  3. jeromanomic

    jeromanomic Active Member

    Joined:
    20th Jul, 2014
    Posts:
    30
    Location:
    Perth, WA
    good point, leverage is not for trading newbies :)
     
  4. Andreadylon

    Andreadylon Member

    Joined:
    13th Sep, 2016
    Posts:
    9
    Location:
    Melbourne
    Leverage is the action in which you can trade more with less equity . It is the ability to control a lot with a little. It is much more than borrowing money. It lets you buy assets earlier at a faster rate and control or utilize a larger amount than saving the whole amount and before the time. Leverage proves the quote that "Money is needed to make money". But Leverage gives better output to experienced if compared to beginners as you must be proficient enough to put leverage in use.
     
  5. OscarBravo

    OscarBravo Member

    Joined:
    23rd Sep, 2016
    Posts:
    5
    Location:
    Sydney
    Leverage works both ways, don't forget!
     
  6. Il Falco

    Il Falco Active Member

    Joined:
    23rd Sep, 2016
    Posts:
    25
    Location:
    Sydney
    This leverage game sounds like a total no brainer! sign me up!!!!! Do you have a newsletter I can subscribe to?
     
    Bran and bingomaster like this.
  7. twisted strategies

    twisted strategies Well-Known Member

    Joined:
    3rd Nov, 2013
    Posts:
    429
    Location:
    QLD
    the problem with leverage ( I have a trading buddy that does leverage , I have resisted the urge ) is your lender may decide to margin call you , when THEY think you might be illiquid ( rather than when you know you are just inside the limits )

    say you know there is cash coming shortly .

    the reason I resist ( so far ) is that it adds cost and complexity , to my already complicated plans .

    but if you think you can make leverage work for YOU ( not just the lender )

    should we have a major crash I will re-assess my choices then ( a little leverage might be good in the early recovery stages )

    safe journeys .
     
  8. OscarBravo

    OscarBravo Member

    Joined:
    23rd Sep, 2016
    Posts:
    5
    Location:
    Sydney
    Just $4.95! Please provide credit card details asap.
     
  9. Aaron Sice

    Aaron Sice Member

    Joined:
    6th Feb, 2017
    Posts:
    6
    Location:
    Perth, WA
    Trading with leverage requires not putting it all on black.

    I trade no more than 20% of my available capital on any one trade to avoid a margin call. I've been trading for a while now so I don't just get closed out anymore because of this buffer....but then, I havent needed it either.

    I'm sure in an itchy market no provider would think twice about exercising the "all monies" clause regardless of who you are.
     
    twisted strategies likes this.
  10. Billv

    Billv Getting there

    Joined:
    15th Jul, 2007
    Posts:
    1,811
    Location:
    Sydney, NSW
    Aaron big leverage will allow us to open large size positions with a small trading account.
    This is the attraction of forex, cfd;s etc.
    Leverage can be very useful when we have a profitable strategy but can be lethal if we get in trouble.

    For example, if there is a big spike in the market (eg look at the EURCHF in January 2015) and our position happens to be on the wrong side, our account balance can turn -ve very quickly and if the trading software doesn't have time to close our position or something happens eg. the server freezes up and our position doesn't close, we could end up with a debt to the broker and this could be in the thousands of $'s. This happened to many people at the time.

    Therefore, it is very important to minimise our risk and to protect our assets. If we have to trade like this, we should consider trading in the name of a limited liability company or simply to have no assets in our name.

    my 2 c
     
    twisted strategies likes this.
  11. twisted strategies

    twisted strategies Well-Known Member

    Joined:
    3rd Nov, 2013
    Posts:
    429
    Location:
    QLD
    Billy ,

    now you are making leverage really scary ( and rightfully so )

    i have heard of GFC horror stories , of retail folk using leverage to buy options and other derivatives , until the crash hit ( this time it might be ETFs on leverage ).

    i might consider leverage during a crash ( close to the bottom ) , but have so far resisted the urgings ( of one trading platform )

    as luck would have it , no leverage was the right choice for me ( so far )
     
  12. Billv

    Billv Getting there

    Joined:
    15th Jul, 2007
    Posts:
    1,811
    Location:
    Sydney, NSW
    For me leverage has been a blessing because it helped me a lot with property
    but we need to be careful on how we use it and when.

    For example, I wouldn't over leverage now in order to buy property
     
    twisted strategies likes this.
  13. Alex Straker

    Alex Straker New Member

    Joined:
    2nd Mar, 2017
    Posts:
    2
    Location:
    Nerang
    It amazes me how many different forms of leverage are easily available to anyone these days.

    Most dangerous is the Forex/Futures/Options/CFD flavour...super high multiples of capital exposure are available these days even to inexperienced players. Recipe for disaster 9 times out of 10. Need to understand money management (ie risk management) and have a heck of a lot better than average TA skills plus decent FA skills to put the big puzzle together and make a serious go of it. Ultra slow and steady is the best approach with these vehicles, just because you have mega leverage available does not mean you need to apply it for solid results.

    My mentor used to trade Silvers futures live standing in the 'pitts' for a living and is now private discretionary trader. He admits he lost big before making it and it was only through the mentorship he received a few years in to his journey that turned things around. Now a resident of Statham Island New York and multi-millionaire with mega assets but he 'paid the price' to get there.

    Having said that, sophisticated vehicles such as options do have some brilliant risk managed strategies available if you understand how to properly construct straddles, collars, strangles, butterfly spread, etc. Often they will be combined with another vehicle such as futures, bonds etc to create a strategic advantage.

    Traditional Property/Blue chip share portfolios can be leveraged successfully a number of ways and are a much better vehicle for inexperienced players. Property however is not usually suited as a trading vehicle for quick in and out profits unless a specific strategy for improvement is being used.

    Multiple ways to leverage shares these days also from old school margin lending to modern structured products that often involve 100% borrowed capital (and sometimes also interest). One interesting way to have leverage similar to margin lending but without the loan in your name is to use internally geared managed funds. These also make good long term position hold trading vehicles for similar reasons.
     
    twisted strategies likes this.
  14. twisted strategies

    twisted strategies Well-Known Member

    Joined:
    3rd Nov, 2013
    Posts:
    429
    Location:
    QLD
    my personal situation stops me from a recovery from a major loss ( or wipe-out )

    however if others have a large surplus income and the nerves needed to leverage , then good for them .

    my reluctance looks to be a brilliant move in hindsight ( even if it was unplanned to happen that way )
     
  15. Hosko

    Hosko Active Member

    Joined:
    25th Sep, 2016
    Posts:
    39
    Location:
    Victoria
    Leverage is the same as a lot of things in life. Good when it works, a nuisance when it doesn't work.
     
    twisted strategies likes this.
  16. michael.bronislav

    michael.bronislav New Member

    Joined:
    26th Oct, 2017
    Posts:
    3
    Location:
    Melbourne
    leverage is good but please use it with caution, or you will be in deep debt
     
    Hosko and twisted strategies like this.
  17. VioricaDeluca

    VioricaDeluca New Member

    Joined:
    1st Nov, 2017
    Posts:
    1
    Location:
    Australia
    Leverage is helpful but risky, In my personal experience, the first time I used the leverage it was risky but the good thing is I learned how to control myself when using it, that's why we need to be knowledgeable first before entering in CFD trading.
     
    twisted strategies likes this.
  18. twisted strategies

    twisted strategies Well-Known Member

    Joined:
    3rd Nov, 2013
    Posts:
    429
    Location:
    QLD
    welcome , to InvestChat

    with leverage i made the correct personal choice for me ( none for me thanks ) but not for the reasons that make it prudent , now )

    i suggest those who use leverage should have a reasonably reliable source of ( outside ) income to allow the investor to buy themselves extra headroom if needed