The most important and most common question traders ask is what leverage is the best for long term performance. While, XBTFX offers 500:1 leverage, we want to clearly and openly state that we believe such leverage is unsustainable, traders using such leverage should be ready to loose their whole investment. Of course, it is also possible to produce huge returns, but official statistics point that about 75% of all traders loose money.
We believe successful trading relies a lot more on risk management than being right about a trade. It is crucial to define clear maximum acceptable loss before placing a trade and we advise the use of stop losses for that. As a rule of thumb risking over 2% on a single trade is generally considered risky practice that usually leads to ruin. Keep in mind that traders that have lost 50% of their account balance need to make a 100% return with less capital to get the account to its break-even value.
We believe that clients are best served in the long term by using leverage of under 100:1 ideally 50:1.
We use this opportunity to show you this excellent study and article by DailyFX on performance : https://www.dailyfx.com/forex/fundamental/article/special_report/2015/06/29/forex-trading-using-trading-leverage-effectively.html
Keypoints:
- Please note that 40% of traders are profitable when using leverage under 5:1 and notice how that profitability % goes down with higher leverage.
- Secondly and perhaps most importantly never risk more than you are willing to loose. A key concept outlined by Warrent Buffet, on the idea of leverage, is to never bet money that you need, to make money you don't need. Leverage needs to be respected and used with caution, yes, it can generate great profits, however, never put more capital at risk than you can afford to loose.
- We stress that while we do offer 500:1 leverage due to the enormous demand for it, we don't support the use of any leverage over 100:1 and we believe traders should ideally use 50:1 and less. Leverage in the EU and US is limited to about 30:1 for non-professional traders and there is a good reason for it. People get drawn into false advertising and promises of quick riches and take a lot more risk than they take. When that happens you are not trading, you are gambling.
- XBTFX will never advertise with promises of riches or huge returns (if you ever notice any such ad ran with XBTFX's name please notify us). Trading is not easy. Trading is not a get-rich-quick scheme. Trading is a slow but rewarding grind.
- When using leverage such as 100:1 remember that if you have a $1,000 deposit and you utilize your leverage fully you gain the ability to enter a 1 lot trade ($100,000). XBTFX has a 50% Stop-out level which means that a 50 pip move in EURUSD will leave you $500 less. To loose your total amount you will need a 100 pip move with that leverage which less than a 1% move.
- Traders should also note that the Capital they put at risk not to be more than a % of their Net Worth that they are willing to loose for purposes outside of their control. Outside of the risk of trading by itself there is also the risk of force majaure circiumstances - markets being shutdown (during World War II the stock market was closed for several years), hacker threats, broker insolvency, liquidity provider insolvency among some that have happened more than once in the industry.
XBTFX is a broker with real access to liquidity providers and as such we strive on having our traders do well and have their capital grow. XBTFX strives to provide good educational content to its clients and protect their capital.
