Leverage

[andy28]

I still watch a lot of video's for trading from many different people but this word "leverage" is mentioned a lot but I have no idea of what they mean by this.

As a small trader lets say I green up for a $10 profit, what would I do to leverage that profit? It sounds like I am not maximising my winnings.

This quite possibly could be a dumb question for most but how do you learn something if you don't ask questions?

TIA

[megarain]

I take it to mean you bet bigger / have greater exposure.

Most used in financial trading/spread betting.

So, rather than buy 100 shares of a company, u have exposure to the price movement of 1000+

[andy28]

I take it to mean you bet bigger / have greater exposure.

Most used in financial trading/spread betting.

So, rather than buy 100 shares of a company, u have exposure to the price movement of 1000+

Ok I think I get it, so in theory you could bet say 50% your bank because your going to hedge pre off, so you won't lose your entire stake

[megarain]

Yeah - that's the theory - thou in v fast moving markets (in-play especially), practice can be different.

Pre-race trading is probably not quite as volatile - thou spikes certainly happen.

[Euler]

Leverage in financial markets tends to revolve around buying on margin or using debt to increase returns.

I've often used, sort of incorrectly, the term leverage in Betfair trading to indicate how you can 'leverage' your stake to turnover many times your initial stake. I.e. one trade ten times 'leverages' your initial stake by a factor of ten.

[sionascaig]

Trade £10 & make £0.10 you have made a 1% return on capital risked and volume traded.

Repeat trade 10 times successfully with same £10...

You make £1 which is still 1% of volume traded but 10% of capital risked... (and that return is over the period you trade)

==> which is why you might be better trading than sticking in a bank where it could take over a year to get a 1% return (if that, but then it has a very low risk).

(of course not every trade is a winner)

edit - just realised the above could be interpreted as having a large bank account might not be a good idea... that wasn't the intention - don't risk what you cant afford to lose !

[foxwood]

As Euler said - comes from financial markets typically buying assets with borrowed money. Definition ... https://www.investopedia.com/terms/l/le ... buyout.asp

[Anbell]

In some of the dodgier corners of financial markets, leverage is used instead of stop-loss. The broker/exchange gives you 10X margin / leverage and liquidates your position at a certain price point.

[andy28]

Trade £10 & make £0.10 you have made a 1% return on capital risked and volume traded.

Repeat trade 10 times successfully with same £10...

You make £1 which is still 1% of volume traded but 10% of capital risked... (and that return is over the period you trade)

==> which is why you might be better trading than sticking in a bank where it could take over a year to get a 1% return (if that, but then it has a very low risk).

(of course not every trade is a winner)

edit - just realised the above could be interpreted as having a large bank account might not be a good idea... that wasn't the intention - don't risk what you cant afford to lose !

Thanks all that helped. Another question if I may

When you say over the period you trade, I take that as the day. I mean if I am trading horses I finish my trade and exit with my profit just before the off. I then move to the next race and open a trade with the same stake as the race before, would that be correct or is it only true if it were in the same race or market

[sionascaig]

In that example, if the 1st trade has completed the next trade could be on the same market or the next it doesn't make any difference. The key point is that when the trade completes you get the capital risked back and hopefully can now rinse & repeat.

So with that same £10, if you repeat 10 times you have traded £100 and the return is on £100 (hence eulers concept of leverage when trading).

[andy28]

Ok got it thank you