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Leverage Only for Day Trading?

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I always hear about using leverage for Day Trading, but I don't hear leverage mentioned re: swing trading. Is it not permitted by brokers (since they're basically lending you the money)? Or is it because leverage is too risky when you hold a position longer than a day, so people just _don't_ use it, even though they could?

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Are you talking about margin requirements? There are different margin requirements for "patterned day traders" which is a term used in stock trading. I think firms have different rules/requirements regarding futures trading for those who employ stops and don't hold overnight vs. those who do. I'm not sure if these requirements are regulatory or firm risk management related.

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In swing trading your basic options for buying/selling in a retail account are:

 

1) 1-1 ratio = You have $50k in your account, you can 'spend' $50k in trades.

 

2) Use margin (ratios vary) = You have $50k in your account and your broker allows you to use margin which increases your trading power but you also pay interest for that privilege.

Here's what Open ECry charges as an example.

 

Outside of that, you'd have to go the prop firm route to get even more buying power.

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Generally a way to think about them

Futures trading.....

the leverage is effectively given to you by the exchange and all trades are centralised. The margins they set allow you to leverage up.

CFDs, Swaps, FX....

leverage is given by the broker whereby there is no central clearing house and you trade with/against the actual broker. These are effectively continuous betting accounts whereby the account rises and falls depending on what happens with the underlying bet.

Stocks....

as you have to pay 100% for the stock through the exchange, the broker, or your margin lender effectively lends you this money and you owe them. (different but similar to going to the bank and borrowing the extra money and then going to the broker. eg; go to the bank with 50,000 deposit and say you wish to borrow another 100,000, then go to the broker and buy 150,000. But in this case the broker effectively is the bank. For this they will charge you an interest rate.)

 

As BrownsFan said, really understand what the broker, margin lender, spread better is offering.

It may result in different taxation positions and exposures. This can also delve into the world of understanding the differences between segregated accounts and non-segregated accounts.

The brokers should be able to completely explain this to you. If they dont adequately do this then either they dont know themselves or they are hiding something. There is no substitute for doing your own homework.

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I would assume any retail broker offers margin, so that will probably be the quickest way for you to get more buying power. I used my margin quite a bit when I was swing trading to maximize my exposure. Of course, losses will sting even more - not only the loss of principal but you are also paying interest on that borrowed money.

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What I see is that leverage IS available for swing trading, but most brokers will only give you half as much, because, yes, it is riskier when positions are held overnight. My broker gives 20:1 leverage for day trading, for example, but only 10:1 for overnight.

 

I always hear about using leverage for Day Trading, but I don't hear leverage mentioned re: swing trading. Is it not permitted by brokers (since they're basically lending you the money)? Or is it because leverage is too risky when you hold a position longer than a day, so people just _don't_ use it, even though they could?

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I have read this series of articles pertaining to leverage. The philosophy that for traders "Leverage is good, and more leverage is better" is maintained without reservations until the article "Leverage: Friend or Foe".

 

The author does not consider that a prop firm may give a lot more leverage. For daytrading, my broker gives 20:1 for Equities and Options.

 

After reading these articles, I wondered of there could be such a thing as TOO MUCH leverage.

 

 

 

 

 

There is a good article titled "Trading Using Leverage" at about.com. I think, it will be more helpful for you.

 

Source: Trading Using Leverage

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I have read this series of articles pertaining to leverage. The philosophy that for traders "Leverage is good, and more leverage is better" is maintained without reservations until the article "Leverage: Friend or Foe".

 

The author does not consider that a prop firm may give a lot more leverage. For daytrading, my broker gives 20:1 for Equities and Options.

 

After reading these articles, I wondered of there could be such a thing as TOO MUCH leverage.

 

You mentioned your broker gives you x20 buying power (leverage).

 

What broker do you use?

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I have read this series of articles pertaining to leverage. The philosophy that for traders "Leverage is good, and more leverage is better" is maintained without reservations until the article "Leverage: Friend or Foe".

 

The author does not consider that a prop firm may give a lot more leverage. For daytrading, my broker gives 20:1 for Equities and Options.

 

After reading these articles, I wondered of there could be such a thing as TOO MUCH leverage.

 

But I'd like to know what broker that offers you 20:1 leverage Flatbush?

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If you're especially keen to trade with leverage, then you'll probably find it easier to obtain by focussing on instruments that a) are highly liquid, b) don't gap (24 hour session, or Cash plus Globex sessions), c) cannot lock limit.

 

This means focussing on instruments like stock index futures. As a daytrader, for example, you can readily control a single E-Mini S&P contract, which recently has had a value of between $60 and $70k, with about $500 in your brokerage account. Now I'm not suggesting that you should do that . . . but it gives you a good idea of where leverage is easy to come by.

 

Hope that's helpful.

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If you're especially keen to trade with leverage, then you'll probably find it easier to obtain by focussing on instruments that a) are highly liquid, b) don't gap (24 hour session, or Cash plus Globex sessions), c) cannot lock limit....

 

that's right..and keep in mind that because you have a stop does not mean it will always be executed at the price you specified...

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I have read this series of articles pertaining to leverage. The philosophy that for traders "Leverage is good, and more leverage is better" is maintained without reservations until the article "Leverage: Friend or Foe".

 

The author does not consider that a prop firm may give a lot more leverage. For daytrading, my broker gives 20:1 for Equities and Options.

 

After reading these articles, I wondered of there could be such a thing as TOO MUCH leverage.

 

For those with lack of discipline and risk management, anything greater than 1:1 is too much leverage.

 

Michael Toma, CRM

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that's right..and keep in mind that because you have a stop does not mean it will always be executed at the price you specified...
If someone has a problem with this then they might as well pack it in.

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it is like learning how to drive in a F1 racing car...learn how to drive before you try to break speed limits...

 

For day trades, I would second this.....learn how to drive the Volvo first (with paper money first)....then, when ya' get that down packed....consider the Ferrari....

 

But for swing trades...longer term trades....I advocate avoiding margin (but not leveraged ETFs which essentially have built in margin) alltogether...

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For day trades, I would second this.....learn how to drive the Volvo first (with paper money first)....then, when ya' get that down packed....consider the Ferrari....

 

But for swing trades...longer term trades....I advocate avoiding margin (but not leveraged ETFs which essentially have built in margin) alltogether...

Hey btw it is down pat, not packed.

 

Volvo, really? :)

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