The optimal amount of leverage for stock trading on different assets and timeframes
The amount of leverage often plays a decisive role in stock trading and is one of the most important aspects of trading.
An incorrectly chosen ratio of transaction volume to deposit will lead not only to an increase in profit, but also to an increase in risk.
Recently, brokers have begun to compete with each other by providing the maximum amount of leverage; now you can open an account even with a leverage of 1:3000.
At the same time, the motives of brokers are quite clear - the greater the volume of transactions transmitted by the brokerage company to the exchange, the more spread and commission remains with the intermediary.
Leverage size depending on timeframe
As has been said more than once, the longer the transaction is planned, the smaller the difference between the deposit and the order volume should be:
Leverages 1:300, 1:500, 1:1000 and more are designed for pips on M1 , when the duration of transactions does not exceed several minutes, it is quite difficult to trade with them on longer timeframes.
It is advisable to use a leverage size of more than 1:100 on intraday transactions, since when transferring positions to the next day, a fee for transferring the position - Swap - will also be added to the paid spread.
If you expect to hold a position for a long time, a week, a month, etc. then it is better to limit yourself to a shoulder of 1:10 or smaller.
Leverage size depending on the type of asset
This is also a rather important point, since, firstly, for many assets brokers themselves limit the maximum leverage:
cryptocurrencies from 1:2 to 1:50
securities 1:25
commodity futures 1:100
Therefore, even if you want, you will not be able to use the scalping strategy on some assets.
The highest leverage is provided for currency pairs, and its size also depends on the type of account you are trading on.
The influence of the size of leverage on the size of the spread
For many, it may not be a pleasant surprise when, when opening a transaction, more than 50% of the funds are immediately debited from the account for a loss:
This happens in cases where the trader did not carefully approach the choice of a trading asset, because even for currency pairs, the spread in the spread is simply huge.
For example, on EUR/USD the spread is 5 points in a five-digit quote, which means you need to pay $5 for an order of 1 lot, while at the same time the same broker has a USD/ZAR currency pair of 200 points or $120 per lot.
Imagine that you open a trade on USD/ZAR with a leverage size of 1:500 and a deposit of $200, and the spread was $120.
Therefore, it is simply not rational to use large leverage on assets with high spreads.
In order to better imagine how trading will happen with a particular leverage size and on a certain asset, first experiment on a demo account e.