I.46. Calculating the chances of making a profit using leverage.

The increase in money in your checking account is inspiring, because it gives you expanded opportunities to make a profit. You can, for example, quickly reanimate the account killed by previous actions. So, you have 30,000 rubles. It would be nice to go right in with an account of 300,000 rubles. And it seems that for this you just need to borrow 270 thousand rubles from a broker. But are you sure about your deal? Have you accurately calculated all the situations in which you will enter and when you will exit, especially if the situation goes against you? Let’s briefly analyze exactly how leverage works.

If you have made a trade with leverage and the market has gone in your direction, then you will see how your account is increasing before your eyes. But what will happen if the market starts moving not in your direction, for example, by 3%?

So, there are 30,000 own funds and 270,000 borrowed funds in your account, i.e. leverage = 9. The total volume of the transaction is assumed to be 300,000 rubles. The market started moving by 1.5% not in your direction. Your own funds will remain:

30 000 – 300 000*1,5% = 25500 rubles. Please note that the amount of borrowed funds will remain 270 000 rubles (the amount of borrowed funds is the holy of holies of the broker, and he should not lose anything. He can only risk your money (cleverly, isn’t it?)). Then it turns out that when the market moves against you by 10%, your own funds will be equal to 0 and your account will be liquidated by the broker. In fact, nothing like this will happen. The broker, according to his calculations, will calculate the risk acceptable to him and forcibly close your unprofitable position, leaving you several hundred rubles on the account, unless of course you do it yourself earlier.

Leave a Reply