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Leverage

Using Leveraged USDEUR QE Pair to Supercharge Outlook on BitcoinIt seems as if the USDEUR still has room to move as central banks (they are the largest forex traders worldwide) have not stopped selling EUR (www.bloomberg.com) and are still apparently accumulating dollars with abandon (www.wsj.com). IMF data to be released Tuesday may confirm many trader’s thoughts that CBs are still accumulating greenbacks. This can supercharge a BTC trader’s long/short strategy, since the relationship between the pair components will likely move with more volatility than the individual currencies themselves. This also (shameless plug) shows why you should be trading P2P in addition to (if not instead of) using centralized legacy exchanges). If you want to go into Monday long BTC buy it with the EURUSD pair, leveraged 60x (receive BTCUSD=x and pay EURUSD=x). Despite recent reversals in the USD, the medium term “force” is still higher. Conversely, if you want to go in Monday short BTC, create the contract as receive USDEUR=x (long) and pay BTCUSD=x, again at 60x leverage. Each contract should contain no collateral (if just for the day’s trading session) with the expectation of at least 50% chance of capital exhaustion (being unwound due to hitting max P/L). To extend past Monday’s trading, add collateral as needed (at contract’s creation). I would expect a ~91% net return, net of fees, on this by EOD Monday (if you picked the right side of the trade). Download the P2P trading wallet, quick start guide and spreadsheet to model the trades here veritaseum.com
by ReggieMiddleton
LEVERAGE: The Legitimate UsageImagine you have a strategy and you found that the optimal risk you should take is 4%. In other words with this strategy you should put 4% of your capital at risk in every trade to grow your account the fastest. If you enter a trade with 100% of your capital, the SL % is the % you put at risk. NOT the whole position size. So by entering a trade with all of your money and setting a 4% SL you only put 4% of your money at risk at all times ! Now let's examine the following situation keeping our strategy in mind. Imagine a perfectly oscillating market (for demonstration only). We are at the point where the red line ends and we expect the price to go the dashed path with a very high certainty. Our optimal & desired risk is 4%. However in this trade that we want to enter rightnow we can set a stop loss tighter than 4% because we are very certain that it wont be hit. So we can use a 2% stop instead. If you now put 100% of your capital in this trade you only put 2% of our money at risk at all times. However we want to put 4% of our money at risk for the best returns possible taking optimal risk (4%). That's where leverage comes into play as a LEGITIMATE tool and not a gambling tool. You already have 100% of your money in this trade, you can't put in more (without leverage) although your risk management tells you to do so. You want to increase your risk from currently 2% to 4% = double it. This means you have to take a 2x leverage. Now you are 200% invested in the trade and if your stop loss of 2% (in price action) gets hit you will lose 2 x 2% = 4% which is the optimal risk we wanted. More in-depth information about optimal risk for fast growth: en.wikipedia.org www.youtube.com
BITSTAMP:BTCUSDEducation
by MagnusTradingGroup
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