| Leverage Forex trading is very highly
leveragable, much more so than futures and stock trading.
It is quite common for individuals to place say $50,000 in
an account and tell the manager to trade it as $100,000. Keep
in mind that while this will double your gains, it also will
double you losses and substantially increase your risk.
In this way you can get several managers trading with one
deposit. Say you put $100,000 in your master account, you
could start Coe trading for $75,000 and Capricorn for $125,000.
Your overall exposure is increased and your risk is heightened.
If you are prepared for the downside, and you are looking
for larger returns, you can use leverage to tailor the expected
risk and return level to suit your personality. Another option
is to leverage down, so you could put in $200,000 and have
it traded as $100,000, this way your volatility and equity
swings will not be as onerous. If you see a manager such as
IFX who only does 8%/year but has small draw downs, you might
overlook him as not aggressive enough. However, if you lever
him up three times, you potentially triple his upside, making
it more appealing to you. Of course you also triple the downside
and the risk, which is a consequence of which you must be
aware. You can easily tailor each manager to meet your investment
objectives and risk tolerance through leverage. Trading your
account as if it were larger than it is called notional funding.
The following table shows the conversion for fully-funded
monthly Rate of Returns to the corresponding Rate of Returns
which would have been experienced by a notionally funded account,
depending on the funding level: |
