Ever dreamt of fine-tuning your investment strategy to fit your risk appetite like a perfectly tailored suit? Imagine the power to choose your leverage, not dictated by your broker, but aligned with your financial comfort zone. Welcome to the intriguing world of programmatically picking your own leverage - where financial autonomy meets calculated risk.
Delving into the realm of leverage can be both exhilarating and nerve-wracking. Consider this: a leverage of 1:30 amplifies your investment, making a $2,000 position equivalent to a $60,000 play. Exciting, right? But hold on - a mere 1/30 drop in the asset's price, and poof! Your entire investment evaporates as the broker intervenes with a stop out.
Now, let's tailor this to your liking. A 1:2 leverage allows for a sweet spot - a balance between maximizing earnings and minimizing the risk of a stop out. A price drop of just 1/2 could spell trouble, but it's a risk worth taking in your quest for optimized returns.
Here's the kicker: not all brokers offer the flexibility to handpick your leverage. Fret not, as I share the workaround that empowers you to seize control of your financial destiny. Let's dive into the first installment of unraveling the secrets behind programmatically picking your own leverage.
Imagine this: you're excited to invest $1,000, but your broker says, "Hold on! You can only do it with a 1:30 leverage." Now, using leverage sounds good, but 1:30 feels like too much risk for comfort.
You want something more balanced, not too risky. Going for a 1:1 ratio is too plain; you still want the perks of leverage but in a safer way. The tricky part? Asking your broker to change the settings is like navigating a maze blindfolded - super frustrating!
But fear not! We're on a mission to free you from this hassle. In the next part, discover a clever trick to choose your leverage without dealing with broker headaches.
Let's break down the complexities and simplify our approach in this first part of the solution. We'll work under a set of assumptions to streamline the process:
Now, let's address some simplifications. The first two conditions, a bit tricky to eliminate, might get their own spotlight in a future second part. The third condition, regarding splitting our balance, is a bit too basic to dive into here, can be achieved quite easily and maybe I will dive into it in the future. The fourth condition is broker-imposed - we're assuming the broker won't play nice and allow us to risk their margin without consequences. We want to stick to the worst-case scenario for a solid mathematical methodology. Lastly, the fifth condition aligns with the logic of math - no negative leverage, and you can't snag a bigger leverage without the broker's lending hand.
Let's dive into a practical example to demystify the process. Imagine an account with a balance of $30,000 and a formidable 1:30 leverage. The goal? Invest the entire balance, but without dancing with any leverage risk.
If we attempted to open a position using the full balance, the broker would swing a position of $900,000
(balance
* leverage = $30,000 * 30)
Effectively, this would be like borrowing 29/30 of the trade amount from the broker. A price drop of just 1/30 or 3.33%, and bam! The broker shuts us down, and we kiss our entire investment goodbye.
Now, let's outsmart this. Opening a position at 1/30 of our balance, which is $1,000 in this example, magically balances the equation. The broker opens a position of $30,000
[(balance/30) * leverage = ($30,000/30) * 30]
investing our whole balance. The unused portion, aka free margin, stands at precisely 29/30 of our initial investment. With enough free margin, even if the price dips below 1/30, the broker refrains from pulling the plug, giving us a chance to weather the storm until prices goes up again. Note: A stop out signal will only trigger if the price somehow hits zero (which is an unlikely scenario unless your symbol reaches rocks bottom - a stop out would then be the least of your worries).
Let's simplify further. Given a balance of x and a leverage of 1:y, open a position using x/y of your capital. In MQL5 language, it's as straightforward as
(AccountInfoDouble(ACCOUNT_EQUITY) /
AccountInfoInteger(ACCOUNT_LEVERAGE))
This strategy grants us the power to invest with a 1:1 leverage, regardless of the broker's predefined leverage settings.
Now that we've mastered the art of investing without leverage (1:1), let's explore the realm of custom leverage - a sweet spot between amplified returns and controlled risk, free from the shackles of the broker's default settings.
Building upon our earlier example, suppose we yearn for a leverage of 1:2. In simple terms, we want to invest double our balance, with the broker chipping in the missing half. Sounds easy, right? But remember, if the price drops by 1/2, we're back in the danger zone of losing it all.
Applying the logic, if we previously opened a position using 1/30 of our balance, doubling the initial capital spent opens the door to a 1:2 leverage. In numbers,
[(balance * new leverage / old leverage) * old leverage = (30k * 2 / 30) * 30 = 30k * 2 = 60k]
Now, aiming for 2/30 of the balance as the required margin, we maintain 28/30 as free margin, while the remaining 30k completes the 60k position, courtesy of the broker.
Let's generalize the approach further. Given a balance x, original broker leverage 1:y, and a desired new leverage of 1:z (where 0<z<=y), open a position using (x/y)*z of your capital. In MQL5 language, it becomes
(AccountInfoDouble(ACCOUNT_EQUITY) / AccountInfoInteger(ACCOUNT_LEVERAGE)) * newLeverage
What makes this approach fascinating is its flexibility. You can open positions even with fractional leverages - imagine a leverage of 1.5, risking a stop out only if prices plummet by 66.66%. The possibilities are diverse, offering you a nuanced control over your investments.
Bravo! You've dipped your toes into the world of custom leverage, transforming the once complex into a manageable strategy. But hold on, there's more in store for our financial adventurers.
Join me in part 2 as we unravel the simplifying aspects of this groundbreaking solution. Our goal? Extending this approach to multiple positions within the same account, even dabbling in the territory of short positions. The journey continues, and the financial landscape is ripe for exploration!
Until then, happy investing!