What is Leverage/Margin?
Leverage/Margin works by taking your deposit amount and extending you more capital to trade with. Depending on your broker this may be up to 6 times your deposit, so for every $1000 you put down you will have say $6000 to trade with, this is called Leveraged Buying Power. This is something we do not provide or extend as a Proprietary trading firm, all traders are trading our capital rather than their own.
Magnified Losses & Gains
Leverage/Margin is a double sided sword enabling gains and losses to be magnified. Let's say you have a Leveraged Broker Account and you have a really bad day in the market. Due to the lack of risk monitoring or set risk structures in place at a brokers you can lose everything you deposited in one trading session.Therefore it is crucial to ensure you understand the effect and how to manage your risk correctly if trading one of these leveraged accounts.
The Maths Trap
The major issue with a leveraged account is the maths trap. Let’s say you lose 50% of your trading account in one trading day as your at a brokers and there is no risk management in place. The next day you then have half the leveraged buying power and to get back to where you started you then need to make 100% using half the original amount. As you can see this starts to become a uphill struggle using half the number of shares alongside being a potential major psychological downward spiral.
Your ability to capture all the opportunities you see in the market will be directly linked to the amount of buying power you have. Therefore if you have a small amount of money that is leveraged up you will be restricted on what you can capture.
Constant Reinvestment to Grow
With a leveraged account if your trading well and want to increase your size, you need to reinvest all of your profits back into the account to trade a larger size or grow. This means you will need a second income if you want to give off your trading as you grow.
Trading with TraderEquity™ a Proprietary Trading Firm you will have access to Fixed Buying Power, Liquid capital that is NOT Leveraged. If a trader has 6 months of trading experience we can open an account. However if the trader can not show they have trading savvy or experience then they will be required to place a off set to cover these costs. We then typically give newer traders $25,000-$75,000 USD in buying power intra day in our Standard Accounts but can extend any amount to larger traders if justifyable. This means that everyday you can come in with a clean slate and trade exactly the same amount and you avoid The Maths Trap.
We have sophisticated risk management in place to support and protect your chances of success in the market.
With access to that Fixed Buying Power you can then trade and withdraw your profits. If your deemed good enough or we think you have a lot of potential we will offer you a Funded Account with access to more Trading Capital.
All of these issues you may think are small but we’ve seen the profound effects these can have on a trader so at TraderEquity™ we try to tilt the balance in your direction.