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Thomas Bulkowski’s successful investment activities allowed him to retire at age 36. He is an internationally known author and trader with 30+ years of stock market experience and widely regarded as a leading expert on chart patterns. He may be reached at

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Busted
Patterns
Candles Chart
Patterns
Event
Patterns
Small Patterns
Market
Industrials (^DJI):
Transports (^DJT):
Utilities (^DJU):
Nasdaq (^IXIC):
S&P500 (^GSPC):
As of 10/20/2017
23,329 165.59 0.7%
9,972 85.59 0.9%
749 1.35 0.2%
6,629 23.98 0.4%
2,575 13.11 0.5%
YTD
18.0%
10.3%
13.6%
23.1%
15.0%
Tom's Targets    Overview: 10/16/2017
23,700 or 22,700 by 11/01/2017
10,300 or 9,700 by 11/01/2017
775 or 725 by 11/01/2017
6,700 or 6,500 by 11/01/2017
2,625 or 2,525 by 11/01/2017

Written by and copyright © 2005-2017 by Thomas N. Bulkowski. All rights reserved. Disclaimer: You alone are responsible for your investment decisions. See Privacy/Disclaimer for more information.

Leverage Use in the Forex Market

How does the use of leverage affect profitability in the foreign exchange market?

This article is based on the writing of James Stanley in his article Three Rules to Risk Management as published in the July 2014 issue of Technical Analysis of Stocks & Commodities magazine.

When I read an author support his theories with statistics, I love it. Stanley did just that in his article. I'd like to share some of his findings with you.

The article is based on research conducted by FXCM.com. "FXCM is a registered Futures Commission Merchant and Retail Foreign Exchange Dealer with the Commodity Futures Trading Commission and is a member of the National Futures Association," according to their website.

The study included data from 2000 to 2010 on more than 12 million trades in the most heavily traded currency pairs. Here's what they found.

  • The percentage of winning trades ranged from 49% (in AUD/JPY) to 71% (in AUD/NZD) of the time.
  • The average win was 52 pips but the average loss was a whopping 94 pips, or almost twice as large. The largest gain and largest loss was in the EUR/USD pair with profits of 65 pips and losses of 127 pips. None of the 16 currency pairs they reported on showed traders making more money than they were losing.
  • As the use of leverage increased, the percentage of profitable trades decreased. See Table 1 below.
  • As the account size increased, the use of leverage decreased. See Table 1 below.
Table 1: Statistics
 Highest Equity  Average 
 Trade Size 
%
 Profitable 
 Leverage 
 $0 to $999 $26,00021%26 to 1
 $1,000 to $4,999 $30,00033%6 to 1
 $5,000 to $9,999 $54,00037%5 to 1

The above table shows how the use of leverage decreased as the size of the account grew. As leverage decreased, the percentage of profitable trades increased.

I wonder if this behavior trend continues for larger account sizes....

-- Thomas Bulkowski

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Written by and copyright © 2005-2017 by Thomas N. Bulkowski. All rights reserved. Disclaimer: You alone are responsible for your investment decisions. See Privacy/Disclaimer for more information. Everyone talks about apathy but no one does anything about it.