Leverage Down??

Algoinsights Blog, Forex trading, Leverage, Money Management, Risk Management

From 2nd Oct 2019, the leverage for Forex trading with licensed FX brokers in Singapore will be down to 20 times for retail traders and 50 times for qualified Accredited Investors.

Many retail traders were all shocked and unhappy with the new leverage change. To them, it is a loss for them to trade bigger and make more profits.

So, is the reduction in leverage a good or bad thing?

A welcome move

In my personal opinion, I welcome this move by the Monetary Authority of Singapore (MAS).

To me, it is a good move by the MAS.

To really appreciate this action, we must look at the whole picture. We cannot use a tunnel vision of ourselves and see things only from our own perspective and for our own interest.

Leverage abuse

Since I started to get myself involved with Forex trading about 10 years ago. I have come across many retail traders abuse the leverage in their trading career.

Most of them do not really know the power of leverage. To them, the higher the leverage, the bigger the trade size, the bigger the profits.

While this is true mathematically, the reverse is true as well when it comes to losses. They were just too blinded by the profits. They have forgotten that leverage works both ways.

The power of leverage

Leverage is a powerful tool in the good hands of a disciplined trader, it is however a terrible tool for a retail trader who is only blinded by profits.

Good, profitable traders DO NOT require to have high leverage in their trades to achieve their required returns. In fact, they want the leverage to be low as part of their efficient risk management.

It is only those retail traders who have not be profitable and wanted to have high leverage to “recoup” their losses fast. In most cases, they fail to do so and more often than not, they crashed their trading accounts over and over again.

Another reason they wanted high leverage is due to the fact that, the higher the leverage their brokers give them, the lower their capital needed to start a Forex trading account. As such, most of them have very little money in their Forex trading accounts, from a few hundred to a couple of thousand dollars only.

In my opinion, the high leverage offered by brokers have indirectly attracted many people who are NOT suitable to trade the Forex market at all. They range from students to retirees.

Most of them are NOT financially prepared to face any financial losses. They trade with the money they cannot afford to lose. They trade with the money they need for next month’s instalment repayment etc. As such, many have lost their minds when they lost their trading capital.

They came into the Forex universe because of low entry barrier and they just want to try their luck in the Forex market based on what they heard from the market Forex “gurus” said as “easy money”. They came in with the mindset of a gambler and treated the Forex market much like our casinos to “hopefully” ease their financial problems. This mindset is all wrong. I believe our authorities have noticed this phenomenon as much as I do.

In the right direction

With low leverage from 2nd Oct 2019, many small retail traders will either have to top up their trading accounts to match the new leverage level to continue their trading activities or they have to stop trading and leave the Forex trading universe altogether.

As far as ALGOINSIGHTS PTE LTD is concerned, we are glad to be moving in the right direction. Having served and prospered many retail traders in Singapore, we have decided to shift our focus to only serve qualified Accredited and Institutional Investors with our proprietary suite of trading algorithms from Sept 2019. This shift of focus is to take ALGOINSIGHTS PTE LTD to the next level in the Forex trading universe.

Prosperity to all.

Thank you.

Victor Ang