Buy with 5x/10x leverage?

30th May '20 by Matt Evans1

23 comments 2094 reads

Hi All,

I am new to stocks and shares. I invested a small amount on Oil around a month ago when it was at $15 a barrel with 10x leverage on it courtesy of Plus 500 and sold at various stages but the most recent sale was for my remaining amount at $34 a barrel. I have now paid for Stockopedia and have been fully engrossed in videos, discussions, stockranks etc. and have invested my profit from Oil in around 25 different companies with varying risks to diversify including Royal Mail, Halfords, Ferrexpo, Smith and Nephew, Nio, Barratts, Persimmon, Rio Tinto, BHP etc. I have, however, still purchased these shares with 5x leverage on Plus 500 and Trading212 as I still only have a fairly small 4 figure amount. Would you guys all avoid leverage or do many of you use it? I am just trying to figure out the best way forward for me as I don't have huge sums to put on so the leverage system is riskier but more fun! Would you still follow the StockRanks even though I am using leverage? What are the best ones to look for when buying with leverage? Obviously Plus500 and Trading 212 don't have too many companies on them so I have to only pick the StockRanks that are on them.

I have just bought some books including The Naked Trader so apologies for all the questions, I am just trying to learn as much as I can.

Thanks a lot in advance,

Matt

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redpanda

30th May '20

Simple. I had a huge amount leveraged on Barclays. My laptop (a Toshiba) was over-sensitive and operated itself on vibrations!!!! Yes. It dealt my stock as I watched and I lost £XXXXXXXX. Though I went to the FOS and 4 other official government organisations that are there to help us - and do they? NO. My MP did nothing effective either. My choice was take Toshiba to court or sue IG markets....as if I could afford that! I had no comeback. I lost a fortune through no fault of my own. Spread betting and CFDs should be illegalised but they get the government and the companies so much money, they don't do it. One never hears of anyone getting satisfaction from the ombudsman. They are a waste of taxpayers money. They are immoral, unethical and disgusting in their behaviour. So yes, it's simple, NEVER SPREAD BET OR DO CFDs.

Mike888

TBH leveraged products and novice investor in the same sentence is probably a recipe for disaster.

Reading between the lines it sounds like you are fully invested too, and with 25 stocks that have all been purchased at the same time, with I assume little regard to price action, I suspect you'll probably end up tracking the market. If the market heads south, and with no cash reserves you may well become a forced seller to protect whatever positions you want to keep open. You'll be surprised how quickly margin calls can undo the best laid plans. Also each stock will have its own levels of volatility, if you have jam spread your positions equally you could easily be stopped out (presuming you have set stops) just by background noise.

I trade using leverage and have done for a very long time, I've been burnt severely in my early days, gaping markets and being over leveraged was my sin. I presume you are spread betting, be aware of the cost of keeping your positions open, especially if you are fully invested.

With leverage you survive by money and risk management, I have not read the Naked Trader book but there are norms that most successful traders stick to, so I suspect these are what he states, eg win/loss ratios, calculating maximum position size etc.

I sympathsise with your your desire to grow a small portfolio fast, but be wary of greed and impatience, from my experience it is far better to risk limited capital, learn and live to trade another day, than risk all your capital and burn yourself out. TBH I would struggle to keep on top of a 25 stock portfolio, once you leverage you need to be on top of your portfolio every day as things get bad quickly

Bottom line is, once you enter into leveraged portfolio's everything is magnified, not just risk and reward, but the level of attention you need to place on it, simple things like week to week volatility, ex-dividend dates, announcement dates etc etc all have potentially heightened consequences.

Best of luck

Macro

31st May '20

... Well, assuming that you are a real person with their savings at risk - and not some troll seeking a reaction on a public forum:

- Trading with leverage tends to distort peoples perception of risk and reward on a trade and make it more difficult to set an effective stop loss strategy. What's your Max Risk % per trade? Position sizing?

- At present market volatility is high, so you might want to question why you are throwing petrol onto the flames of already volatile trades by adding leverage?

- Whether using leverage or not establishing a portfolio is a good idea. By that I mean picking a collection of trades that are diversified (i.e. un-correlated). Presumably you have a mix of Longs and Shorts in your portfolio? How do you size your Shorts relative to your Longs? Do you manage trades as Pairs?

- Hopefully you are not Long only at 10X leverage with VIX around 30 and equity markets at the top of the Bollinger Band? Do you have a market timing system?

Presumably you understand that it is possible to lose _more_ than your total account size?

Matt Evans1

Thanks so much for this reply. You have summed up my feelings perfectly and I appreciate your sympathetic view on it. I’ll take all of your advice on board. Thank you.

I’m not a troll at all, I am fully aware that I’m a novice, hence why I asked for the advice. I am mainly only dealing with long at the minute, I’m trying to learn as much as I can and I thought I was more likely to get stung with short deals with most markets on the up at the minute. I’m only using 5x leverage at the moment and have stop losses on all of them (around 10% loss). This maybe a poor strategy but until I do more reading and learn more through advice from people like yourself and maybe the hard way through poor trades then I am unsure what else to put the stop losses at to ensure I’m doing the right thing.
I do only have a small investment in it, I started with a small amount, withdrew that initial stake and how have a small four figure portfolio, all with 5x leverage added to it. It’s by no means my life savings, it’s just a roll to allow me to learn whilst hopefully not losing it all.

William K

I recently heard Anton Kreil talk on Youtube about the 90/90/90 rule that many spread betting firms, Forex and CFD brokers apply to new traders.

90% of new traders lose 90% of their money in 90 days. Typically these traders begin with around $2000 and they get lured into Forex trades with 100x leverage.

Basically they can get wiped out with one bad trade.

They don't have a plan.

They don't understand risk management.

If you want to play for high stakes that's your decision, but it might be worth investing some time in studying risk management techniques - simple things like never risking more than 2% of your pot on a single trade and always using a stop loss. Good luck! I hope you're one of the lucky 10%.

thanks so much for your reply. I stay well clear of Forex and the whole circus that surrounds it with the fake forex advisors with leased cars and subscriptions. I just took a risk on oil to start with and thankfully it paid off. I have stop losses on everything and most of my trades are for around 3-5% of my portfolio, I’m just trying to learn as much as I can, as quick as I can so I’m not one of the 90%. Let’s hope I’m not! Good luck to you too and thanks again.

Chrischip1981

Im sorry but what am I missing here? I dont see that this is IG's problem in the slightest.

UK_Investor_8888

Speaking as a £Plus500 shareholder, the ROCE, StockRank and Yield, plus share price also speaks volumes.

smegster

Seems like investing in Plus500 (LON:PLUS) shares might be a better investment, than investing in CFD's on Plus500 (LON:PLUS) (seeing as over 80% of those who do invest in those CFD's lose money)

This reminds me of the excellent book "Where Are the Customers' Yachts? or A Good Hard Look at Wall Street".

Thank you! Appreciate it.

ISAallowance

"Presumably you understand that it is possible to lose _more_ than your total account size?"

Actually, the new ESMA regulations that now apply to CFD/spreadbetting companies mean that in the UK as long as he is classed as a retail investor then he will not be on the hook for any more than the initial deposit into the account. In addition each account is ring-fenced, so if for example he blows up a CFD account at IG, this is independent from a spreadbetting account that he might hold with them.

Of course, if he manages to get classed as a professional account then what you say is still very true.

1st Jun '20

thank you for clearing this up, this was one of the things that worried me about his reply!

Hartshay

Not my style that approach. As your portfolio grows you will become more risk averse...or go bust..or ...unlikely..get rich quick

oh absolutely! Leverage is definitely not my long term plan. It’s for the short term whilst my portfolio is too small to notice any significant gains in the market. As soon as I’ve (hopefully) built it’s up to a decent amount I will totally bin the leverage off.

Metatron

If you used guaranteed stop losses with spreadbets there is no way one will 'lose a fortune through no fault of their own'.
Spreadbet firms offer user friendly trades on shares,funds , indexes,commodities or currencies which I very difficult to place otherwise as in shorting shares,trading foreign shares,trading raising or falling commodity prices,the volatility idex or cryptocurrencys like bitcoin

Momoko Miyamoto

4th Jun '20

I traded HFD recently for decent profit and bought back in today. It's been hated by the market for years but has a positive trading outlook from cycling, bikes, scooters, staycation driving, older cars. Earnings over next year will certainly beat low forecasts. Royal Mail is a pension liability with a business attached so I've kept clear, also vulnerable to unions. Commodities and miners could be risky if China-US trade war goes on. I think housebuilders are a value trap, house prices will fall a lot after the 30 yr bubble its had. Many have died, gone back to EU or to parents and will lose jobs. BTL and AirBnB are being trashed. Will be many forced house sellers.

Matthew Wood

6th Jun '20

Matt I've been there and learned my lesson - hard! The psychology problem for me was I was only investing relatively small amounts like you but at the time, all the effort of analysis and research seemed too much to make just 5/10/15% over a year e.g. £1000 gain. So I look at CFDs and see a potential 50%+ return for my efforts...now we are talking!

In some months I was making £500+ a month and it was great...when the market was great. It works the other way as well though, and if you don't have tight stop losses set (and KEEP THEM!!!) you will get wiped out. I ended up putting extra money in to keep my margin in check so I could keep my positions open - then one day too many trades went against me and every position I held got closed automatically at the lowest price I'd ever seen them at. Gut wrenching.

I made a catalogue of errors but the key thing is that CFDs don't leave you much room to make errors - hence why if you are just starting out, stick to ZERO leverage. Once you've been trading for a couple of years and made all your mistakes....then maybe utilise some leverage very carefully with appropriate controls.

I read all the books (including Naked Trader) but thought I'd be different and didn't take the advice - I guess it's true that you can only truly learn a lesson when it's levied upon you. You may choose not to take any of the advice here and one day you will likely come a cropper...at that point you will start to invest/trade properly.

bryaz

14th Jun '20

good luck matt but i fear it will not end well i hold plus 500 so do not gain too much

Baron65

24th Jun '20

Matt... i spent an entire career of 25 years working as a partner at one of the largest hedge funds in the world. I think its fair to say that i do understand leverage. My advice to you is if you can succeed for the first year without using leverage, then scale up and take more leverage...incrementally. As you lever up, your margin for error becomes increasingly small. You want to find yourself in a difficult position only once you have some decent experience under your belt. Otherwise, it won't end well.

Buy with 5x/10x leverage?

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Matt Evans1

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