Currency Trading vs. Casino Gambling

The first aspect of our leverage myth refers to the belief that a high leverage can work in favor of the trader, and even compensate for losses in periods when trading does not give the expected results. A trader that is aware of what leverage can do for him may tend to increase the size of his trades as losses accumulate, hoping for a recovery in the very last moment. This approach can only work against the trader, and usually leads to margin calls and huge losses in trading accounts.

Whenever a trader tries to apply a casino player mentality to trading (on purpose or not), the probability of his success is in fact much lower than if he were gambling in a casino with a 50%/50% chance. The explanations are complex, and we cannot go into details here (our money management courses explain this thoroughly). Still, something is certain: the higher we set the leverage, the more our trading resembles casino betting. And I doubt any serious forex trader would like his results to be a matter of sheer luck…

OK, so why is high leverage dangerous? First, it gives the tradertrader the power to boost his results beyond all reasonable boundaries, making the very idea of a trading plan ridiculous. Why should one try to achieve consistent results when with only ONE, highly leveraged trade, anyone can double his account size overnight? That may of course be true, but the real question is: while it may be possible to do that, how PROBABLE is it? And, most important, which is the RISK associated to such an approach? We are not talking about 50% chances of success in this case, but in fact something closer to 20%… Again, I doubt that any would confidently go into the market while knowing that the probability of his success is somewhere around 20%… Trading on very high leverage is actually not at all like casino gambling: it is much worse in terms of risk/return!