Risk and leverage

On some forums I read that using a financial leverage over 100:1 is crazy, it’s better having lower values, 50:1 or less.

I am not an expert, I write some thoughts on those thoughts.
A standard lot, usually, is 100k dollars. (On cent brokers is 1k dollars)
A minilot is 0.1 lot (10k dollars) and microlot is 0.01 lot (1000 dollars)

Let’s do some examples with numbers.
In our example the dollar goes from 1.4021 a 1.3273 and we have a 1000 dollars account.

Without leverage, I buy a microlot of EUR/USD at $1000 and I use the entire capital.
If I buy $1000 at 1.4021 (€713.22) and sell at 1.3273 (€ 753.41 euro), I make €40.19 euro. (or I could have lost them)

With a 2:1 leverage I could buy the same microlot with $500, and get the same €40.19 gain, not the double.
With a 50:1 leverage, I could buy it with $20, getting the same result.
With a 100:1, I could get it with $10, still getting the same result.
And with a 500:1 I could get it with $2, getting, guess what? The same €40.19 gain.

With all the conditions being equal, the leverage does not change at all the final result.

What’s the problem? It’s that, usually, a such big change of the EUR/USD exchange rate it’s something that happens in a long time, and it’s difficult to predict. It’s favorable getting smaller profits for each trade, for example selling the same trade at 1,3970 and be pleased with a €2.60 gain, maybe buying 1 minilot and making 26 euro. Or you could buy 1 lot (that with a 500:1 leverage is $200), making €260 in a single trade. It’s all about greediness.

I do a borderline case:
With a $105 account and leverage 100:1 I open a minilot trade ($10k of EUR for $100). Boom! Immediate margin call! The broker spread made the trade lose more than it could and it closed the trade.
With the same $105 account but with a 200:1 leverage, opening the same trade makes the €26 profit.
In this borderline case, the 200:1 leverage was safer, because the trade required less capital, and the remain covered the margin.

The conclusion is: with all conditions being equal, an higher leverage is saver than a lower one.

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