Funded Trading Blog #2: Leverage & my first day trading

Hello everyone, and welcome to the second chapter of my trading blog. In case you missed the first installment (which you can find here), this blog is a journal of my quest to become a prop firm trader with a 6-figure funded forex trading account. This quest begins at pretty much the earliest stage possible, as I’m beginning with a 14-day free trial account from FTMO before I pay for the evaluation.

Trading blog #2

The power of leverage

Before I talk about my results today, there’s something else I want to discuss first: leverage. My 14-day free-trial account is the FTMO Swing, which offers maximum leverage of 1:30. Leverage on the standard account is 1:100.

In particular, I want to discuss why I think this is awesome.

A bit of background info: I have a real FX account. Its first and only deposit was $200 USD. Its leverage is also only 1:30.

Obviously, the lower your leverage, the greater margin you need in order to open trades.

What this means on my 1:30, $200 account is that it’s basically impossible for me to open more than 0.02 standard lots in total, at least on gold.

That’s either a single trade of 0.02 or two 0.01 trades. I can’t open any more, because I simply don’t have the necessary equity to use as margin.

Why I respect low leverage

By restricting the size of my trades, the lower leverage also acts a little bit like a risk management tool. Because of course, if two different size trades of the same instrument have the same stop loss, the loss from the smaller trade will have the smaller loss.

I am obviously not saying that lower leverage means you’re less likely to lose money. That is always possible. You could have no leverage on your account whatsoever, and you could still lose every penny. (Which is why you never trade with money that you can’t afford to lose).

But what I am saying is that lower leverage makes it much harder to take on trades where a single position going against you could wreck your account.

Obviously, you shouldn’t really be taking on positions like that anyway, if they expose you to that amount of risk. The point is though, is that low leverage makes it much harder to do that in the first place. It doesn’t matter if you’re tempted to do it – it’s just not possible.

The proof

This isn’t just me saying that. I’ve got the experience to back this up.

A few weeks ago on the real account, I took a 0.02 buy trade on gold that went from $1842.35, and hit the stop loss price of $1830. This resulted in a loss of just under $25.

This in turn was a loss of around 10% of the overall account balance.

You don’t need to remind me that this wasn’t smart. Risking and losing 10% on a single trade was not good risk management.

But what if I had done the same thing with more leverage?

Let’s say I was on 1:100 instead of 1:30, just over three times more.

It would have been possible to open a 0.06 trade. And at the same prices, it would’ve resulted in a loss of almost $75.

Now this loss would’ve meant saying goodbye to around 30%, which is frankly catastrophic. I would find myself having to dig myself out of a huge hole. But thanks to lower leverage, I wouldn’t have been able to open this trade in the first place

On the other hand, the 10% loss – while still a considerable drop in capital – was not insurmountable. I’ve recovered the loss and the account now sits at the highest its ever been: at $288.87

The fun part

And this is where I find things really interesting.

I only opened the account two months ago. In that time, I’ve increased the account balance by just under 45%. That’s a huge proportion.

And yet all this was done with trades no larger than 0.02.

Personally, I find this absolutely spine-tingling.

Because, for me, it’s the black and white proof of how important being patient and being consistent is, and how, over time, small gains add up to make a huge difference. I’m reminded of the story of The Tortoise and The Hare.

One of the amazing things about forex trading is how much you learn about your personality and how your mind works. And perhaps most importantly, you begin to spot how they can make or break your trading success. After all, ability is nothing without the right mindset and attitude to support it.

And there’s something else I find interesting about these trades: they were incredibly unemotional. In fact, I would even go as far as saying that they were boring. Because they were so small, there was no emotional charge behind them. I had no impatience regarding any gains and no anxiety regarding any losses. This made it even easier to switch off from them.

However, I can’t pretend I’m not excited about seeing how far I can grow the account, and what it could look like in another two months’ time. I definitely feel that 1:30 is the sweet spot for me, in terms of leverage.

Anyway, back to business, or at least the free trial version of it.

Trading blog – day 1

My instrument of choice is scalping gold against the US dollar. The account was up and running as of the previous post, but I didn’t start trading straight away. While there were some setups that did prove to be profitable, yesterday was the day of the G7 meeting. I felt that the price would have been unpredictably vulnerable to any potential announcements from world leaders that day. Of course, it’s always great if you can ride the length of a new trend or key world event, but with commodities such as gold and oil at the forefront of politics due to the war in Ukraine, this was a little bit too much volatility and risk at the beginning for my liking.

Looking back at the day, I think this uncertainty was clear in the market itself, as gold was trading in a relatively tight range on Tuesday. It spent the majority of the New York session consolidating between 1818 and the mid to high 1820s.

The day itself

I opened some trades but something came up that took me away from my desk, and as the trades weren’t running at a loss, I thought I may as well close them and did so at a small gain.

Placing the first trade activated my 14-day free trial, which means that it officially started on June 29th, and its last day will be July 12th.

I managed to capture the descent from roughly the top of the day’s spike at $1831 down to $1826, which netted $292.

I then managed to capture some movement from the afternoon’s support of approximately $1816, closing each trade with a $2-$3 price gain.

My gain for the day was $1,309.63, which is an 0.65% gain of the starting account balance.

I can only hope that things go the same way when I do this for real, because I couldn’t have asked for a better start. Let’s hope day 2 is a repeat. Looking forward to telling you about in the next installment of my trading blog.