everyone so leverage we've all heard
about leverage and a lot of people
asking you know what does it do and why
why be scared of it a lot of people warn
against it so here's the eToro home
screen kind of nice and glossy it is
blue big picture of a mobile and it
seems simple and lovely then I'm down at
the bottom here there's this quaint
ports a little statement now this eatery
wouldn't have put this little statement
here if they didn't have to do by
European law there's ES MA ESMA they
introduced regulations Europe recently
we're making sure that all the trading
platforms and exchanges and brokerages
sort of make themselves transparent they
have to warn the public about certain
things that's what this is it says CFDs
are complex instruments and come with a
high risk of losing money rapidly due to
leverage 65% of retail investor accounts
lose money when trading CFDs with this
provider
so what's the CFD every time on eToro
every time we make a trade using
leverage it turns that trade into a CFD
which is something you can trade we'll
get to what that is later on but you
should consider whether you understand
how CFDs work and whether you can afford
to take the high risk of losing your
money that's a very stark warning that's
not that's not a small thing for them to
have to put then it's quite serious so a
lot of people ask you know what's
leverage and why is it so risky so this
leveraged sort of you know bad is evil
oh is it magic now now is it all it is
is it's a way of amplifying your trade
sizes see you if you have $100 and you
use times five leverage it's like you're
trading with $500 you know the problem
with that what's the problem it's
because well we knew we don't know what
we're doing all right so there's two
main things which affect traders really
and how they trade the big sort of
stimulators tend to be greed or want to
make lots of money we all have it and
fear I don't want to lose my money all
right
now fear when mixed with a lot of
leverage can lead to blind panic rather
than just fear all right so let's go
let's try Amazon for instance I'm on my
trade market space yeah look we're just
signed up
we see Apple I mean I've heard of that I
don't know what you know what it's about
if I'm new
litecoin which he's looked Kryptos and
things there's Google there's Facebook
I've heard of them this is lovely
everything that was colorful everything
looks clean and friendly and it could be
a bit deceptive so let's go to Amazon
I've typed in Amazon I go to it here so
when we knew if I go to this is the
price of one Amazon stock 1758 I can go
to the trade screen here a little bottle
big button says trade and I can place my
trade now I haven't got this much money
as it shows here I'm in my virtual
account which you can go to here to
trade between virtual and real just
because I'm gonna make some dummy trades
and showing you what leverage will do
and I wanted to sort of be able to make
that and not have to worry about losing
lots of money
here's Amazon I go to the trade screen
and here's where we can simply buy stuff
it all looks very very simple and here
there's some buttons so here's the place
where I can see the amount that it costs
Amazon is currently 1762 dollars for one
share of Amazon all right let's say I go
to another one let's say I go to Netflix
they all show that number in the top
left so Netflix is 294 for one share
Facebook is currently 142 point one four
you see the number changing that's
because the markets are live these are
live numbers you know so everything has
its own number its own price for one
share so in the trade screen that's what
that is that's the current price for one
share this the amount is the amount of
money I'm about to place a trade with I
want to place a trade for $500 stop-loss
is an automatic thing where if I lose
this much get me out of the trade you
can set it for the trade or you can
change it whilst you're trading take
profits the other way around
I want to make I'm gonna make this
amount of profit automatically cut it
off when I make this much money by
default it's setting that as 50% of my
size and this one also is 50% of the
amount of money I'm putting it here's
the leverage button all right leverage
times 1 times 1 means I'm not using any
leverage at all times 1 then it just
means I'm not using leverage times 2 I'm
using 2 times leverage so watch the
unit's change
0.28 units times to 0.57
units and buying double the amount times
five one point four two units okay so
it's times one times five is five times
that one point fourteen is here if I
click times ten it won't let me do it
it's because Europe put in regulations
recently again those ESMA rules
Concepcion yes ma trading rules or
something and they limited the amount of
leverage that new people could use to
try and stop this problem of new people
using too much leverage panicking and
just wiping out their accounts the
majority of new traders apparently using
leverage blow their accounts as lose all
their money terrible thing so here if I
want to use enable high leverage trading
I have to click continue have to answer
a bunch of questions which prove that I
know how to trade or have some financial
training and then I can use the high
leverage if I satisfy those requirements
I don't so I'm going to go back so I can
use times one times two times five if I
was trading Forex like sterling against
this currency pairs I can use different
amounts of leverage they indices
different amounts of leverage it depends
on the assets they'll have different
amounts of leverage available to each
okay and it usually depends how volatile
something is so the more something moves
up and down that different things a
different volatile they move up and down
in during the day or the week of a month
they're different you know
so stocks are very volatile they move up
and down a lot naturally so they will
only let you amplify that by smaller
amounts you see because that's what
leverage does if you're winning you will
win much faster if you're losing you
will lose much faster the velocity of
how fast you win or lose gets higher the
higher leverage you use and this is the
problem for new traders all right so
let's say I go back to Amazon and I'm
gonna go here this shows you the
statistics for amaz and this is Amazon's
trading page this shows you their chart
all right now on the chart it shows you
I can click this and I've set it to one
day so each of these little what they
call candles these little bars is shows
one day of activity where it's red it
means it went down and value is started
on the top of the candle and went down
value over the day where it's green is
started at the bottom of
and I went up in value over the day okay
so do you as a newcomer knew how know
how to read these chats I know I did I
had no idea all right you can change
this one day you can have one minute
charts or you can have fifteen minute
charts or you can have one week charts I
didn't know how to read these chats when
I came in and most new people don't
write so what happens the problem is
that I would use see how this line goes
up it doesn't go up completely straight
does it it sort of goes up then down
then off a bit then down down and then
up then down then up then down up it's
generally going up but it doesn't get
there in a straight line now experienced
trader who studied what they call
technical analysis which is looking at
these charts and understanding the way
things move because there are patterns
in how things move and why you people
buy and sell at certain times you study
technical analysis you'll know if you
haven't you're going to look at these
charts and it's like like tossing a coin
I don't know you'd be right 50% of the
time so why not you know why not is
because the really experienced people
aren't just flipping a coin okay they
understand generally how things move you
see and they'll be able to sort of
predict so if they buy Amazon here and
it starts dropping they won't just oh my
god Senate and panic it causes a great
deal of panic to be seen your money
dropping very quickly very suddenly and
that panic can make you close the trade
when you shouldn't you should hold it
open maybe this is not investment advice
but maybe hypothetically you should hold
it open and the price will go back up
and you'll make lots of money but okay I
opened earlier on three trades in Amazon
okay the time is now roughly it's just
after four o'clock okay so I open these
three Amazon trades to sort of show this
effect all right so at 3:30 I open that
one for 500 same time exactly 3:30 open
that one for 500 3:30 same time open
that one 500 this one here the top one
has no leverage on it times one leverage
this one here the second one I've put
times to leverage on that one this one
here this one here I've put
times five leverage honor okay this one
is five times five leverage you can see
it in the unit's times one got me 0.28
units times two got me 0.5 six units and
times five got me one point four one
units right this is just I open these
maybe just over a bit over half an hour
ago the first one has lost 396 the times
to leverage has lost 790 the times five
leverage has lost 1896 see it changing
1933 alright so this really this is like
just over half an hour ago and you can
see the difference in how much they're
losing now obviously there are some fees
associated with trading which I'll go
into in the next video but most of this
is because Amazon has gone down in value
since I opened it and you can see that
all of these are five hundred dollars
spend the same amount on each one but
because I used leverage this one times
two it's like I'm trading with a
thousand dollars this one times five
it's like I'm trading with two thousand
five hundred dollars 5 times 5 mm on
drew so there we are it's dropped more
now this effect but when you're a new
trainer when I was new because I did
this a lot with gold when I started
which is highly volatile when you see
yourself losing money too quickly the
temptation is the panic because you
don't know what's gonna happen next you
don't know it's gonna go up or down you
don't know what charts mean you know how
to read that stuff so you can close the
trade when you really should hold it
open for like another two hours a two
hours time it might go up but by
panicking and closing it you start to
lock in losses and you lock in more then
you I was trying to trade bigger to get
that back and you start chasing your
losses greed and fear and greed and fear
and it's very easy to wipe out your
account so that is why they they caution
against leverage it's not because
there's anything wrong with leverage
it's because the combination of leverage
and not knowing what's happening is
dangerous leverage and knowing what's
happening fine but in the beginning to
use it before you know it's happening
it's it's it's it's dangerous because of
your emotions because of your reactions
to when the market turns against you
really so there's those three what I'm
going to do is I'm going to train
break this up because you know there'll
be a lot to digest in the next video
what I'm going to talk about is the fees
so we have the spread fees which were
charged on all trades but over here you
can see that amazon there's times one
just says amazon the times two and the
times five both say CFD next why is that
so what's a CFD and what are the other
fees associated with losing leverage
there's the general emotional risk and
panic and fear that comes with using
leverage but what are the fees that are
also associated with it all right so
I'll discuss those in the next video did