I have $5000. I'm looking to invest at 100:1 in US 500. I would like to place my investment and forget about it, so I'm willing to tolerate a 15% price fall, on the premise that it will eventually go back up (like what happened with the war on Iran, for example). Accordingly, I'm looking to invest 300*100 = $30000.
Am I thinking straight? Would you have anything to correct?
Investing with leverage: Am I thinking correctly?
byu/Hopeful-Internal-919 ininvesting
Posted by Hopeful-Internal-919
6 Comments
My brother in Christ, 100:1 leverage is not “invest and forget,” it is “blink and liquidated.”
If you buy $30,000 of exposure with $300 margin, a **1% adverse move loses $300**. Your “I can tolerate a 15% fall” plan does not exist at 100:1 leverage; the trade would be dead, cremated, and scattered into the bid-ask spread long before then.
A 15% fall on $30,000 is a **$4,500 loss**, which is almost your entire account. You are not describing investing. You are describing putting your $5,000 in a wood chipper and asking whether the wood chipper has historically recovered.
Correction: use no leverage, or extremely modest leverage, and size the position based on the actual dollar loss you can tolerate. 100:1 is for short-term speculation by people who understand liquidation mechanics, not “place it and forget it.”
Like, I trade futures. I’m relatively comfortable with 5:1 leverage, with the knowledge that especially in these market conditions my day might be ruined if I do it improperly. That’s “I know I’m juggling knives” leverage.
100:1 is “I have replaced my blood with kerosene and entered a candle factory.”
The funniest part is the “I’m willing to tolerate a 15% price fall” line. At 100:1, buddy, you are not tolerating a 15% fall. You are tolerating a **1% sneeze**. A bad CPI print, Powell making a weird face, or one intern tripping over an Ethernet cable and your position gets sent to Valhalla.
Check with the brokerage you intend to use. They’ll tell you what kind of leverage you can get with an account valued at $5K. AFAIK, there is no leveraged investment you can invest and forget about. They are generally volatile.
lol
Nobody is going to give you 100:1 leverage. Even in the crazy 1920s before regulation, the max was like 10:1.
In a vacuum (which I’m going to assume someone is actually reckless enough to lend you the money for you to go on this endeavor), this is purely a math exercise: you have 5000 and you leverage up 100:1. Your NOTIONAL exposure is 500,000. So your investment goes up 1% then your gain is 500000*0.01=5,000 so 1% change in price gets you 100% return. Flip side is if price drops by 1% then you are effectively wiped out.
> I’m willing to tolerate a 15% price fall
It’s good to know you have such high tolerance but you won’t survive past the first 1% before your trade is done.
100:1. For every $ it goes up you are making 100$.
For every $ is goes down – you are losing 100$.
Same logic applies to %.
You invest 1000$ and stock goes up 1% – you made 1000$. It goes down 1% – you are liquidated.