Swing Traders

Swing traders go into the market expecting to earn a few percent. They like to apply some leverage in order to optimise their trading results.

What is leverage?

Suppose the swing trader has £10,000 on his trading account. His broker allows him to take position up to £50,000.

So theoretically, the trader can buy 5 times more as he has money on his account. He can apply a leverage of 5.

Leverage is buying power divided by cash on the account.

Be moderate with leverage

Leverage allows the swing trader to earn more on a winning trade, but also to lose more on a loosing trade.

Example:

The trader has £10,000 in cash on his account. He buys 1,000 AstraZeneca at £35.00. His position is worth £35,000. The leverage he applies on this account is: 35,000 : 10,000 = 3.5

AstraZeneca goes up 10% and quotes £38.50. The position is worth £ 38,500. The trader closes his position and his gain is £3,500. The return on his cash is 35%. The stock did go up 10% and as the trader applied a leverage of 3.5 his account goes up with 35%.

Naturally, if AstraZeneca goes down 10%, the incurring loss will be 35%.

So therefore, do be moderate with using leverage. Good to know: Succesful swing traders apply a leverage of 1.5 to 2.