Archimedes said, as I’m sure you recall, ‘Give me a big enough lever and a place to stand and I will move the world’. What he did not note was that in the process he might throw the planet off its orbit with a catastrophic result. He certainly used levers to upend the Romans.
In markets it is simple: ‘Leverage kills.’
If you lever up your position 1,000 per cent, a 10 per cent move against you will lose you everything. A 10 per cent move in your direction will double your money. Greed is, of course, the one side of the trading coin that this risk/reward ratio speaks to most loudly. It is a trap set for anyone foolhardy enough to reach for more returns than are usual.
Markets wobble. They do so because the process of markets is noisy. Leverage amplifies that noise and noise is power law distributed, or enough in that zone that at some point a burst of noise will strike and give most people a bad day, month or year. With leverage that nasty burst of noise...