Forex trading with leverage

Forex trading with leverage

Many consider it extremely difficult to make reasonable profits unless you are able to provide a minimum of $ 10,000 to start trading in Forex. For example, if your account balance is $ 100, you will earn only a few profits, probably no more than $ 1, even if the currency you bought has risen substantially and earned 100 pips. Of course, the profit of one dollar a day is not worth wasting your time, leaving no choice for traders to use only leverage.

Leverage can be defined as a tool that allows to double the volume of investment in open positions. So instead of just investing $ 100, the brokerage firm allows you to borrow additional funds and open up to $ 10,000. This means that if the currency pair moves in your favor by 10 pips, then you will make a profit of $ 10 if you use a leverage of 1: 100.

In other words, the Forex trader's leverage gives a great ability to double profits by leveraging other people's money to increase investment volume, thereby maximizing the use of currency movements.

The proportional risk

Brokerage firms offer different levels of leverage, but it is important to take this important tool very carefully, especially in times of severe volatility. The leverage works in both directions, as it can multiply your losses in the same way as your profits. If we go back to the previous example, moving the market against you by 10 points you lose $ 10.

Forex trading with leverage

Forex-based leverage strategies require that you choose the optimal ratio after determining your degree of risk tolerance. Risk is therefore the most important factor when using leverage, especially as it increases in parallel with increased potential profit opportunities.

Application of this rule assumes the use of a high level of leverage with stable currencies and reduce them with currencies that usually experience a high degree of volatility. Using the leverage continuously requires that the trader is sufficiently familiar with the Forex market, especially since the unwise use of this vital tool may result in clearing the account balance in just a few minutes.

Tools available to the regular trader

In recent years, technical development has allowed ordinary traders to access a range of trading instruments that were previously limited to major players in the foreign exchange markets, which has helped the broad popularity of Forex. At the top of these instruments is the financial leverage, which before the advent of the Forex market was isolated in the hands of large companies and investors who have huge assets to buy and sell huge amounts of currency. The difference with the leverage came as anyone could join the trader queue as long as he was able to provide a reasonable amount of money to open an account and trade in the Forex market.

Most forex brokers provide their clients with the ability to use leverage tools in trading. The use of leverage does not require much skill, but the most important thing is to know exactly what you will do before opening trading orders, because this ease will not protect you from heavy losses in just a few seconds just because they are overused. In fact, this is the biggest problem experienced by most new traders, so be sure to take advantage of the advantages of leverage while avoiding serious disadvantages.