Forex Leverage What Is It and Why Do You
If you are new to the currency trading market, then you have probably heard a lot of really technical terms being thrown around, and one of them isforex leverage. What is this leverage that experienced traders speak of, and what does it mean for you?
What is it?
In physics, a lever is a tool that lets you move a massive object using a minimal amount of force; and technically, this is also what leverage in forex trading can do. Leverage is a certain amount of money your broker will lend you so you will be able to engage in bigger trades so you can earn bigger profits. With leverage, it is possible for you to open a $100,000 trading position even when you only have a thousand dollars in your account; this might seem too good to be true, and it is.
Is there a catch to using leverage?
Yes. You need to be conservative when using leverage because the bigger the leverage you use, the bigger the risks involved in the trade. Remember that your broker will only be lending you the money that you will be using as leverage, if your trades do not go the way that you planned and you end up losing money, then you have to pay back the full amount your broker lent you, plus interest.
Is it possible to not use leverage at all?
Technically speaking, it is possible to forgo using any amount of leverage in forex trading, but you should also not expect to make any kind of significant profits as well. You should think of the forex trading marketplace like a huge casino; you need to take certain risks if you want to get a payout in the end, but you also have to make sure you can actually live with the risks you take in case your gamble does not pan out the way you want it.
If you want to make a decent amount of money whentrading in foreign currencypairs, then you will have no choice but to use a substantial amount of forex leverage. Though it may seem daunting at first once you know that you are risking money that is not your own, with a little help and advice from your broker, and a little luck as well, you will learn how to make a respectable amount of money without taking too many risks.
When traders open a forex trading account the brokers dont hedge their positions into the market.
The reason is that the Broker knows that almost 100% of the time the trader will have crashed the account within the first month.
So the Broker keeps the money that was deposited in the trading account.
Thats why on the FX websites, there is 50 explanations of how to deposit money.
But zero links or explanation of how to withdraw profits.
Because Brokers just want new clients to open accounts, deposit money and lose it,
I made an article on this a few weeks ago which I added to this post.
It's critical to note that leverage means you can lose more then your deposit. Many beginner brokers don't realise this and expect the most you can use is your deposit but when you go into negative balance the forex broker can aggressively peruse you to pay up.
Definitely if your a beginner and you really want high leverage make sure you choose a broker with a guaranteed stop loss offer to limit any potential losses.
Guarantee stop loss costs a few %age points.
Hi there. leverage is a very important thing for any trader. But different brokers offer different levels of leverage ( 1:50 - 1:5000). I think the best level is 1:100 and my maximum is 1:500. If your broker offers 1:5000 leverage, it can be very risky. So I can advise choosing brokers with leverage 1:100 - 1:500. As for me, now I'm trading with IC markets US ( https://tradersunion.com/brokers/forex/view/ic_markets/ ), they offer a 1:1-1:500 leverage level.