Using leverage

The Forex market has been the most popular of all exchanges over the past few years. The Forex market offers excitement that anything is possible – far more important than the stock market or options trading. A sense of being able to achieve great things from a small start in Forex comes from a lever. The possibility of leveraging is high on Forex.

Because each currency usually shifts its value only in small amounts – 1% or more – every day, traders seek significant profits by using leverage.

Using leverage on Forex is standard, and it’s one of the elements of Forex trading that you have to become an expert at doing it to be successful.

What is the leverage?

Traders who place orders are worth more than the money in their account using leverage. This means that brokers lend the same amount to multiples of cash deposited by traders. This allows the trader to take a more significant, more risky position, give him the possibility of generating profits higher than usually is permitted by his investment.

With leverage, a trader who has deposited $ 1,000 can place an order for $ 100,000 or more.

Each broker establishes their policy whether to offer leverage to specific traders and how much leverage is possible. Some brokers allow traders to increase up to 50 times their deposit; others may reach 500 times.

It is important to note that you, as a trader, do not have to utilize the full amount of leverage offered by the broker. You fully decide how much you want to borrow from the broker.

Temptation and risk

With higher leverage, the risk increases. It is essential for traders to use their strategies and common sense to use as much leverage as they need but not more than they can take risks.

Consider that 100 times leverage means that a trader deposit of $ 1,000 can be used to place an order of $ 100,000. This means that a change of 1% in the current market value will create an effect equal to 100% of the value of the trader’s investment – whether it is profit or loss.

By using leverage, a trader can double or multiply his deposit very quickly, in just a few minutes. At the same time, the same trader can lose all of his deposits rapidly.

This makes Forex trading potentially very profitable but also very risky. Even traders with a lot of Forex trading experience can be trapped in the potential for large profits and deviate from their plans. This can result in a significant victory … or a big disaster.

Our own experience on the Forex market over the past few years has taught us that markets can be very unpredictable. Choosing the wrong position under a strong influence can be disastrous.

The best plan is to use leverage but do it wisely.