What Is Leverage In Forex Trading

[moonchild]

Forex leverage in simple terms means using a small account to enter large trades as long as the trade is going your way.



For example, if you enter a 0.01 lot size and it went according to your analysis, you can double your lot size to 0.5 lot size to maximize your profits and I think it's a very cool advantage in Forex Trading.



So if you believe so much in your analysis or if a currency pair is on a free fall, which means after a currency pair has passed a support or resistance then one can leverage his account to make more profit.



But on the other hand leveraging can be a double edged sword, because as we all know how unpredictable forex can be,it is careless to do because any time a reversal occurs that's the end of it and you will lose all your account.

It's very advisable to make sure you know what you are doing before leveraging your account, if you are not an expert in Forex Trading you shouldn't even think of leveraging account because most times you'll end up losing your account.

Leverage works best when you understand forex very well and you can afford to risk you account.

 

[Jasz]

Great! Leverage is a trading technique that allows traders to increase the size of their trades beyond what they would be able to afford with their own funds. In a forex trade, leverage can be used to magnify profits or losses. It’s also important to understand that while it may sound like a good idea to use leverage in your favor, it can lead to unexpected losses if you’re not careful.

The use of leverage can magnify gains and losses, making them more significant than those without leverage. Leverage comes in two forms:

1. Margin: Margin is used by investors who want to control large positions without having the money upfront. It involves borrowing money from your broker so that you can trade larger positions than normal. For example, if you have $2,000 in your account and want to buy $10,000 worth of stock, margin lets you do that by using only $2,000 as collateral for the remainder of your position — which means you don't have to have all $10,000 on hand at once.

2. Leverage: Leverage refers to how much money you put down in relation to the total value of the contract being traded.

 

[Suba]

In my opinion, leverage in forex trading, will lift your trading power higher than the ability or capital you have. Many people also refer to leverage as borrowing money for trading capital. For emotional forex traders often take big risks by using high leverage and hoping to make big profits full of speculation. To calculate leverage you only need to divide the total nominal of your open position by your trading capital. Moreover, in the forex market many brokers offer leverage as high as 1:100.

Although there is leverage but we still need large capital to enter the forex world at least US $ 10,000, if we only have capital under $ 1000 it may be very less profitable, because of small pips or only a few cents of the exchange rate. That is why forex transactions must be carried out in large amounts. Leverage must be adjusted to your needs and abilities, because leverage is a type of loan so you must be able to complete your responsibilities to the broker, so as a forex trader you must be careful and smart to determine leverage or how much ability you can borrow and when you will pay it. Experience will make us smarter in trading, keep learning and practicing to be able to apply risk management.

 

[Jack Reacher]

Enthusiasts never stop earning knowledge because they know the reality of trading. Apply your obtained knowledge on demo account to judge whether it is right or wrong. Every broker allows traders with a demo account for the assistance of practicing. Eurotrader offers traders free educational program and a smooth trading environment

 

[FXOchartist]

Leverage could give benefit for retail traders, in simple explanation leverage is like as trader borrow the money to the broker to making bigger volume transaction. In simple example, the bread's price is 1000, then because using leverage 1:100 hence trader only need to spent 100 and not spent 1000.

However in forex trading, leverage can become double edge of swords, High leverage could boosting the profit but the risk also very high. When trader being greedy, high leverage allow them to open bigger position size and quickly make narrow free margin and will face margin call quickly. In FXOpen maximum leverage is 1:500

 

[Asahi]

Earn knowledge on how to use technical tools properly.Use technical tools on demo account whenever you have enough time because it is helpful ultimately. Eurotrader supports their traders in every possible way so they can derive sufficient amount of profit from the market.

 

[Exoculate]

Although 100:1 is the most typical leverage ratio used in forex, starting with 50:1 is advised. With currency movements, this is a lower risk option because it takes a full 2% price movement to wipe out your initial investment.
Keep in mind that the 12th Principle of Prosperity is leverage. It enables you to move money through your assets more frequently. Additionally, it enables your money to perform multiple tasks, which increases your cash flow. You can access deals that you might not otherwise have thanks to leverage.

 

[Dita Walczak]

Leverage is a great facility provided by brokers but we shouldn’t misuse this facility because a misuse of leverage can lead to balance crash-alike incident. Traders should use a minimum leverage to earn moderately. Eurotrader provides flexible leverages based on account types.