What is leverage in Forex?
Leverage is the most interesting feature of forex market, so it would be better for you if you’d get to know exactly what is leverage in forex? Probably this is going to be your Leverage is actually the ability to make large market transactions using little capital in your account. Forex brokers provide leverage with market access for medium-sized investors. Many traders do not have the opportunity to start Forex trading with $10,000. If Brooklyn provides a trader with a leverage of $200 (1: 200 leverage) per trader, then the trader can control a $10,000 deal with just $50.
How does leverage bring you losses?
The leverage acts like a sharp edged sword, either in favor or against you. If you trade with a trading bundle of $ 10,000, the value of each pip is $ 1. If you get 5 pips, everything is great, and you’ve been using $ 50 for 10%, and if you lose 5 pips, you’ll lose as much as 10%.
Thinking of the money you can get is very enjoyable, but the amount of money that can be lost is rarely taken into consideration. Incorrect use of the lever is very dangerous. Brokers offer high leverage, but this does not mean that you should always use them. In fact, many traders usually use a leverage of less than 5 times the value. True, they are less profitable, but their losses are equally less.
Use a very high leverage
When you are looking for a broker, you come across brokers that offer a very high leverage. Even some brokers offer a leverage of 1:1000. Using this leverage, you can open an account with $300 and take control of trading up to $300,000.
The average value of a pip is $30 in a transaction worth $300,000. If you lose 25 pips in your trading, your entire account will be zero. Note that in most pairs of currencies, 25 pips in less than 10 seconds. It looks so dangerous, is not it?
Use Forex leverage as a means
The dangers of using the leverage are rarely taken into consideration, but if you think a bit, it’s very clear. You do not have to use it just because your entire leverage is available to you. In fact, you can turn the leverage into an advantage by utilizing the available techniques.
The best time to use a leverage is when it adds to a certain deal. The use of a leverage is appropriate when, for example, a transaction has progressed to the desired level and you decide to add it. In fact, this means leveraging your profits.
It’s very tempting to use a leverage to get quick profits in a “one deal,” but it does not pose risks, especially in the Forex market, it’s so volatile and unclear.