Forex trading with leverage is a promising perspective. If you compare other forms of trading i.e. stock exchange with forex trading, the difference in the possibility of getting high leverage will become visible, which can be counted as one of the reasons why people tend to prefer Forex trading.
However, a lot of people do not have any idea of what is leverage in forex trading platforms and how to use it. That, unfortunately, makes them unable to extract more from the profit margin and take full advantage of the feature.
What is Leverage in Forex Trading?
In business, leverage stands for borrowing an amount of money to invest in your chosen business deal. After borrowing, you’ll need to think of smart ways to invest the money so it brings an even greater amount as profit. However, from a trader’s point of view, you borrow money from your broker to invest in trades to make a profit.
Leveraging in forex trading promises much more than others and so traders are attracted to it. From the trading value of $1000 to $100can be invested in forex trading. Meaning even with a small amount of money deposited you get to control a much higher amount, which is called trading on a margin. What’s more! On forex trading, you won’t be charged with any interest in the offered margin. Given that you have an account with a broker, and offered margin by him you have the freedom to use it however you see beneficial to your deal. Being one of the most enormous and liquid markets in the world, you are offered plenty of access to debts by the platform. It also grants independence to its traders to enter and exit different positions of the currency markets without any complexity. This makes controlling the upcoming possible profits and losses better and easier for the trader.
The Ultimate Advantage of using Leverage in Forex Trading
If the catchy heading got your attention, brace yourself for what you’re about to read next. The greatest possible advantage of this trading platform is you can earn immense profit in no time even by using a little amount of capital. Nevertheless, there is no great reward that doesn’t come with risks, just as you can gain a lot from trades you have to keep in mind that you can also lose a lot. Whether you win or lose it will depend on your risk management skill and the willpower and confidence to risks on.
How to trade on Forex with leverage?
Step one to start trading on forex with leverage is to open an account with a broker of your choice. After, you are provided with various margin options by the broker, such as 200:1, 100:1, 50:1, etc. depending on the broker and the trading position of the investor. If you are new to these terms, let me clarify them for you. A 100:1 denotes that the trader should at least have 1/100 of the total value of funds available for trading in your account. 100,000 units are the most common ratio that the traders choose to trade on, if you do the same using a 1% margin, you’ll have to deposit a 100 in your margin account so the leverage will be at 100:1.
It may seem risky to some traders but since currencies change within a day about a percent approximately. If the percentage were larger the brokers won’t be encouraged to offer any amount so rest assured.
How to limit your risk of losses?
However, do not forget about the risks of using the leverage that it could work against you as much as it can work in your favor. Sometimes the total opposite of your prediction may happen to make you lose some money. To reduce potential risks while using leverage, you may want to adhere to these few schemes.
- Use a demo account before stepping into live trading. First, familiarize yourself with trading with leverage then come up with a suiting strategy before starting for real.
- Learning how to deal with losses and compensate for it is a great skill to have. Accepting both ups and downs of investment and moving on with it entails to your possibility of succeeding.
- Just because your broker can provide multiple times more than your leverage, don’t jump on the offer without a plan. Starting small first reduces the risks, if you happen to lose, the loss will be much lesser than it would have been if you had invested what was offered to you first.
- To limit your losses using stop orders are an incredible tool. The market is prone to changes, so if you choose to activate it, you can not only reduce the loss but also protect your gained profits.
- One of the most disastrous traits is refusing to move on and keep adding to the losing trade. The outcome is negative almost always do the best you can do is to close it and move on.
Trading with leverage allows you to earn more while investing less. As long as you gather experience and learn from it; you’re all set to trade on forex. Follow the rules discussed above and hope that they would be able to help you in your journey with trading on forex.