Tag Archives: leverage

Using Leverage And Margin


One of the main reasons why people love Forex trading is the amount of leverage that is available to the average trader no matter how small their account size is. In other forms of trading like the stock market and the futures market you need a pretty large account size to get a large amount of leverage, which means that it takes having a pretty big account to trade enough size to make any money. This is one of the main reasons why people love trading Forex because you only need a small amount of money to trade using a lot of leverage.

Here’s a warning, leverage can get you in trouble. One of the most common warnings to traders is that they use too much leverage and their losses are compounded heavily due to the amount of leverage that they use. This is the Yin and Yang of leverage. On one hand it means that you can use a small account to make a good profit but it also means that you can quickly over use leverage and burn through all of your money. But do realize that there is a way to overcome this hairpin trigger.
The best way to combat the risk of using high leverage is through proper money management. Typically, it is suggested that you never trade more than 1 to 5% of your account on any one trade. This is great advice because with this form of money management it would take hundreds of losses for you to wipe out your account but this also means that you need to properly use a stop loss to limit your losses. margin leverage

Beyond money management, you will need emotional management. You will lose trades and you will get angry. It is how you handle these times that will determine how well you will do and if your account will be destroyed. What most people do is they end up over trading, getting angry at the market to the point that they make illogical trades in an attempt to earn back the money they’ve lost. This is a big NO NO and you should stick to one trade size and have a daily loss limit that once hit you will stop trading for the day.

So, yes, leverage and margin are ways that you can trade more size, usually at a rate 1:50 or lower in Forex, meaning that you can trade a unit size 50 times your account size. That is the gift but the curse is that if you do not know what you are doing, if you do not use proper money management, if you do not have proper emotional discipline, then it is easy to get burned by using too much leverage.

So, use this article so that you do not experience too much of the curse and more of the gift of gift of leverage. We have provided you enough info to proper use it so have  a go at it now.