What is Leverage in Forex?
Best Leverage for forex trading is a tricky concept which will be simplified in this post, and you will find the answer to the question – what is leverage in Forex?
Leverage is nothing but a kind of loan that forex brokers give the traders, best leverage for forex starts from 1:1 and goes up to 1:5000
Leverage involves borrowing a particular amount of money from the Broker, and use it to increase the size of trading position beyond the limits where your Forex account balance alone cannot take you through.
The Forex trader can trade very large positions in the currency market by taking advantage of best leverage for forex offered by the broker.
Forex traders gain access to larger investment in Forex trades through the use of leverage, when they only have a small number of deposits in their trading accounts.
Using the Forex leverages the traders are capable of magnifying their trading profits. This is because small investments cannot do well in Forex trading since they cannot generate high profits.
Leverage is a benefit to the traders, and they can use it to increase their earnings. However, it also increases the chances of suffering huge losses.
This is the reason why the Forex trading beginners are discouraged from high leverages.
You need to have great trading experience, or you have to learn how to effectively manage the leverage and successfully implement risk mitigation strategies to prevent the occurrence of any trading risk.
Best Leverage for Forex Beginners
Majority of the Forex traders are attracted to the Forex market by Leverage. This is because, with maximum leverage, the traders with a modest margin amount will be able to achieve considerable exposure to a variety of financial markets.
One of the significant challenges that traders face, especially the beginners, is how to choose the best leverage for forex trading. Majority of traders are attracted or tempted to select the highest amount of leverage provided.
However, it is usually very dangerous for your forex trading account.
The highest leverage is best for the experienced Forex traders because they are capable of using it correctly. The new traders can take the opportunity offered by leverage to open up the larger positions to achieve the best results faster and better from their trades.
The main drawback of selecting the highest leverage is that, you can end up in massive losses. You will never forget these in your Forex trading career.
This is because, every time your position fails to play out as you expected, there is always a larger loss results with less margin for the coming trade.
Choosing the best Leverage for forex is challenging activity, especially if you are a Forex Trading newbie, and you do not have enough experience. The decision you take here can massively affect your account, leading to trading success or loss.
Most of the Forex brokers, especially those that do not come from Europe, offer a leverage of up to 1:500.
This is somehow normal. In some cases, some brokers go high even up to 1:3000. This high leverage may allow you larger positions, but what is the point of having it? when it is a trap to beginners?
How to choose the best leverage ?
To select the best ratio for you, you should consider the following factors:
⦁ What will be your risk if you select that particular Forex ratio? This risk comes in the form of the amount of drawdown that will be attracted by your Forex account.
⦁ The amount of the balance that you are willing to deposit
⦁ The number of positions that you will allow yourself to open at a particular time.
In short, Higher leverages should be availed only by experienced traders. If you are a beginner, then best leverage for you is 1:30 or may be 1:100, not more than that.
Regulations for Leverage in Forex
A Forex broker established in a specific country can accept the deposits from any Forex trader across the world. The regulation that governs the leverage and other operations of Forex trading depends on the local laws.
The leverage extent that a broker can allow is also dependent on the local country’s laws. In various cases, the available leverage is usually 100:1. In the United States, the leverage level can be up to 50:1, just as the US commodity Future Trading Commission set it in 2010.
In this post, we have answered the question – what is leverage in forex ? The Forex traders use Leverages to magnify their profits during Forex trading; however, these leverages are associated with various risks.
Leverages can also magnify losses resulting in a Forex trader losing the entire amount deposited.
Best leverage for forex depends on your deposit, trading style and strategy. In General, a lower to medium leverage is always safer and wiser.
To mitigate these risks, a trader should implement various strict trading styles and strategies in order to mitigate the occurrence of the potential loss. A trader can implement the stop-loss orders to control a potential loss.
A stop-loss will help the Forex trader and the Broker exit a position at a specific price level. It is one of the ways in which the traders can cap the losses in a trade.
Looking for Trading Signals? Join Free Telegram channel
Please follow and like us: