Forex trading is aided by leverage. It’s also known as a “double-edged sword”. Stanley Druckenmiller spoke out about the lessons Soros had taught him. “Soros taught me that conviction is a prerequisite for trading. I have learned from him that you must go for it. To be a pig requires courage. It takes courage and a lot of leverage to make a profit.” This is why leverage is such a dual-edged sword. You can make a huge profit or be left behind psychologically and financially by using leverage.
The Forex Market offers very high leverage with low brokerage. Applying leverage without proper knowledge of liquidating trades or understanding is highly risky.
Leverage Trading
Also known as finance margin or margin trading, leverage trading is also called margin trading or liquidity trading. A trader can borrow money to open large positions in the market, but only a small capital deposit is required.
Many high leverage regulated brokers offer leverage as high as 500x. Some intraday leverage brokers offer the highest leverage of up to 1:3000. A trader who uses 1:100 leverage will only need 1% of the amount required to trade. The broker lends the remainder.
Although it might sound appealing, this can also have the potential to destroy your account if there is not enough knowledge about risk management. Offshore brokers for higher leverage have been a popular way to use leverage. People are attracted to leverage, particularly those who have less money or knowledge but are full of greed. They believe the highest leverage in forex can quickly bring them profits and that they could become millionaires within weeks.
How Does Leverage Actually Work?
Trades for larger positions can be made with minimal margin money by traders who use the Highest Intraday Margin Brokers. Let’s take as an example the 1:500 leverage brokers offering high leverage for intraday high leverage.
The trader would like to trade EUR/USD. He will need a lot size of 0.1, and an ask price of EUR/USD= 1.23228 US Dollars. The trader will require $ 12,347.45 to open his account. The broker offers 1:500. The trader also has $500 in your account.
1:500 leverage is a ratio that means you will only need 1% to trade in your account. The broker will fund the remaining 49%. The trader now only needs $24.65 and the broker will lend the rest $ 12,322.80. The Margin is $24.65. The Margin is $500-24.65 = 475.35, which becomes the free margin.
The market can turn against traders, and the free margin will start to shrink. This is an unrealized gain. If the market continues to be against the trader, then a stop-out will take place where the broker will automatically close the trader’s position and withdraw the funds.
High volatility can sometimes cause the high leverage low spread broker to not be able to close the trade, which leads to a decrease in margin and sometimes even the loss of the funds.
If the market is in the trader’s favour, the profits will keep increasing until the stop loss occurs. When this happens, the money borrowed is repaid and the trader receives the profits. High leverage brokers and low spreads are preferred by intraday traders.
Pros Of Using Leverage
It gives us access to the additional funds lent by high leverage brokers, which is the biggest benefit. This allows us to gain more market exposure than we would otherwise.
This exposure can help you increase your profits. Let’s suppose you trade AUD/USD as you believe the Australian dollar will fall in price. You want to trade with a micro lot size (10,000). You are using 1:500 leverage. This means that you will need to have $14.55 USD in your bank account for margin. The exchange rate of USD/AUD is 0.72711. You can now get exposure for only $14.55 USD.
You can significantly increase your profits as a trader by using high intraday leverage brokers that offer high leverage, such as 1:500 or 1:3000.
Cons Of Using Leverage:
Leverage, however, has two sides just like a coin. If you don’t do the right analysis of the trade, leverage can boomerang on your account.
Let’s consider the above example. The market can turn against the trader and the free margin will start to shrink. This is an unrealized loss. If the market continues to be against the trader, then a stop-out will take place where the zero spread forex broker will automatically close the trader’s position and withdraw the funds.
High volatility can sometimes cause brokers to not be able to close the trade. This results in the loss of margin and sometimes the funding money. All losses are the trader’s responsibility. Traders need to understand the documents they sign regarding their right to claim any loss when opening an account with forex brokers with low spreads that uses high leverage.
Conclusion
It is, therefore, crucial to be well-informed and aware of all aspects of trading before you start to trade on the market.
Forex trading has a very low success rate, as we all know. Only 10% of forex traders are profitable. Forex market is often referred to as the “Get Rich Quick” market, which is a catchy slogan. We all know that it is impossible to get rich fast. It is important to get the right education before you begin trading.
