Forex Leverage for beginners
Leverage can be defined as an opportunity to speed up your account balance. Basically, you borrow money to invest in the forex market and trade on a larger scale. It is very important for traders to use leverage correctly as it allows you to grow your account but can also blow up your loss magnitude. Continue reading to learn more about leverage ratios and where to start keeping in mind the pros and cons.
Leverage ratio
The total amount of leverage provided by the broker is volatile. Brokers set their own leverage rates, in some cases reaching 1:100 or even higher. Forex leverage is usually stated as a ratio. In this example, this means that you can open positions up equal to $100 when you have $1.
Benefits of leverage use
- Opportunities for high profit trading
By using foreign exchange, traders can increase their initial investment to get bigger. Traders with only $ 1,000 in their account can use 1:50 leverage to trade at $50,000 or 1: 100 leverage to trade $ 100,000 in the forex market. This transaction will lose $ 1000 of its own assets, but if successful, if the position is opened with 100% margin and 1: 100 leverage, it will result in a profit of $ 100,000.
- Improving Capital efficiency
If your account balance is $ 1,000 and you are using 1: 100 leverage, you have $ 100,000 to manage. This means that you will be able to use different trading instruments for more transactions and apply hedging techniques to provide additional protection against risk. This will allow you to diversify your investment portfolio, reduce risks and increase your opportunities for profit.
- Good financial condition
In the past, when brokers did not have leverage, the only way to trade was to take loans from banks with high-interest rates, large balances, and promises to borrow very little bank assets.
Despite fierce competition, forex brokers offer huge leverage in attracting buyers with very little investment and very low commissions. If you trade for one day, the leverage is almost free. If you decide to trade overnight, pay attention to SWAP – this is the broker’s commission per night.
- Convenience
In a highly competitive environment, forex brokers provide the ability to choose leverage with low-interest rates, flexible interest rate plans, and preferential terms with the lowest fees. Reputable brokers even often provide individual management services to ensure that clients make use of their services for a long time and succeed.
- Security
Irresponsible traders can forget about the responsibility associated with leverage. Unfair negotiations can leave a company in debt. To prevent this, use the services of a broker that promises a zero balance in the event of a lost transaction. Thanks to this feature, you will never lose your balance.
Setbacks of Forex leverage
- There is a high-risk magnitude of losing your deposit.
- Recovery of deposits is very hard, sometimes irredeemable.
Best leverage level for beginners
The best forex leverage for beginners will be to start using 1:10 leverage with a $10,000 balance. Hence, the best leverage for beginners is no more than a 1 to 10 ratio.
