Leverage is the ability to use something small to control something big. Specific to forex trading, it means you can have a small amount of capital in your account controlling a larger amount in the market. Stock traders will call this trading on margin. In forex trading , there is no interest charged on the margin used, and it doesn't matter what kind of trader you are or what kind of credit you have.
The obvious advantage of using leverage is that you can make a considerable amount of money with only a limited amount of capital. The problem is that you can also lose a considerable amount of money trading with leverage. It all depends on how wisely you use it and how conservative your risk management is. Leverage makes a rather boring market incredibly exciting. Unfortunately, when your money is on the line exciting is not always good, but that is what leverage has brought to FX.
While typical amounts of leverage tend to be too high, I trade with five times leverage; it is important for you to know that much of the volatility you experience when trading is due more to the leverage on your trade than the move in the underlying asset. Leverage is usually given in a fixed amount that can vary with different brokers. Each broker gives out leverage based on their rules and regulations. The amounts are typically This is a typical amount of leverage offered on a standard lot account.
This is a typical amount of leverage offered on a mini lot account. Some brokers offer I would personally be wary of any broker that offers this type of leverage for a small account. For the most part, professional traders trade with very low leverage.
Keeping your leverage lower protects your capital when you make trading mistakes and keeps your returns more consistent.
Many professionals will use leverage amounts like It's possible to trade with that type of leverage regardless of what the broker offers you. You just have to deposit more money and make fewer trades. No matter what your style, always remember, just because the leverage is there does not mean you have to use it. In general, the less leverage you use, the better. It takes the experience to know really when to use leverage and when not to.
Updated July 09, Staying cautious will keep you in the game for the long run.More...