Importance of Leverage in Forex
Different from Equity trading and Futures trading, Forex trading
offers its traders with far more advantages and greater profits
than the other financial markets and that too, in a short term.
A range of Forex trading strategies are offered to its traders,
the most significant one of them all being Leverage. Forex market
offers higher leverage as compared to all the major stock exchange
With the help of Leverage, online currency traders can make use of
more funds than the actual money which they deposit. Margin can be
known as the least amount required to be deposited before a trader
starts trading. This can also be known as the opening amount with
which the Forex trading account can be initiated.
Leverage also facilitates the Forex traders to maximize their
Forex trading profits. This is because with the help of Leverage,
a trader can make use of as high as 200 times the actual sum which
he has deposited in his Forex account.
Such a strategy allows the trader to support his superior yielding
dealings easily and hence allocating improved results to his Forex
trading and deals.
Leverage is basically making use of the various economic tools
such as margins. Margins help a trader to enhance his prospective
return of investments. Leverage is an extremely fine financial
tool which can be used to boost a traderís buying power in the
Forex market. Advantages are many, when it comes to getting great
margins for trading purposes.
Although it is said to be a great tool for fiscal matters,
Leverage should be handled carefully, making sure that you, as a
trader have thought and executed alongside, a risk management plan
Leverage as a strategy should always be first applied on a small
position or deal size. Only when it works successfully for a while
with small deals, should it be applied further, on a bigger sum.
Slowly and gradually, leverage can be multiplied to bigger sums of
money to quickly maximize profits.
Also, Leverage as a Forex trading strategy can be applied
frequently but wisely on your daily trading as it facilitates its
traders to make full use of the short term instability or
variations experienced in the Forex market. Such high leverage
enables the Forex traders to trade much larger sum of currency
than they have deposited.
Alongside bringing with many advantages, Leverage also has a lop
side to it. Many investors regard leverage as risky because
according to them, it is highly dangerous to trade bigger position
or deal sizes without truly owning that much amount of money.
While the usually available leverage from the online Forex dealers
is 100:1, the leverage offered by the Stock brokers can go as low
as 2:1 margin. By getting a higher leverage, traders can get more
buying power than what they generally have as it boosts their
total return on investment.
Where some traders feel that margins should not be used frequently
as they can prove dangerously with huge deals, others feel that
margins or higher leverage allows them to trade big through small
The important thing to be done is to read carefully, the terms and
conditions of the broker that you plan to deal with and the
leverage that he is offering. Also, plan proper money management
techniques so that you are able to manage your limited trading
Different brokers offer their clients with different leverage
ratios or margins to trade. Always select the broker or the broker
firm whose terms and services suit you best. It is not always
necessary that all brokers providing huge leverages are honest and
good. Therefore, it is always advisable to remain vigilant and
thoroughly check what you are being offered.