How Much Leverage Is Right for You in Forex Trades
Advertise
KODE IKLAN DISINISafe Link Converter
Encrypting your link and protect the link from viruses, malware, thief, etc!
Made your link safe to visit.
Made your link safe to visit.
How to use our tool:
- Click on How To Use menu above.
- Click on the code and CTRL + C on your keyboard.
- Paste the code in your HTML blog theme before the </body>.
- Save your HTML blog theme. you are done!
- Now, your blog's outbound links was encrypted!
Advertise
KODE IKLAN DISINIYour link show here
Advertise
KODE IKLAN DISINI
Data disclosed by the largest foreign-exchange brokerages as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act indicates that a majority of retail forex customers lose money. The misuse of leverage is often viewed as the reason for these losses. This article explains the risks of high leverage in the forex markets, outlines ways to offset risky leverage levels and educates readers on ways to pick the right level of exposure for their comfort. (For an introduction to currency trading, read Forex Tutorial: The Forex Market.)
The Risks of High Leverage
Leverage is a process in which an investor borrows money in order to invest in or purchase something. In forex trading, capital is typically acquired from a broker. While forex traders are able to borrow significant amounts of capital on initial margin requirements, they can gain even more from successful trades. (For more read How does leverage work in the forex market?)
In the past, many brokers were able to offer significant leverage ratios as high as 400:1. This means, that with only a $250 deposit, a trader could control roughly $100,000 in currency on the global forex markets. However, financial regulations in 2010 limited the leverage ratio that brokers could offer to U.S.-based traders to 50:1 (still a rather large amount). This means that with the same $250 deposit, traders can control $12,500 in currency.
So, should a new currency trader select a low level of leverage such as 5:1 or roll the dice and ratchet the ratio up to 50:1? Before answering, it’s important to take a look at examples showing the amount of money that can be gained or lost with various levels of leverage.
Example Using Maximum Leverage
Imagine Trader A has an account with $10,000 cash. He decides to use the 50:1 leverage, which means that he can trade up to $500,000. In the world of forex, this represents five standard lots. There are three basic trade sizes in forex: a standard lot (100,000 units of quote currency), a mini lot (10,000 units of base currency), and a micro lot (1,000 units of quote currency). Movements are measured in pips. Each one-pip movement in a standard lot is a 10 unit change.
Because the trader purchased five standard lots, each one-pip movement will cost $50 ($10 change/standard lot X 5 standard lots). If the trade goes against the investor by 50 pips, the investor would lose 50 pips X $50 = $2,500. This is 25% of the total $10,000 trading account.
Example Using Less Leverage
Let’s move on to Trader B. Instead of maxing out leverage at 50:1, she chooses a more conservative leverage of 5:1. If Trader B has an account with $10,000 cash, she will be able to trade $50,000 of currency. Each mini-lot would cost $10,000. In a mini lot, each pip is a $1 change. Since Trader B has 5 mini lots, each pip is a $5 change.
Should the investment fall that same amount, by 50 pips, then the trader would lose 50 pips X $5 = $250. This is just 2.5% of the total position. (For a detailed explanation of how leverage works, read Forex Leverage: A Double-Edged Sword.)
Komentar
Posting Komentar