How to Trade on Forex with Leverage

 Bart Bregman
  Apr 27, 2019

The prospects of trading in forex can be quite promising. One of the reasons why people stand to be profitable in Forex trading is that it is possible to get high leverage in comparison to other forms of trading such as the stock exchange.

However, a considerable number of traders do not have a clear idea of what leverage is and how to use it. Therefore, they are unable to take full advantage of it to grow their profit margins.

So, what is leverage?

Leverage simply entails borrowing a particular amount of money that you may need to invest in a business of your choice. Once you borrow the money, you have to invest it intelligently so that you can turn a greater profit. From a forex trading perspective, you as the trader, borrow money from your broker with the intent of making a profit.

Leveraging in forex trading is much higher and thus attractive. This means that you can even trade $1000 in value from as low as $100 in your forex trading account. In other words, you get to use a small amount of money to control a huge amount. This is known as trading on a margin. Besides that, in forex trading, there is no interest charged on the margin offered. As long as you hold an account with a broker and the broker offers you a margin, you are free to use it in the most befitting way.

Moreover, Forex markets allow you to access more debt because it is one of the most liquid markets in the world. In addition, this market is enormous. It presents the investors with the freedom to enter and exit different positions of the currency markets with ease. This makes it easy for a trader to control the possible profits or losses that come with this kind of trading.

forex

The greatest advantage of using leverage in Forex Trading

The ultimate advantage of using leverage in your forex trading endeavors is that you stand to profit immensely by just using a limited amount of capital. Nevertheless, just like with greater risks comes a greater reward, you can also lose a sizeable amount of money while trading in forex with leverage. Whether you lose or profit depends on your risk appetite as well as your risk management skills.

How can you trade on forex with leverage?

The first step is opening a margin account with your preferred broker. The broker then provides you with various margin options that can be 200:1, 100:1 or even 50:1. This depends on the broker and the position from which the investor is trading.

A 100:1 means that you as the trader should have at least having 1/100. This is equivalent to 1% of the total value of funds available for trading in your account. The most common trading is done on 100,000 units.

If you want to invest 100,000 units of currency using the 1 % margin, you, therefore, need to deposit 1000 in your margin account. This means that the leverage provided by your broker will be at 100:1. For some traders, this kind of leverage may seem quite risky, but this isn’t the case. This is because currencies typically change with about 1% during a single trading day. If the fluctuations were volatile and could change with a larger percentage, rest assured the brokers wouldn’t offer that much leverage.

Why leverage is a double edged sword?

As much as it is good when leverage works to your advantage, you should also bear in mind that it could work against you. For example, if you think the currency will shift in a certain direction in which you will turn a profit and then the opposite happens, you are bound to lose some money. However, there are ways to mitigate potential risks while using leverage.

How to limit your losses in your loss of risk

Using a practice account

This is whereby you use a dummy account for the purposes of practicing before you delve into the actual trading. You can do this for a couple of months to familiarize yourself with the concept of leverage in forex trading. A trading account can be a good start to test the waters and come up with the right strategy.

Take control of your losses

If you learn how to curb your losses and prioritize it, you stand a chance to succeed. In every business investment, there is always a likelihood of gains and losses. If you can keep your losses within a certain acceptable threshold, then it is possible to flourish.

Use your leverage wisely

If your broker can easily offer you 10 times leverage, don’t take it just because it’s available. Instead, take it in bits. You can start at 2 times and increase it as you learn the ropes of the trade. If you, unfortunately, experience some losses, they will be much lower than if you had taken 10 times of the leverage offered.

Use Stop Orders

Stop orders are incredible when it comes to limiting your losses in forex trade. The forex markets are prone to changes, and sometimes, these changes are abrupt. Nevertheless, you can use a stop order to curtail your losses and protect your gains.

Accept and cut your losses

As you trade on forex with leverage, it is imperative to understand that most disastrous losses happen to those who keep adding to a losing trading position. The best thing to do is to close it and move on to avoid further loss and frustration.

Trading in forex can be lucrative. More so, leverage gives you a better opportunity to invest a small number of funds and make greater profits. It is, however, important that you take your time to learn how to effectively use leverage. If you get into this trade blindly, you might make significant losses. This is every investor's nightmare.

As it is with most businesses, accrue some experience first before you commit a serious amount of money to forex trading with leverage. With the above information, you will be in a better position to trade on forex with leverage.

How to Trade on Forex with Leverage

Bart Bregman

Hello, my name is Bart Bregman. I’m 27 years old and from
the Netherlands. As a professional day trader and blogger I spend most
of my time online. This lifestyle has allowed me to live as a digital
Nomad and travel all around the world.

My trading career began in 2014 as a side job. However, I transitioned
to full-time trading in 2016. Since then, I’ve been trading different
financial instruments on IQ Option. They include Stocks, Forex, Digital
option, Binary option, CFD, and Cryptocurrencies. I’m passionate about
trading. I’m always on the lookout for profitable strategies and new
skills that will help me trade better.

But as you might already know, the markets are quiet most of the time.
Besides analyzing the charts waiting for a good trading opportunity,
I’ll spend the spare hours contributing to iqoptionwiki.com. Here, I’ll
usually offer my expertise in the different trading strategies that I
use to help other traders better their skills."

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