There are many arguments regarding high leverages in FX. Ratio’s such as forex 500 leverage are lusts which few can avoid. Yet, for those who are invited so easily into investing into forex by brokers and firms advertising these leverages, they ought to know the whole story of it before stepping into forex.
Forex 500 Leverage is a personal mint
If such a leverage offer is dealt with carefully and with proper intuition and planning, the investment will mature in leaps and bounds without much effort. This leverage, like all leverages, can be properly demonstrated with a 500:1 ratio.
Considering an investor who has in his forex 500 1 leverage account a total of $5000, he/she invests in a trade, a total of $2000. Thus, the financial asset amount being traded stands at a total of $1 million in a live forex market.
Now, considering a positive market movement of the stock by 2% of its FX value. The possible profit amount is thus 2% of $1 million, i.e. - $20,000. Compared to the initial investment of $2000, profit percentage stands at a humongous 1000%.
This is why a forex 500 1 leverage seems irresistible for any newbie investor.
What’s the catch?
There is no catch per se. But there is, as in all cases, an opposite side to a coin. What a person can gain is what he can lose too.
Following up from the previous example, if market movement is 2% on the negative side, this investor stands to lose same amount money, due to forex 500 leverage.
Now here’s the catch. How can the investor who has a total of $5000 in his trading account, stand to lose $20,000?
The answer is he can’t.
Risk-safes in forex 500 1 leverage accounts
The investor will not be able to trade with an amount wherein he would stand to lose more than he has in his account.
Thus, carrying over from the previous example, this investor will not be able to trade with an amount exceeding the $100. The trade-in amount for $100 as per the account will stand in at $5000 which equals his account strength.
In case of such high leverage accounts, it is always advisable to trade with it under the guidance of forex experts. Any rash decision can trigger the complete account being minimized to a naught if not for calculated trading and execution.
Accounts with which these high leverages come as features are mostly mini accounts where an initial deposit starts from a mere $500. Although deposit range varies with brokers or brokerage companies, this minimum limit is normally adhered to quite comprehensively.
Normally, given strategies have a short life-span. The best traders rely completely on adaptability and instinct while trading. However, trading with high leverage accounts require pre-conceived plans and that too many of them.
High leverage is easily prone to market risks; they are more volatile to a specific market fluctuation compared to accounts with a lower leverage. So, keeping in mind the volatility of these accounts, short-term trading is the best bet, preferably daily trading.
Forex 500 leverage can either be a making or a breaking of the investor. The “philosopher’s stone of the modern era” as some say, they are as irresistible as they are volatile. But, they have been a shining lamp and its genie for many.
So, go ahead. Rub it. Invest.
The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.