With the availability of several online trading platforms, Fx has grown up in recent years. In fact, the one who do not use leverage in a proper way will not able to magnify the gains (and wrong decisions can increase losses).
Leverage is the term that defines borrowed capital. They are widely used to acquire physical assets as well as to trade on currency pairs or equities. What is the best leverage for Forex trading?
Check the below example:
For example, suppose an investor gets 5: 1 leverage Forex it means that for every dollar deposited by the trader, it will offer $5 on major currency pairs. Let’s put up a margin of $5000; this implies that you can put $25,000 ($5000 x 5) as a maximum while trading.
This suggests that you can either earn a maximum rate of return or incur a maximum loss due to wrong investment.
What is the best leverage for Forex trading?
This value depends on the capital that you are willing to invest. One can earn a big profit with an excessive degree of leverage. What do you think?
Perhaps, the prospect is that putting too much of your capital might not be helpful. In fact, a greater amount is considered as an extra investment. Check the below precautions to avoid any such initial losses because of high amount of investment:
- Cap the Losses:
To keep your money safe and secure, it is necessary to manage the limits. This will help in keeping a lot of money safe from eroding.
- Use Strategic Stops:
These stops will be helpful in protecting you from the adverse effects of market movement. Stops will ensure that you will not incur a high amount of loss with the potential to keep much of the profit safe.
- Use Leverage as per your pocket:
One who is willing to trade using 50: 1 leverage on US Dollars means a 2% adverse move could zero your account. This is the reason it is always better to keep your eyes and ears open while you are performing. Relatively, 5: 1 leverage Forex or 10: 1 leverage will be much safer at this comfortably lower level.
Often traders fall in the misconception of gaining much amount by adding to losing positions. Perhaps, the investor is not wrong in this context. But, he or she should know that this desire may become a nightmare if they lose.
It will be far better not to think of any miracle every time you trade. Experts always suggest keeping your account active for the next day. This protects users from a huge amount of loss and keeps you ready to the next day.
Although a high degree of leverage increases the possible returns, it also has the potential to magnify the level of risks. Always keep safety precautions to remove the threats of risks.