Forex trading by retail investors has grown in last few years, and all the credit goes to the online trading platforms. The advent of fast technology along with different trading platforms has allowed people to trade from any corner of the world.
Do you know that why most of the traders are attracted towards forex trading? Well, it is the high amount of leverage offered by the forex brokers to their traders which is not available in other financial businesses.
The use of leverage in forex trading is quite like a double-edged sword, as it offers the ability to make significant gains. But at the same time, it also gives substantial losses. In this post, the readers will be able to go through with one of the unusual topics -‘forex no leverage’.
Note: Leverage in general terms actually suggests borrowing of funds. It is not only widely used in forex trading, but also to acquire physical assets like cars or real estates.
What’s wrong about leverage?
The basic problem related to leverage in forex trading is that most of the retail traders only have access to a small amount of funds, and they often consider that they can make huge money quickly by using leverage. But at the same time, they also forget the consequences of incurring a loss.
Evidently it is found that a significant number of traders using leverage blow up their accounts just within the first year because either they end up making an emotionally judged decision sustaining heavy losses, or they lose all their money because of a margin call.
It is true that leverage is beneficial, but it can be disastrous too, especially for the traders having no prior experience in forex trading. So, ‘forex no leverage’ in itself is a difficult thing, i.e., you cannot say that it is not so avoidable because it is what can be termed as a necessary evil.
Why trade forex no leverage doesn’t make any sense?
I have mentioned already that leverage is not a reliable tool, but it can be beneficial for the traders. Now the most important part of forex trading with no leverage is that it is not accessible to a maximum number of traders. It would be also critical to note that the requirement of substantial trading capital is one of the major drawbacks of forex trading no leverage.
Analysis also states that currency trading without leverage involves less risk exposure for the forex traders. However, it doesn’t mean that there are no risks involved in trading with no leverage.
Let us take an example of trade forex no leverage.
Suppose a trader has $10,000 in his trading account and he is using a lot size of 0.10. It means that if the trader buys USD/JPY at 0.10 lots size, then he is buying 10,000 units of the base currency pair. Now, it means 100 pips is equal to 1% of trades account balance, i.e. $100.
Well, trading with this concept will allow the trader to make better decisions, and aid him in staying greed or fear induced decisions.