Explanation of the Leverage
Leverage is the capacity to use something little to hande something big. when taken as a specific term, forex trading means that you may have a small capital to monitor your account for a greater number of markets.
Stock traders will name it as trading on margin. In forex trading, no interest is levied on margin used, and no matter what type of trader you belong to or what type of credit you posses. If you have a good account and if the broker provides margin, you can act on this.
The advantage of using leverage is that you could make a lot of money here only if you have a conisderable quantity of capital. The real issue is with that you can also make lot of money by trading with leverage. It all will be based on how wisely you make use of it, and how risk management is conservative.
The leverage is usually presented in fixed amount, which can vary in different agents. Each agent emits based on the leverage of its rules and policies. The volumes are typically of either 50:1, 100:1, or 200:1 or even 400:1.
Fifty is to one leverage clearly means that for each $ 1 you have, you can place a trade of $ 50 change. For example, if you deposit $ 500, you can negotiate amounts up to $ 25,000 in the market using leverage of 50:1. Not that they should share the full $ 25,000, but you can trade by using up that amount.
100 to gives an advantage that for every $ 1 you possess in account, you could still set the market value of $ 100. This is the typical amount of benefit on behalf of Standard Lot. The typical $ 2,000 minimum standard deposit account will give the ability to manage $ 200,000.
200 to 1 leverage means for every $ 1, you have in account, you can have a trade worth $ 200 This amount is typical leverage offered on the minilot account. Typical minimum deposit for this account is about $ 300. With $ 300 can open up a trade upto an amount of $ 60,000.
400:1 leverage means for every $ 1 ,you can place a trade worth $ 200 Some brokers will offer 400:1 on minilot accounts. But I would personally be alert of any broker who offers this kind of leverage a small account. one who makes a deposit of $ 300 for a forex account and try to trade with leverage of 400:1 can be completely wiped out in minutes. It’s not like brokers forcing merchants to pay only $ 300, but if they can, I suspect there are other ways of not acting in your interest.
Professional traders and the leverage
Most of traders with very low debt. Keep your lower arm to protect your capital when you make mistakes and keep your business more consistent yields. Many professionals use the volume lever as 10:1 or 20:1. It is possible to treat this type of leverage, regardless of what the broker offers. You just have to pay more money and make fewer trades.
Whatever your interest, always do remember, just becaue you are given the leverage does not mean you need to use it. Generally, the less influence better use. It takes more experience to know when and where to use the lever, and when to hold. Be careful to keep yourself in game for long term.