Leverage is a way to gain exposure to large amounts of currencies without having to pay the full trade value up front. Alternatively, you can place a small deposit, known as margin. When you close a leveraged position, your profit or loss will depend on the total volume of the trade.
How does leveraged trading work? You can increase the size of your trades through leverage, by borrowing additional money from your broker. The amount of leverage is determined by each broker, and the type of deal at the time of its execution. You can set up your account to trade at default leverage levels or use a broker that allows you to adjust the amount of leverage on a per-trade basis. If a trade is profitable, the life cycle of the trade will be the same whether you use leverage or not. Your profits will be transferred to your cash balance when the position is closed.
However, if the trade is losing, a host of new factors must be taken into account; As brokers do not want you to hold a position that could cause you to lose more than your margin account balance, if you want to continue to hold a losing trade, the broker may ask you to increase your margin level by depositing more funds; This is referred to as a “margin call.” If you do not deposit additional funds, the broker will reduce the size of your position to reduce the risk exposure on the position or close it completely. This is called an emergency closure.
How to benefit from the best leverage? In providing a real opportunity to achieve very high financial gains, if you trade correctly and relying on a plan and strategy
Leverage between advantages and risks in Forex trading
Its features are:
Multiplying profits: Using leverage enables you to enhance your potential gains from a relatively small investment capital. There is no doubt that the optimal use of leverage is achieved when the trader is certain that the deal is suitable and that it will be profitable for him.
- Seize more opportunities: Financial leverage can free up capital and invest it in other areas, thus helping you continue to benefit from different investment opportunities, without being restricted to one form of investment.
- Suitable for beginners: Leverage can be very useful for beginners, especially those who have low capital and small accounts such as a cent account, because the importance of financial leverage lies in allowing them to trade with larger amounts than they own, which increases its benefit if trading cautiously.
Risks of trading using leverage
- Multiply losses: Financial leverage also multiplies losses, not just profits, and sometimes it is easy to forget how much capital you are putting at risk. Therefore, you should consider potential losses and follow specific risk management procedures when trading using leverage.
- Margin Call: If the market moves in the opposite direction, you may be required to deposit additional funds to hold open positions. This is known as a margin call. In this case, you will have to either add more capital or exit positions to reduce your risk exposure
What is the leverage ratio? The leverage ratio is the doubling ratio – or leverage – that your money will receive when using this leverage specifically. For example, when using a leverage of 1:100, this is the ratio that you will get, which is a ratio of 100 to 1. your. For example, if your amount is $1, and the ratio is 1:100, then you will have $100 to trade.
Leverage and how to choose the best leverage
Although different Forex brokers promote themselves as offering the best leverage and offer many advantages, the journey of searching for the best leverage can be full of difficulties in light of the risk of dealing with an unreliable Forex broker, which remains a risk. Therefore, the first step is to choose a reliable Forex broker that offers you the best possible leverage.
After that, choosing an appropriate level of leverage depends on the calculation of profits and losses. If you’re a beginner, try to stick to the following:
- Choose low levels of leverage.
- Use stop-loss orders and trailing stop-loss orders to reduce potential losses and protect your capital.
- Determine the risk ratio between 1% and 2% of the total capital for each deal.
You should be careful to choose a leverage that makes you feel comfortable when trading, without worrying about high risk. If you are a risk averse person, or are still learning Forex, lower leverage levels such as 1:5 or 1:10 may be more suitable for you at the moment. But if you are an experienced trader with a risk appetite and a clear trading plan, you can use high leverage.
The best financial leverage for beginners: Perhaps the question about the best financial leverage for beginners is the question that comes directly after what is financial leverage! Especially since traders are usually very interested in leverage after understanding it, understanding how it works, and realizing the good opportunities it may provide them with.
When talking about beginner traders, perhaps the best leverage is always the lowest leverage, as it allows traders to achieve additional and double gains, but it protects them from a huge loss in the event that the market takes a negative path for their deals
Leverage and tips on how to use it
Some very important tips for you to know how to use the best leverage available to you without exposing yourself to significant risks, and these are the most prominent tips
- Limit your loss
When trading Forex, or engaging in the financial markets, this exposes you to losses and also opens up great opportunities for gains, which is something that happens to anyone who makes the decision to open a new Forex account and engage in the financial markets. Therefore, set limits to your loss when using leverage. The answer to the question of what is leverage can never be devoid of the fact that it may be extremely dangerous
- Use stop loss
When using the best possible leverage while trading, we also strive to achieve the best results! Therefore, we must ensure that we set limits on losses by activating a Stop-Loss order. You should always set a maximum stop loss when trading Forex to prevent your account from losing a large portion of its balance. As is known, stop loss is an option that allows you to exit the deal automatically in the event of losing a certain percentage of your capital.
- Choose your ideal leverage level
Although Forex brokers offer different leverages, which vary depending on the types of Forex accounts they offer, you are not in any way obligated to use this leverage. Rather, it is a matter of personal choice, and in fact, we cannot define the best Forex account as the account that… It has the largest financial leverage, but the financial leverage varies depending on the type of account and the way it is used in trading and investing. We add that leverage must also be compatible with your trading strategy and plan
