Leverage is one common strategy in forex trading that places a trader in a better position.Simply put, the concept is all about borrowing an amount to increase your investment in the market.The opinion of traders with the use of leverage varies as it does have its own pros and cons.
Those who are new to the trade would tend to invest in lower values. But in order for them to be in a higher shareholder value, they would use leverage.Some brokers offer to lend 99% of your total investment so you would only have to come up with an amount equivalent to 1% of the investment.Say for example you want to start off with $10,000.With leverage you would only have to come up with $1,000 and the broker will provide for the remaining $9,000.Of course, this loan comes with an interest.
The forex leverage set up has both pros and cons.One obvious advantage is that it will put you on a better shareholder value because of the higher investment.The usual trade for currencies don't really move beyond 1% so you are likely to profit.
However, the downside to this is that you are also placed in a very high risk for losses.If the currency takes a deep plunge you will also be incurring high losses because of the high investment.In this scenario, the trader is put at the losing end and it is only the broker who profits.For this reason, you have to think twice before deciding to use leverage.A lot of things have to be weighed and many factors should be taken into account.
Those who are already familiar with forex trading would pair leverage with some risk reduction strategy.The most popular of which is the stop loss strategy.In this case the trader puts a certain maximum or limit and when the values go near or beyond the limit he will order the broker to withdraw the investment from the market.With this, the trader will be able to preempt incurring bigger losses.
Those who are new to the trade would tend to invest in lower values. But in order for them to be in a higher shareholder value, they would use leverage.Some brokers offer to lend 99% of your total investment so you would only have to come up with an amount equivalent to 1% of the investment.Say for example you want to start off with $10,000.With leverage you would only have to come up with $1,000 and the broker will provide for the remaining $9,000.Of course, this loan comes with an interest.
The forex leverage set up has both pros and cons.One obvious advantage is that it will put you on a better shareholder value because of the higher investment.The usual trade for currencies don't really move beyond 1% so you are likely to profit.
However, the downside to this is that you are also placed in a very high risk for losses.If the currency takes a deep plunge you will also be incurring high losses because of the high investment.In this scenario, the trader is put at the losing end and it is only the broker who profits.For this reason, you have to think twice before deciding to use leverage.A lot of things have to be weighed and many factors should be taken into account.
Those who are already familiar with forex trading would pair leverage with some risk reduction strategy.The most popular of which is the stop loss strategy.In this case the trader puts a certain maximum or limit and when the values go near or beyond the limit he will order the broker to withdraw the investment from the market.With this, the trader will be able to preempt incurring bigger losses.
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