| One of the main things which attract people to the | | | | a new trader trying a 100:1 leverage and end up |
| Forex market is the high leverage which brokers | | | | losing his or her entire deposit on a 1% shift in the |
| offer Forex traders. Indeed, Forex leverage can | | | | wrong direction. It's one of the reasons people think |
| offer substantial profits, yet using too big a leverage | | | | the Forex market is so risky. They lose their deposit |
| can also act against you and cause bigger losses to | | | | in their first trade and are so turned off that they |
| accumulate in a hurry. | | | | never try again. |
| How does Forex leverage work? | | | | If you're new, go for much smaller leverage levels. I |
| For instance, if you place a $500 deposit and are | | | | recommend not going over 10:1 levels. If your |
| offered a 100:1 leverage, you can open trades of | | | | position rises by 1% you gain a 10% return, which is |
| $50,000. This means that if the currency pair which | | | | still amazing. But if you lose, than only 10% of the |
| you've chosen rises by 1%, you earn $500, or a | | | | deposit is gone and you have a lot more to work |
| 100% return on your investment. This is a huge | | | | with and earn it back in future trades. |
| return and can happen within a day or 2. Huge, right? | | | | One of the key rules of Forex risk management is to |
| However, Forex leverage also has it's own special | | | | choose a leverage lever which you can handle. If |
| risks as well. Take the same example of a 100:1 | | | | your deposit constitutes a large part of your |
| leverage on a $500 deposit and let's say that your | | | | finances, than choose a lower leverage 5:1 for |
| currency pair shifted 0.5% in the wrong direction. This | | | | example. Don't be tempted by tales of huge forex |
| means that you lost $250. That's right, half of the | | | | gains at 500:1 leverage. Most of the people only tell |
| money you put in, a loss of 50% in one trade. | | | | about their winning, not about their losses. |
| So, you see, selecting how big a Forex leverage you | | | | Forex trading is a long term enterprise. Don't allow |
| choose is an important decision which can literally | | | | yourself to be thrown out of the game by making |
| make or break your trading experience. Just imagine | | | | one bad trade at a huge leverage. |