Tips for Using Leverage While Trading Forex

Tips for Using Leverage While Trading Forex

Apart from explicit profits, Forex trading is popular among traders for reason that they get higher leverage comparatively. Here traders can borrow money from a broker to trade currency pairs and for that they must first invest some money. A lot of traders are prompted by the prospect of generating big profits without putting down too much of their money.

However, according to traders who have been in the business for some long time admit that traders must keep in mind that an excessively high degree of leverage could result in them losing everything. They, therefore, recommend that traders should follow some safety precautions while trading Forex as these can help them mitigate the inherent risks of leveraged forex trading.

The bit of first advice from traders is that you should never get out from a losing position by doubling down or averaging down on it as according to them the biggest trading losses have occurred because a rogue trader stuck to his guns. They suggest that rather than adding to a losing position, traders should quit the trade before it is too late.

Another advice that comes from expert traders is that they should try to cap their losses if they wish to make big profits someday. Additionally, traders need to know how to keep their losses small by managing limits before they get out of hand and drastically erode their equity. There are several technical solutions for loss control that can be used for the purpose.

Judicious use of leverage is recommended for traders as according to Forex experts using leverage appropriate to comfort level is the best tactic. For instance, using 50:1 leverage means that a 2% adverse move could wipe out all your equity or margin; therefore, go for a lower option i.e. 15:1 or 10:1 which are at the level that you can trade and bear.

Expert traders admit that real leverage has the potential to enlarge your profits or losses to a large extent; however, they consider it a double-edged sword as according to them the greater the amount of leverage on capital you apply, the higher the risk you will bear.

Thus, with a smaller amount of real leverage applied on each trade, traders can afford to give their trade more breathing room what they need to do is set a wider but reasonable stop that helps them avoid risking too much of their investment.

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