Leverage in forex trading refers to the process of utilizing borrowed funds to open significant trading positions. Brokers offer leverage to traders for holding positions which would otherwise not be possible with their cash balance. Leverage has the potential to enhance your profits on investments considerably. At the same time, it can increase your risk, thereby amplifying your losses.
Thus, leverage should always be used wisely and sensibly. If you use leverage, make sure you have a solid risk management strategy at a place to minimize the losses. An intelligent trader is the one who prioritizes consistent returns over risky trades. This is so because risky trades have the potential to damage you financially in case the market takes an unexpected turn.
Why Is Leverage Used In Forex Trading?
In forex trading, traders use leverage to enhance their profits from currency fluctuations. In the forex market, the profit made on each trade tends to be very small; hence, you need to execute a larger number of trades in order to make substantial profits. By using leverage, traders can open orders which are much bigger than what their initial capital allows. Without leverage, profits would be less as it is dependent on the amount of capital the trader tangibly has.
How Does Leverage Work In The Forex Market?
The best part of the forex market is that you can access much higher leverage as compared to other financial markets, such as the stock market. In the equities market, traders are provided with a high-leverage ratio of 2:1. Similarly, for the futures market, this ratio is set at 15:1. But the forex market is the only market where you can have the highest leverage ratios among all. In the forex market, traders can take advantage of leverage ratios of 1:50, 1:100, 1:200 and so on.
The reason why leverage offered in the forex market is higher is that currency pairs generally fluctuate less than 1% during an intraday time period, meaning the lender is in a much less risky position.
In leveraged forex trading, the money is usually borrowed from the forex brokers who also manage the trader’s trading account. However, in order to borrow money, the trader needs to open a margin account. High leverage in forex trading typically means the trader is able to control a considerable sum of money for a relatively smaller initial margin requirement.
What To Consider When Looking For A High Leverage Forex Broker?
Choosing a forex broker depends on your exchanging tendency and the country you live in. Some forex brokers might not offer the option of high leverage to their clients or well-known trading platforms such as MetaTrader 5. Hence, at the point you choose an intermediary, it is vital to consider certain factors. These are explained below:
- Edge Prerequisites:
In some countries, edge prerequisites are limited to 2% only, which equals to a 50:1 leverage ratio. But you can switch exchanges up to 500:1 on the most important monetary forms. You don’t need to use high-leverage forex brokers on every exchange. Thus, make it your first priority to choose a service provider who can lessen than work for you.
- Commissions And Expenses
Forex brokers make money through commissions and spreads. Various brokers are transparent about their fee structure and have charges’ information on their websites. Thus, as a trader, it is your responsibility to see all the charges a broker has before you open an account with them.
- Backing For Exchanging Programming:
Most forex brokers have their own customized trading software and platforms in addition to well-known trading platforms such as MetaTrader 4 as well as cTrader. Always choose a broker who has a relevant trading platform that can help you trade effortlessly.
By using the above standards, you can easily find the best high-leverage forex brokers online. High leverage in some countries is restricted to 50:1; however, in other countries, you can access leverage as high as 500:1. However, high leverage should not be the sole reason to pick a forex broker; make sure you consider other factors as well such as trading costs, regulations, customer support and more. They all play a crucial role in the selection of a suitable forex broker.