Why Leverage is Important for Forex Traders?
Leverage is important for brokers and traders and is considered a big risk magnifier.
When you are trading, you get leverage which in fact is the money from the bank or broker and not yours in the strict sense; this is the money that the broker offers to traders to increase their returns significantly.
Thus, it is a kind of investment from the broker, of course with a profit motive.
However, leverage is not offered for free, you as an investor/trader in order to invest in the Forex market, need to open a margin account with a broker.
The broker will provide you an amount of leverage which may be 50:1, 100:1 or 200:1. The amount of leverage depends on the broker and the size of the position you are going to trade.
Now, you can use the leverage given by the broker to trade and maximize your profit from the fluctuations in exchange rates between two different currencies (called Pairs).
As a trader you know what leverage will suit you the best as you may get higher or lower depending upon your investment and trade you want to make.
However, the chances of heavy losses are equally higher when you get higher leverage. Higher leverage is profitable and riskier at the same time.
Though, it gives an attractive opportunity to make huge profits from Forex trading which you would not otherwise be able to make with less money, you are always at risk to lose it all, if you do not know how to trade.
The Solutions Are With You
Forex experts suggest that you should work on your own trading habits and make the right decisions; however, it is possible only when you keep track of each trade.
You should know when to enter and exist; also, you may even note down the reasons for entry and exit and keep a score of how effective your system is to rule out any unfortunate trading decision.