BNews.id - Best Leverage Ratio for Forex Trading Whether you are a novice trader in the Forex market or have solid experience, you must have come across the concept of leverage. If you are just learning Forex trading, you may be wondering what this term actually means. In this case, I recommend you to read the article "What is leverage".
Leverage in Forex is the amount of trading funds that the broker is willing to lend to your investment based on the ratio of your capital to the amount of credited funds.
The total amount of leverage provided by the broker is not constant. Brokers set their rates, which in some cases can be as high as 1:100 or even more. Forex leverage is mostly expressed as a ratio. In this example, that means with $1 equity, you can open positions up to $100.
Many beginners are attracted to leverage-based earning strategies because they want to make more money in less time.
However, keep in mind that leverage is associated with certain risks. You need to at least understand concepts that are directly related to money management in leveraged trading, such as:
Your account balance and Equity;
margins;
Free Margins;
Account Level;
Margin Calls and Stop Outs.
If any of these concepts are unfamiliar to you, be sure to read this article for a detailed explanation with clear examples.
Benefits of using leverage
First, let's look at the benefits of leverage for novice traders:
Opportunity to make profit is very high Using leverage on Forex gives traders the opportunity to increase their initial investment to play big.
The best example of leverage ratio
For example, a trader who has only 1 thousand dollars in his account can actually trade on the Forex market with 50 thousand dollars with 1:50 leverage or 100 thousand dollars using 1: 100 leverage. Put simply, this trader risks losing 1,000 dollars on his own, but if successful, will make a profit of $100,000 if the position is opened with 100% margin and 1:100 leverage.
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