How much leverage should you take in Forex?

6 years ago Forex 0

Leverage is a very important part of Forex knowledge. Leverage is the advantage where traders with small capital can trade the market for big trades. It gives them the opportunity to trade the market as if they have a large account. Though it is very profitable for traders who have mastered the art of using leverage, traders with little knowledge can destroy their trading career by trying to use leverage in the market. If you are a trader, and want to use leverage in your trades, you should not take too much leverage.  You need to take a little leverage before you know what you are doing in the market. The retail traders in the forex trading community consider trading as an easy task, and thus 95 percent of the traders loses money. The professional traders always suggest that rookie traders develop their own trading strategy before they deposit any real money.

Selecting your leverage

Leverage can act as a double edge sword. If you can use it properly, you can easily make a huge amount of money with a small amount of trading capital. But if it’s used in an inappropriate manner, then a single trade can wipe out your entire trading account. Here are some tips that will help you to stay when using leverage. Do not use leverage unnecessarily in the market. Only use leverage when you need leverage.

Take small leverage: Do not take leverage for a big size. Although brokers offer traders very high leverage, you do not necessary have to take the highest leverage in your trading. Take leverage which is small and can protect your capital. If the trade is not going in your favor, you will only lose a small amount of money. As a new trader, you should find a reliable broker which offers excellent trading conditions and high-leverage trading accounts like Try to do some online research, as it is imperative that you trade with the reputed broker for consistent success.

Always use trailing stop when using leverage: This is the mandatory thing that every trader should do when they are using leverage in the market. If your trade is wrong and the market is going in your other direction, without using stop-loss, you can have lost your profit, and also your capital. Using a trailing stop will downsize your loss and also protect your capital from the market volatility. The professional trend traders use this simple principle and ride the long term trend in the market. But in order use the trailing stop loss features, you must have sound knowledge about the support and resistance level.

Take leverage in certain trades: Only use leverage in trades which you are certain of. If you do not know any market and you want to take leverage, than chances are very high that you will lose money. If you are certain of a market trend and you know from experience you can make money from trades, only use leverage to make a certain profit in certain trades. Despite the reliability of the trade signal, you should always use proper money management in every single trade. Always make sure that you are not risking more than 2 percent of account capital in single trade.

Conclusion: Leverage is very profitable to traders when it is placed right. If you use leverage in the wrong trades, chances are high that you will blow your entire trading account. As a novice trader, you should learn the basic art of trading and based on that, develop a strong trading strategy. Try to make profit consistently in your demo trading account, and once you feel comfortable, go for the live trading. Always remember to follow proper money management to save your trading capital.