Forex Leverage - The Good, the Bad, and the Ugly

The currency market is a place where big money can be earned. This market has an average trading volume of over 3 trillion dollars, and the number of participants is growing every day. The forex market allows you to use one very special feature that is not as common in the stock market: leverage. However, the leverage of the forex market is not a simple 1:2 leverage, but 1:100, and sometimes even 1:400. This means that for every dollar you have in your account, you can trade one hundred dollars and profit from those hundred dollars.

Leverage can be great when the trade is going in your favor. Since the leverage makes the trade a hundred times bigger, your profits are also a hundred times bigger. This means if the currency pair moves 1% in your favor, you made a profit of 100%, or doubled your money. If the currency pair moved 3%, your multiplied the investment by four. With higher leverages, even a change of 0.5% can quadruple your money.

Although leverage is great, it can also wreck havoc on your trading account. Just as your profits, your losses are also multiplied by the leverage. If a trade is going 0.3% against you, you are losing 30%. If it is going 1% against you, your entire investment is gone. If you invested all your account balance into that trade, you will need to fund your account again.

The ugly truth behind leverage is that it is a great tool by brokers to lure traders and make huge profits. Leverage is a type of loan, so the broker is earning interest on the money it lends you for leverage. Also, brokers use leverage to attract traders, but they hide the risks behind shiny presentation of profits. Honest brokers mention that leveraging your positions can bring big losses with them as well as huge profits.

Handling leverage is very easy, and should be exercised by any trader. When opening a trade, make sure to select the proper amount of leverage. Most good trading systems automatically adjust the leverage for optimal results and minimal risks. This way you can enjoy both worlds - profit from leverage, but not be harmed too much from leveraging a losing trade.

To trade safely with leverage, get yourself an honest forex broker and a good forex trading system.

Free eBook for You

We want you to succeed on your forex trading. For that, we created a completely free eBook for you about forex trading. To get your eBook, just fill in your name and email:

For more information please fill out this form:

First Name:
Email Address:

We take your privacy seriously. Your details will not be revealed to anyone.

These are just a few chapters you will find there:

• What is forex?

• Who trades the forex market?

• Forex terms and definitions

• How to get started with forex trading?

• Special bonus!

• Much, much more!

To read your eBook, you will need the newest version Adobe Reader. You can get it here.