- Did you know leverage is actually the killer of your account? The higher the leverage, the more risk you take. Don't be fooled by traders who know Forex and know how to take high leverage to maximize profits. That is wrong !!!
- Leverage is a loan, in the stock market leverage is called buying power. Brokers for loans to traders to increase the value of your money. Eg the value of your deposit is $ 1000, and you choose leverage 1: 500, meaning $ 1000 x 500 = $ 500,000 is the virtual value of your deposit. With a value of $ 500,000 you can trade say max 1.0 lots worth $ 100,000. Without leverage, you may not be able to trade with a value of $ 100,000 as the value of your money is only $ 1000 and you can only trade with a value of $ 1000 and below, but the minimum value offered is $ 10,000 (except for penny accounts, but this account is not a real market deal)
- Imagine you buy USD with a value of $ 100,000 while the real money you have is only $ 1000, here you can see your risk has increased to $ 100,000/$ 1000x100% = 100% risk. If the market goes down by 100 pips, you have lost 100% of your money. 100 pips is equivalent to 1 cent in the real estate market.
- So the risk you have taken to trade 1.0 lot is 100% risk. If you trade 2.0 lots, you have a risk of 200%. So where are the profit opportunities? Just a risk.
- So be wise in choosing leverage because a mistake will bring consequences. There is no denying the opportunity for profit, but without proper risk monitoring, the risk will be higher than the reward. Be safe and be smart.
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