Leverage is one of the most appealing features because of which many traders are attracted to the forex market. The forex market offers high leverage that can help traders increase their expected profits. However, leverage is a double-edged sword and should be used carefully, or else a trader can lose heavily. Read More
What Is Leverage?
Leverage can be considered as a loan that is offered by the forex broker so that the trader can open a larger trading position with a relatively smaller amount of money. Trading using leverage can exponentially increase the potential profits, however, it can also increase the potential risks with the same intensity.
Leverage offered is represented by ratios. Traders can use leverage as per their preference and risk tolerance.
Margin And Leverage
Margin is the minimum amount of capital required to open and hold a trading position while trading with leverage. The trader is required to put a certain margin to use a particular leverage ratio. This fraction of the amount is referred to as the margin.
A margin call is initiated by the broker and is referred to as a risk warning that occurs when there are insufficient funds left. This notification asks the trader to either add funds or close the trade. Stop out is the signal that tells that all the active positions will be closed by the broker when the margin level is not maintained.
What To Look For While Choosing A High-leverage Forex Broker:
1. Commissions And Other Trading Fees – Brokers primarily make money from either commissions or spreads. Spreads are of two types – floating spreads and fixed spreads. It is important that the trader understands the trading fees being charged by a high-leverage forex broker before opening an account.
2. Trading Software – Brokers offer various trading software like MetaTrader suite (MT4 and MT5), ActTrader, cTrader, etc. Traders must check whether the broker supports their preferred trading platform to make hassle-free trades.
3. Accounts Offered And Trade Minimums – Minimum deposit amount is the amount required to open a trading position. There are brokers that have zero initial deposits required to open an account with them, however, they will have a trade minimum to open and execute the trade. Consider checking the initial deposit and trade minimums offered by the shortlisted high-leverage forex broker.
4. Technical Tools Offered By The Broker – There are certain technical tools that can be used to limit the losses like stop-loss, trailing stop- loss and take-profit. These orders are placed while opening the position. Make sure the trading platform has a good execution speed for these orders to avoid unnecessary losses while choosing a high-leverage forex broker.
5. Negative Balance Protection- Negative balance protection is a feature offered by the broker that ensures that the trading account does not go negative. This is a very crucial risk management feature. Traders should consider a high-leverage forex broker that offers negative balance protection.
Leverage can be highly profitable depending on how it is being used and handled. Leveraged trades can lead to heavy losses if the trader is not careful enough. Forex brokers offer leverage as high as 1:3000, however, it must be used cautiously.