Leverage of broker10 / 12 / 20 Visitors: 1919
When working on financial markets, traders periodically use not only their own funds, but also attract credit resources from a broker. In practice, daily fluctuations in the currencies of different countries are relatively small and to be able to earn a significant profit, you can use additional funds provided by the broker. Such funds are called leverage and have long been used by traders. This helps, sometimes even significantly, to increase the income from Forex transactions.
On the other hand, using these features can significantly increase the risk of losing some or all of the deposit held by the broker.
Parameters of the provided leverage
The funds provided by the broker, known as leverage, may differ in size.
The size of the leverage depending on the operations with which assets money is allocated, the size of the leverage also differs. In practice, for Forex trading, the leverage is: 1:4 or 1: 100, or 1:500, or even 1:5000. As a rule, the highest leverage corresponds to the lowest Deposit made by the trader for trading. At the same time, for large amounts of money, such leverage as leverage, as a rule, does not exceed 1:20, and sometimes it is even smaller values.
To minimize risk when trading with borrowed funds, you can follow these recommendations:
- 1. when trading currency pairs, it is advisable to open a position on the selected asset for the entire amount invested in the trade. This recommendation can be followed even if the broker provides a significant amount of leverage to work in the market.
- 2. to minimize the risk associated with currency trading, it is advisable to develop a trading system or strategy in advance and follow the recommendations set out in it in the future.
- 3. Before you start trading, reduce risk and help test the developed strategies on a training or demo account. You can open such accounts with many brokers.
In addition, you can reduce the risk during trading using additional funds provided by the broker due to the fact that you can only trade inside the day and not transfer open positions to the next day.
Risks when using leverage
Using such opportunities as the leverage provided by a broker in the Forex market can sometimes earn significant profits even with small fluctuations in currency pairs. In this case, it is advisable to calculate the acceptable level of risk in advance.
Before opening a position on a currency pair, it is advisable to determine the acceptable risk in advance. For example, if you set a stop loss below or above an open position for insurance by a certain number of points, then you can calculate the likely loss by multiplying the cost of one point of a standard lot from the selected Forex broker by the number of points that quotes will pass against the occupied position before the stop order is triggered.
These and many other recommendations can help reduce the risk and increase the profitability of trading in the market when using additional funds provided by a Forex broker.