Forex Moderate Leverage

Forex Moderate Leverage Picture
Similarly, it is highly recommended that a trader always use moderate leverage, below 20:1, being much more advisable to leverage between 1:1 and 5:1.

For example, suppose that the client has $ 10,000 in your account, and the trader places the 10% of the capital, is $ 1,000. If you use a leverage of 20:1 means that the broker will provide the client 20 times this amount, which becomes $ 20,000. If the purchase and sale of foreign exchange generated a gain of 0.5%, the investor will have won $ 100, which corresponds to 10% of $ 1,000 and only 1% of the total in the Forex account , ie the $ 10,000. So get yourself in a total of $ 10,100. While not much money, the amount of several transactions can often generate profits exceeding 5% per month, even after deducting the costs of the trader and the administration of broker commissions.

Now, we see that this has the advantage when losses occur. If in the previous case the client had lost 0.85% of the money traded, then it would reduce its capital by $ 170, that is lost 17.0% of $ 1,000, which would correspond to 1.7% of capital in your Forex account. Thus, your account still have $ 9,830, so they could re-invest $ 1,000 and to recover their money in the following transactions.

If in this case the trader would have used a risky strategy and neglected, using 100% of its capital and a leverage of 100:1, the result would be disastrous. Would have invested the $ 10,000 of the client that is transformed into leveraged 1,000,000 dollars. In this scenario, a loss of 0.85% corresponds to the amount of $ 8,500. Ie that the loss would reach 85% of total capital and only $ 1,500 would be to try to recover their original investment.

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