Leverage is a trading term to refer to the fact that you can trade up to 400 times the money you have on your Forex account. That means that for each $1000 you have on your account, you can trade up to $400.000.
Even though it sounds good, it also has some disadvantages that can catch you up in the middle of the game.
Leverage can easily be considered as one of the biggest advantages in Forex since you can make huge profits even if you don’t have much money on your account. That means that if you’re right about a trade, leverage really pays off because no other market in the world offers such high leverage. This will make your profits go up, exponentially.
On the other hand, as everything else in life, you have risks by using such a high leverage. The same way you can make money with leverage you can also lose your entire account on a single bad trade. You may get a margin call that wipes you out completely and puts you out of the game.
As you can see, leverage is a two side’s coin. It surely is an advantage but it may also be a disadvantage if you don’t know what you’re doing.
Everyone loses on Forex, no matter how much experience or how good you are, sooner or later you’ll have a losing trade. Sometimes a trader gets stuck in a losing strike.
But if you’re in a losing strike or enter in one using too much leverage you’ll probably be out of the market very soon. Always remember that high leverages come with high risks. The best thing you can do is evaluate the trade and start by trading mini lots or one lot at the time. When you see your trading account growing, then you can trade more lots at a time.
