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Elvis

How much leverage is best for my Forex trades?

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To trade in the forex market, forex market, you need to have enough know-how on different countries' economic and political nature. It is also essential to know the volatility in the forex market and how it changes from time to time. However, the knowledge of these things may not be as necessary as that of using leverage. Leverage knowledge beats them all.

The Dodd-Frank Wall Street Reform has revealed that many forex traders have lost their money and continue to lose it in one way or another. Lack of proper understanding of how to use leverage is the leading cause of the loss.

Leverage in a forex market involves you borrowing money from your broker so that you can invest. You will only introduce a small amount depending on the leverage-margin ratio set. In forex, you can borrow so much massive amount from your broker and gain more when you place your trades successfully.

Before you select the leverage level you want to use; you should consider several factors. One thing you should do is make sure that your leverage is low. Maintaining a little leverage will most apply if you are not a risk-taker or do not like taking so many risks. If you are entering the forex market and are on the verge of learning the hacks for succeeding in this market, then low leverage should be your best option. Your leverage to margin ratio can be between 5:1 and 10:1; these are good low-level leverage you can use.

Another thing you need to consider is placing trailing and limit stop orders. These orders will primarily benefit you by minimizing the losses you will get in case the market does not favor you. A limit stop will ensure that you can proceed with your learning on trading in the forex market and, at the time, minimize your losses. The stops will also help you reduce emotional trading.

The right leverage for you will largely depend on your experience and how well you can manage the market risks. It will also depend on your comfort while trading. You need to understand well how to employ leverage before you start trading in the forex market.

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Hi Elvis,

The amount of leverage should be considerate of your capital and preferences. Leverage is
referred t as the borrowing of funds, which is used by traders to invest in their business
transactions. Some people argue that the best leverage for you is 1:100 to 1:200 This implies that
with $500 in your account you can control assets worth $50000
Choosing the best leverage is based on your capital and your plan. If you go for high leverage,
you will be able to control a lot of assets, but the risk of your money is also high. If you opt for a
lower hold, your capital will be safer, but you will not be able to control a lot of assets. That is if
a trades go against you.
So the basis of choosing leverage should be based on the risk of your capital. Some say that the
best leverage should not pose more than a 3% loss on your investment capital. If a leverage goes
to 20% on your money, it should be reduced by these measures. Going for the lowest risk
possible will keep you longer in the trade market.
If you are a beginner and don't have a lot of experience trading or you are conservative of your
capital, it would be best for you if you went for lower leverage let's say like 1:5 to 1:10 You will
be exposed to little risk rates as compared to high leverages.
You can also deploy trailing and limit stops. These stops will help you reduce the number of
losses if a trade goes wrong. Humans are subject to developing emotions, and if you let them get
the best of you when trading, you could be heading towards failure. That is why you need to
limit yourself is in case a trade goes wrong; you will not keep adding on it in an attempt to save
it.
Leverage is beneficial since it gives traders more power to invest in the forex market.
The strategy you are using when trading should also be considered when choosing leverage. If
you are a scalper, you can go for moderately high leverage, which you are comfortable with
because you are trading while holding trades for short intervals, so the exposure to risk is not that
high. You are also not exposed to overnight risk when changes go against you while you are not
aware. This also applies if you are using day trades because trades are closed before the day's
ends, and a deal is a short term. If you are using a long term strategy, it would be best of you if
you took up smaller leverage since the exposure to risk is very high. Your trades take long
periods and are exposed to overnight risk.

Taking high leverage while scalping gives you the power to invest more, and since your sole
purpose is to make small amounts of profits frequently by quickly entering and exiting trades,
there will be a lot of capital.
CFDs give investor leverage, which helps them get more capital for trading. Choosing the best
leverage cannot be the same for all trades. Initially, companies used leverage most, but now even
retail traders can. Your capital should not be exposed to a high-risk rate by choice of leverage.
Always go that which gives you the lowest risk rate. You should ensure that a single trade does
not take up more than 3% of your capital. It will help you reduce the losses in case things do not
work out as you expected. New traders should remain conservative until they learn the
fundamentals and gain experience.

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