Leveraging in Forex Trading
Leverage is part of what makes Forex trading so exciting since it allows Traders to magnify their profits by multiplying the initial investment beyond what they might otherwise be able to afford. That’s why it’s important to check out how much leverage is offered before choosing a Forex Broker.
In essence, Leverage is a loan given by the broker to the traders. The amount of leverage is directly related to the amount that the Trader has invested himself.
Depending on the brokerage and the type of trading account, leverage can be anywhere from 1:50 to 1:1000. On UFXMarkets, the standard leverage is 1:200 although certain assets have 1:50 leverage.
By way of example, imagine that you have deposited $5,000 into your trading account and that your broker is offering you a leverage of 1:200. This means that you can conduct transactions on up to $1,000,000 and potentially make a lot more money that if you had only invested $5,000. Nevertheless, you should always bear in mind that leverage can multiply your losses if the market moves against you. By using leverage, your risk increases just as much as your potential payout.
Using Leverage makes it even more important that Traders take steps to decrease the risk involved in their investments. Many Forex brokers, including UFXMarkets, will automatically close trades if the Equity in a Trader’s account falls below a certain percentage of their account balance. At UFXMarkets, trades will be closed when the Equity Balance reaches 4%.
However, there are other steps that Traders can take on their own. One of the most important is to set a Stop Loss Order. This means that even if you’re not sitting at your computer, you can plan ahead and set the trade to close automatically if it drops below a certain point. The additional advantage of this is that it forces you to decide ahead of time how much you can afford to lose.
In fact, planning ahead is the most important thing to keep in mind when using Leverage on the Forex Market. When you are doing your research and analyzing the market, make sure you understand how much each pip means for you both before and after you’ve taken the Leverage into account. This will help you to set your Stop Loss and Take Profit orders at the appropriate points. Not only will that help you to minimize the larger risk involved with trading with Leverage, it will also help you to take advantage of the added profit that Leverage can bring you.
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