Knowledge is power – even in Forex trading or picking the most suited trading platform for you. Being able to know currency traders needs a thorough understanding of political issues and economies of the world that could affect the price movement in the financial market. But the thing is, economies of the world and global finance aren’t the only factors that contribute to the drawbacks of traders. Sometimes, small things matter most. The lack of knowledge about leverage and you should properly use it may seem basic but often the one that causes trading losses. Also, you need to pick a reputable trading platform like MetaTrader 4 that has great features and technical tools to support your trades.
Risk of High Leverage
Leverage is when a trader borrows some money so he can invest or buy something out of it. In the Forex market, you can get your trading capital from your broker. Although traders get money as capital for their trades, they need to have successful trades to be able to gain more. In the past years, there are a lot of brokers who are capable of offering high leverage like 400:1. With this leverage, you will only have to invest $250 for the deposit and you can control as much as $100,000 in the Forex market.
But ever since financial regulations were held in 2010, the leverage ratio was limited to 50:1 in U.S brokers. With this leverage ratio, you will have to deposit $250 and you can spend $12,500 in the market.
Things To Consider When Picking The Right Level of Leverage
Currently, some rules are widely accepted by traders before they can select a level of leverage. These are the easiest rules that traders should follow when picking a leverage ratio.
● See to it that the leverage is of low level.
● Utilize trailing stops in order to reduce the downside of trading and for the protection of your capital.
● As much as possible, you must limit your capital only to 1% - 2% on every position you take.
One thing that Forex traders must bear in mind is to pick a level of leverage that they feel they are comfortable with. If you are a conservative type of trader and you do not like to take a lot of risks, then you should lower your leverage level to 5:1 or maybe 10:1. These levels are totally appropriate for you.
The Importance of Trailing Stops or Limit Stops
Both limits stop and trailing stops provide a good way of reducing losses in trading in case the direction goes out of plan. When you use limit stops, traders can make sure that their losses are limited to something that they can afford to lose. When it comes to winning in Forex trade, you must see to it that you have a trusted broker who can offer you a reputable trading platform such as MetaTrader 4. These kinds of platforms offer risk management that is even customization to best suit your needs.
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