Leverage is one of the well-known features in forex trading, which it gives traders the ability to control a large amount of money using very little of funds.
For example a forex trader is able to control a $10,000 worth of trade using as little as $100. This is one of the reasons so many people are attracted to trading forex compared to other financial markets.
Though, does it mean that the higher the leverage, the more advantage we are getting from forex trading? And what would be the best leverage for beginner? Let’s take a look at the examples below:
Both Trader A and Trader B has the same amount of balance and traded the amount on USDJPY. Trader A used 1:100 leverage and Trader B used 1:500 leverage. Here is what happen if the trade ended in 100-pip loss.
It’s true that trader A was controlling less funds due to lower leverage. Though because of the low leverage he is using, he could avoid blowing his account in a single trade. Compare to Trader B, because of the lower leverage Trader A was using, a 100-pip loss only resulted in $90 loss while Trader B loss $450 on the same trade.
Therefore, a higher leverage doesn’t always give you more advantage. Leverage is a double-edge sword, using a right level of leverage would help you to trade better and avoid significant losses.
It is believed that a 1:100 leverage is the more suitable for beginner to start with, which it still gives traders ability to control a certain amount of fund using little trading capital. And if loss happens, it protects traders from losing big as well.
Hirose Financial is now offering 1:100 leverage for its forex trading platforms. And besides binary options trading, we are now providing full support on forex trading as well. If you are interested in forex trading but not sure how to start, contact us now!
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