Leverage and currency trading???!?
Just been interested in currency trading, so I have just began some research. When you trade with leverage, you are essentially borrowing money from the broker to trade with to increase your profits. But, what if you lose all your deposits, are you required to pay for the leverage you've been borrowing with? Is using leverage risky, or are you not required to pay this back to the broker? some clarification please guys??
Public Comments
- Leverage is very risky. You can make huge amounts of money, but you can also lose everything very quickly. The broker will never (almost never) lose money. The way it works is suppose you buy an asset worth $1,000,000 but you use half your money and half theirs ie you each have $500,000 in the transaction and the brokers rule is that percentagewise they will only match the $ you have in the position. The position goes againist you and you lose $100,000 so the asset is now worth $900,000. Since they still have $500,000 invested but you only have $400,000 invested (ie the entire $100,000 lose came out of the money you put in) they will make you sell $100,000 (or maybe even sell it themselves if you don't act quickly enough) so you now only have an $800,000 asset but again the money in is half theirs, half yours. The thing is a 10% move againist you (in the above example) cost you 20% of the money you had invested (in the above example the asset went from 1,000,000 to 900,000 a 10% loss, your money went from 500,000 to 400,000 a 20% loss). If on the other hand, the broker had matched you 2 to 1 (ie they had put in $2 for every $1 you put in) then a 10% move against you would have cost you 30% of your money. Of course it works the other way too (at a 1 for 1 match a 10% move your way makes you a 20% profit) but nobody gets it right everytime so its very easy to take huge losses on rather slight errors. Anyhow, I think margin is ok if used sparingly and you really know what you are doing, but it has bankrupted many a man too. Oh, and one last thing, the broker of course charges you interest on the $ you borrow. Good luck.
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- I've been trading in Forex for 2 years and use mostly 400:1 leverage. In a worst case scenario (margin call) you can't loose more than the money you have in your brokerage account. You always trade currencies in pairs like i.e. EUR/USD. Since you buy this pair the broker essentially buys euro and at the same time sells usd. This makes it possible to use such high leverage. One nice advantage of leverage is that most brokers pay you interest money on certain currencies. Buying these pairs USD/CHF or USD/JPY will pay you a substantial amount of interest daily. Here's a good website that shows you how it works with a short video presentation. www.theforexopportunity.com
- Hi, In forex you may lose only your deposited amount. I'm trading forex successfully already several years and I'm enjoying with the leverage as it shifting my earnings but if you would use it incorrectly then leverage will be not even a double-edged sword, it would be a guillotine with your head on the block. Main thing is that you shouldn’t risk more than 1%-2% of your trading capital. Other rules are: Don’t be greedy, Be patient, Don’t hasten enter the market, Don’t fight against market – go with the market, Always use reasonable stop loss, Better trade one pair as every pair has its own characteristic, Don’t grieve for the loss; count it as payment for your education as you making deductions from every your loss. One more reason why many traders lose that is small trading capital. Traders with initial trading capital $300-$500 are condemned to lose it especially if he/she is beginner. Therefore statistic is so sad. They lose $300 once then start with same $300 again, lose it again and finally give up. Note even experienced traders have bad days, weeks or even months. But think what is bad month comparing with 10-20 years? It is nothing. Note main thing is final result. My opinion is that reasonable initial trading amount should be $10k and more and not less than $2K. And note market is not a places – market is people. If you would like I could introduce you to one of forex broker leaders that is located in SWITZERLAND and Regulated by the Swiss Federal Department of Finance; audited by KPMG. They have very tight spreads. Total 25 currency pairs Gold and Silver. SPREADS: 2 pips for EURUSD, USDJPY, AUDUSD, EURGBP, EURCHF; 3 pips for GBPUSD, USDCHF, USDCAD, EURJPY; 4 pips for CADJPY, CHFJPY; 5 pips for NZDUSD, AUDJPY; 6 pips for EURAUD, GBPCHF, NZDJPY; 7 pips for EURCAD, GBPJPY; 8 pips for GBPCAD, GBPAUD, AUDCHF, CADCHF, NZDCHF; 10 pips for AUDCAD, AUDNZD. LEVERAGE 1:200 default but client could chose the leverage from 1:1 to 1:200 at the account opening procedure. MARGINS. The margin or leverage a client can have depends on the client's account equity. The table below shows margin requirements for the different equity levels: Less than 25,000 - 0.5% 25,000 to 1,000,000 - 1% 1,000,000 to 5,000,000 - 2% 5,000,000 to 10,000,000 - 3% Above 10,000,000 - 5% Please note that on weekends and holidays margin requirements remains the same. SWAPS are counted as negative as positive. Also is available swap-free accounts. STOP and LIMIT orders may be placed as close as 5 pips from market price TRADING TERMINAL Meta Trader 4. Clients can choose to have their accounts denominated in either USD, EUR, GBP, JPY, CHF, AUD or CAD. Initial account opening deposit from US$2000. From first view it probably looks high comparing with other brokers who allow mini accounts and minimum initial deposit from USD250 but it is more useful and safer because clients are more protected from quick stop out and total loss of the initial deposit in the case if unfortunately it would be several unlucky trades in rage. This is regular forex trading account however it is allowed trading in mini lots (from 0.1 lot). If you are interesting I could introduce you to them please e-mail or PM me (press on my name) and I provide you with further information. Furthermore I could provide you for FREE with more than 50 trading e-books and trading systems that worth more than several thousand dollars and are very useful as for beginners as for experienced traders. Good luck!
