Anyone who has heard of Forex trading knows how profitable the field can get. Foreign exchange markets hold a value in trillions of dollars and this lures in several. However, what makes Forex trading truly alluring is the fact that traders can leverage their trades.
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What Is Leverage?
Put simply, leverage is the money borrowed from your Forex broker, in order to have access to positions of higher value. When you work with leverage, you can increase the profit potential of your trades by a huge amount. Additionally, leverage allows you to trade without having to own a lot of money. The borrowed money amps up your existing capital and let you sees huge profits.
With amounts as low as $100, you can trade positions valued at several thousand dollars. This means traders with low capital need not keep themselves from participating! Imagine the profit potential that can be reached with a hefty investment - sky's the limit. Leveraged trading is called trading on a margin. And this is varyingly beneficial depending on the type of trader you are!
Forex Markets' Liquidity:
Being incredibly liquid, Forex Trading markets give you an environment where there is never a shortage of opportunities. A 24-hour market ensures that no matter the time-zone you live in, you can participate in trades regardless. This also gives traders all the freedom they want to place exchanges. Be it short-term trades or longer ones, as a Forex player, you get to make the calls.
A Double-Edged Sword:
While leverage is an incredible boon, it can turn into a bane just as quick. Overleveraging has led to huge losses on many occasions. Just as it increments your existing capital amount, it can empty it all the same. When you leverage a trade with borrowed money, that sum is essentially owed back to the broker. Hence, upon losing said leveraged trade, you will lose your capital, the borrowed money and be left incurring huge losses!
How To Minimize Losses In Forex:
1) Leverage With Care:
While a 200:1 margin might sound mouth-watering, you have to think of the worst-case first; will you be able to digest a loss incurred on such a huge trade? Leverage is a very advantageous element and can help you make big wins from many a trade. But always leverage with care, and only in necessary amounts.
2) Place Proper Stop Orders:
Stop orders can help curb the losses a bad trade might bring in. Always place a precise stop to ensure your trades don't go out of hand!
Get yourself the best of both leverage and leveraging guidance of Forex Trading Strategies experts at WesternFX! Assisted by our veterans, you will learn how to control this powerful aspect of Forex and use it to your advantage in no time. Call us today to know more!
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