Why do all traders use, and brokers provide leverage on Forex? Is it possible to trade without leverage (KP), and if so, how appropriate is it? What size of KP is optimal and how risky is it to use a large ratio of leverage to deposit? These issues sooner or later become especially relevant for any Forex trader. In this article you will receive answers to them.
Why do you need leverage on Forex?
As you know, any broker in the Forex or stock market provides its clients-traders KP. It is small for the securities market (1: 1, 1: 2, 1:10) and can reach large values for the currency exchange (1: 100, 1: 500, 1: 1000). Why is there such a situation? Historically, stock brokers are not keen on the large size of KP, more actively using the funds of the client. The minimum lot for trading stocks is only 100 shares, and the broker only helps the trader to buy more shares. A completely different situation on the currency exchange, where the minimum lot is equal to 100,000 units of the base currency (for example, US dollar). It turns out that a trader needs to have at least $ 100,000 in his account in order to open with one lot. Here a big KP will help us.
If you have $ 2,000 in your account at a CP of 1: 100 and you have opened a deal for 1 lot, then the missing $ 99,000 will be provided to you free of charge, that is, for free, by the broker. What is the benefit of a broker, you ask? Of course, he will take the spread (more precisely, part of it - the rest is paid to partners and a larger broker), sometimes there are one-time commissions (for example, for accounts like NDD). This means that it is beneficial for a broker to allow a trader to open as many trading transactions as possible, as well as increase trading volumes. That is, the broker is very interested so that the trader does not merge (lose) his deposit quickly, but trades for a long time.
It turns out that having only $ 1000 on the balance (deposit) and a leverage of 1: 100, the trader actually trades at $ 100,000. If the KP is equal to 1: 500, then trading occurs as at $ 500,000. Impressive, right?
In general, the presence of KP is very beneficial for the trader, since Forex trading is available with a small deposit (even $ 10-50 for cent accounts).
Protection of a broker and a trader's deposit
If we are aware that the broker provides us with leverage on Forex, the reasonable question arises - is it possible to lose this money? That is, to lose more than we have in our account? And how safe is it for a broker? After all, the price can easily explode in a direction that is disadvantageous for us, and unfortunately, far from all traders set stop loss.
Here you need to recall about such Forex terms as Margin Call and Stop Out. Margin count - a situation when the balance of funds in the account becomes too small to continue trading and even keep current positions open. Previously, in such cases, the broker called the client and asked either to close the current transaction or to deposit additional funds to increase the margin. Now no one is trading on the phone, but the Margin Call situation remains relevant.
Stop out - forced automatic closing of trading positions upon reaching a critical margin level. It is logical that in case of unfavorable movement for us, first comes the Margin count, and then, with the continuation of the movement - Stop out. As a rule, the margin call and stop out levels of most brokers are at the level of 20-50% and 10-20%, respectively.
And the last one. How much do risks increase with an increase in KP? The correct answer: in skilled hands - do not rise. With a loss of, say, 30 points, the size of the loss will be the same for KP 1: 100 and 1: 500 with other similar parameters. What is the difference for different shoulders? In the amount of collateral - with a large CP, it will be less, therefore, the trader can use more deposit, increasing trading volumes, i.e. potential profit. You only need to remember the principles of money management (money management) and be sure to apply stop orders.
Summarize. Leverage on Forex is an indispensable factor that allows you to use small deposits for full trading on the exchange. Using the big KP correctly, the trader can effectively increase his profit.