Alan Solarsh Review- How Does Leverage Affect Pip Value? Leverage not only amplifies your losses but also kills you in another manner. It's a much slower kind of death, kind of like dying by a thousand cuts. Most traders never realize what's happening until the damage is done, says Alan Solarsh Review.
It's the associated transaction costs of using high leverage that are the killers of this strategy. Not only does leverage increase your losses, but it also increases your transaction costs as a percentage of your account. You open a mini account with $500. You buy five little lots of GBP/USD with a spread of 5 pips. Your true leverage is 100:1 ($50,000 total mini lots / $500 account). However, you paid $25 in transaction costs (($1/pip x 5 pip spread) x 5 lots)! That is 5% of your account. As soon as you place one trade, and the market has not even moved yet, you're down 5%. If you lose trades, your account balance shrinks. As your account balance shrinks, your leverage increases. The more leverage you have, the faster your transaction costs consume what little money you have left. Choosing a broker can be a difficult process because transaction costs are one of the most significant factors. The higher your leverage, the higher your transaction cost. Example If you decide to use the entire $1.5 million that you have available, it would be extremely risky since each pip is worth $150. If you lose just 67 pips ($10,000/150), you could wipe out your entire account.
Alan Solarsh Review- How Does Leverage Affect Pip Value? As your leverage increases, the volatility of your position increases, as small changes in pip value will result in larger fluctuations in the value of your account, says Alan Solarsh. Even though high leverage carries a significant downside risk, it also carries a substantial upside gain-if you were to make 67 pips instead, your account would double, and you would earn 100% returns in one day!