What is best way to use leverage in Forex trading and create wealth?
Leverage essentially refers to the activity of borrowing capital to increase the returns on investment.This activity is particularly prevalent in the forex trading industry where a Forex broker “lends” capital to the trader to invest in the market. This reflects as a larger trading account on the trader’s desk thereby allowing him to open a much larger position. This would help the trader gain better profit margins. On the other hand, it could also lead to a higher loss if the speculation goes awry. This is beneficial in emerging markets like Indonesia where Forex trading is prevalent. Why do traders use leverage if it can harm their accounts? Forex leverage works on the concept of “high risk, high returns.” When a trader, in a market opens a position in the market, his success or failure is based on the rise and fall of the market. The market moves either in the direction of the trader’s position or against it. For every pip that the market moves, the trader is likely to see a fixed amount of capital added to or taken away from his account. If the move is on the upward trajectory to the trader’s position, he will gain money; if not he will lose money How is leverage usually borrowed from the brokers? Currency trading is often dealt through contracts for a standard amount of currency units called “lots.” Lots are categorized as Microlots (1000 units),
Minilots (10,000 units) and Standard (100,000 units). This means that when a trader trades with one standard lot, he is in effect either buying or selling 100,000 units of currency. In practice, brokers tend to lever the capital of traders from anywhere between fifty to five hundred times its size. They describe it a ratio of 1:50x. For example, brokers can provide a leverage of 1:500 or five hundred times the initial size of the original capital. If a trader can produce a hundred dollars for purchase, with the impact of leverage, he can now command five hundred thousand dollars worth of currency in the Forex platform. If you are looking to gain more such insights and venture into Forex trading in Indonesia, it is advisable to enlist the services of a reputed forex broker like WesternFX.