Merits Of Trading With High Leverage Forex Broker:
The best advantage of unlimited leverage brokers trading is that it allows traders to open large positions by borrowing additional funds. In addition to this, here are some other benefits of trading with high leverage forex broker:
If high leverage works to your advantage, you can indeed make a lot of money with a small trading account. If everything turns right, you can even become the best trader in the entire world. For Example, let’s assume you wish to buy a currency pair such as EUR/USD through a leverage of 200:1 and furthermore, it moves 50 pips to your favor. In such a situation, you can earn a significant amount of money. Additionally, it will boost your trading account. However, one thing you need to keep in mind is that leverage can only be in your favor if you have an ideal risk management strategy in place.
- Solution For Low Volatility:
As it is known, the forex market offers different levels of volatility on the basis of the currency pair in question. Additionally, volatility is also affected by economic events. However, when there is low volatility in the market, high volatility can bring you greater rewards. This usually happens when there is less activity in the forex market, especially when there are public holidays. Most cross currencies move only a pips, meaning you can open large capital with less capital. Hence, you will be able to reap bigger profits. The same happens when the market is ranging, as you are able to mitigate the strangling effect to earn more profits. The currency pair that you will select depends on your trading experience.
Demerits Of Trading With High Leverage Forex Broker:
High leverage could also damage your chances of success by consuming a huge portion of your trading capital in case you have entered the wrong trade. It has some disadvantages as well:
- Distorts The Chances To Make Your Trades Successful:
A broker will never tell you that high leverage can affect the transaction costs such as commissions and spreads. In their absence, your chances to be successful are negligible. For Example, if you had to enter a trade with the aim of 50/50 win, the costs can shift the odds against you. Additionally, they can consume your margins if you hold the position overnight.
- Can Lead To Margin Calls:
A margin call can be a trader’s worst nightmare. It usually happens when you use high leverage and hold a losing position for far too long. Let’s take an example, say you have a trading account of $5,000 and enter a position with leverage of 200:1 and require a few pips to stop. What if you open one more position and the currency pair falls to 100 pips. In such a case, your position will be immediately liquidated and you get a margin call. This is the reason why leverage is a top killer for unregulated forex brokers traders. If you use leverage on every trade, you need more breathing space to prevent losing your capital.
- Leverage Can Be A Liability:
When you make a profit or loss while trading, the leverage cost will be applied to your trading account. If you are well aware about the financial market, you must know that you are required to pay the borrowed amount with interest. The cost of leverage is computed on the basis of existing positions. When you use high leverage, you must keep this in mind that you meet the requirements of your broker.
Final Thoughts:
Leverage is considered an effective tool that offers flexibility to enhance your profits by opening a large position with minimum capital. There are many firms that allow you to trade with high leverage. A beginner trader should always use low leverage to develop adequate risk management techniques, but an experienced trader can open an account with a high leverage forex broker for better returns.
