The concept of leverage is indeed very profitable in forex trading, but can also be dangerous if you are less cautious in using it, especially if you are using a very high leverage (leverage over). Leverage will cause the minimum margin or minimum guarantee that you pay each time a transaction vanishingly little. This will psychologically affect your trading.
One of the characters of the successful forex traders are those that can eliminate the influence of emotion when trading. When people talk about the advantages of forex trading, the first time they have addressed it usually is a high leverage facilities, or even very high. With leverage, you can open dozens or even hundreds of positions with relatively small capital. This can be done only by a relatively small margin collateral, and this is what makes one of the charms of forex trading. Currently many brokers that offer leverage 1:100, 1:200, 1:400 to 1:1000 even.
If you are trading on a broker with leverage 1:1000, then for a contract value of USD 10,000 (commonly called mini lot) you only pay a margin of (USD 10,000/1000) = USD 10 for each transaction (0.1 lot for mini lot), with value per pip (pip value) appropriate calculation of the contract value (e.g. mini lots for the EUR/USD with a contract value of USD 10,000 , the value per pip is USD 1). Thus if your capital of USD 500 and you open the 30 positions (each 0.1 lot) with a leverage 1:1000, then the total margin you need only USD 10 x 30 = USD 300.
If for each position you are getting 10 pip profit, then Your total profit was USD 10 x 30 = USD 300, or 60% of your capital. Conversely, if you are experiencing an average loss of 10 pips, then your loss is also 60% of your capital, and in the forex market such events could take place in a matter of minutes, though spread given your broker is zero (no spread).
Psychologically, the higher the leverage you use, then you will be more daring (many) in the open position trading, since the minimum margin values that you pay will be less. Just as if you drive a car, drove at speeds of 60 km/h and 200 km/h are certainly very different in anticipation if happens something. Semaki high speed you drive, the greater the risk you face when there is something that is not beneficial. In many events, accidents due to driving at a speed very high end with death.
Forex trading with a very high leverage can be represented with a drive with a very high speed. The risks are considerable. As you are aware that the broker gives you the loan of the rest of the contract value which should be reduced to the minimum margin that you pay. In case you're trading mini lots with the leverage 1:1000, the broker lends USD 10,000 – 10 USD = 9,990 USD for each 0.1 lot (mini lot) that you open. Have you ever thought why not charge a broker party loan interest to you even though the trading position You hold for days or even weeks?
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