Keep an Eye on Your Forex Leverage - Ignoring It Will Destroy Your Account
Strict rules regarding Forex leverage need to be followed to protect your trading account. If you are using more than 3% to 5%, you're placing your account at risk.
Over trading Forex is easy to do with the pressure of "easy money" being touted by many, especially your broker! Forex leverage is often quoted as 50:1, 100:1, 200:1, etc. What these numbers are actually referring to is the margin your broker will allow you to trade with.
Your actual leverage is calculated by dividing the amount of your trade, (for example $200,000) by the amount of money in your trading account (for example $8,000). In this example, your leverage is 200000 divided by 8000, which equals 25, or a 25:1 leverage. This means that you are trading $25 for every $1 you have.
The volatile nature of the Forex market will amplify the effect that high leverage has on your position. A Safer strategy is to use no more than the 3% to 5% I mentioned above. Daily price swings of 50 to 100 pips are common with most currency pairs.
Forget the High Leverage with a 30 Pip Stop... It's Trading Suicide
You need to be able to ride the lows of the normal price moves to be successful trading Forex. Increasing your Forex leverage makes it ever harder to do this.
If your leverage is at 25:1 as in the example above, a 1% change in the currency price (which often happens) will take 25% of your account with it.
Reduce your "real" leverage and not only will you sleep better at night, but the odds of your success will be greatly enhanced.
