Forex is a large electronic network of banks, institutions and individual traders around the world who speculate on exchange rate fluctuations. Daily Forex activity is more than 50 times that of the New York Stock Exchange.
Many novice traders try their hand at Forex, because it is open 24 hours a day, allowing them to trade during their main work. But the role of leverage in Forex trading increases the risks significantly.
Leverage in any financial market allows traders to take on much larger positions than are usually available with their cash balances. This raises the potential for huge profits, but it also increases risk.
Leverage in Forex trading is necessary for most traders to earn high, because exchange rates tend to fluctuate in fractions of a cent. To profit from such a tiny movement, you need to have a lot of currency at your disposal. Almost all Forex brokers extend high leverage for their clients to facilitate the trading experience.
The level of leverage provided by a trader varies from broker to broker. For example, you can trade at 50: 1 leverage, which means you multiply your money balance by 50 to determine the purchasing power of your account. Thus, a $ 20,000 Forex account can trade $ 1 million of foreign currency. To determine the number of units of currency you can purchase, multiply the amount of cash you plan to trade by 50 and then divide by the exchange rate.
Leverage in Forex trading, in addition to profits, also promises huge risks. Novice traders who do not understand them tend to lose almost their entire account balance within a short time, sometimes in a few hours. You should trade especially small positions if you are a beginner so that leverage does not take you out of business early on.
Micro accounts
You don't often get the opportunity to claim a lower leverage for a brokerage account, but you can open special Forex accounts that offer smaller position sizes. If you are new to the Forex market, you should consider "micro" accounts, which only allow 1000 units to be traded. The amount of money required to open and trade a micro account is usually less than $ 100, and this is a way to learn Forex without taking excessive risks.
