There are lots of traders in Forex who think of leverage as a way of making a big profit in the market like the hotshots. But leverage is nothing but a marketing policy conceived by the brokers. The professional traders in Switzerland always prefer to trade with low leverage since they know that a high leverage trading account can ruin their trading career. If you know the perfect way to place your trade then you will make a decent income by using the low leverage trading account. There is no need to take excess leverage as it will increase your risk exposure in the trading industry. In our article, we are going to explore the history of leverage and tell you, if you should use it or not.
Leverage is a tool to make brokers rich
Do you know that US Dollar is one of the major currency in the currency pairs of Forex? Though the US Dollar is widely used all around the world, you will find that not many major brokers are not offering their services to the United States. It is not that they do not have money to offer their services, it is because they have to offer a lower leverage than the European markets. The U.S administration knows very well that if the trader’s trade with high leverage then their very human nature will force them to take a big risk. Even if you follow strict trading discipline then after a series of losing trades you might try to recover your loss by taking big size trade. Most of the time the traders make their condition much worse in their recovery attempt. But if you trade with a low leverage trading account then you don’t have the freedom to execute a big trade with the small trading account.
In the European market, the brokers can offer a leverage of 500:1, where they have to lower their leverage offered to 50:1 in the US. It says their profit is lowered in the United States if they offer Forex services. It is one of the major reasons why many brokers who are offering Forex worldwide do not enter the US market. You will find that US citizens are the lowest number of traders in the market. Though there is no ban on trading in Forex, brokers do not like to offer their service as they get a lower profit because of the low leverage. But when you look at the success rate in options trading industry then you will notice that a big number traders are from the United States. They are making money consistently due to their low leverage trading account. Even if they try to risk big amount of money they will be forced to use a small lot due to low leverage.
It will only larger your loss
Using leverage in trying to make a profit will only make your loss larger. There are many traders who have tried to use leverage when they have lost a trade in the market. They could not accept a loss in the market and to make their loss profitable, leverage was a good idea to them. They take high leverage in their trades, lost the trades and risks their capital. As we have said before leverage is not a great blessing to the traders. It will keep them away from their traders’ mindset. If you are not using leverage, you know what to expect from the market and you will make better trades. If you use leverage, you will expect big from the market and take high risks. This market is volatile and you cannot make it, making your profit larger by using leverage in the trading market.
Summary: Leverage is a double edge sword. If you know how to use it then you are most welcome to take advantage of it in forex trading. But if you are inexperienced then it’s better to trade in the low leverage trading account.
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