Why is gaining an excessive amount of leverage through forex margin trading a dangerous thing?
If you have already find out about the idea of leverage in forex by trading on the margin, you will no doubt understand that it can be a powerful tool. A typical margined account will offer a 1% margin, which means you simply deposit 1% of the total value of one’s trades (together with your broker lending you another 99%).
Lets say your account deals in a large amount $100,000 each, as a way to buy a lot you now just need to invest $1000 of your money in that trade (1%). Now this deal might seem like an amazing offer, and it does allow the ‘average joe’ to have a piece of the action without needing a few hundred thousand dollars to spare. However, there is one big caveat you shouldn’t overlook:
Trading on a margin of 1% means a fall of 1% of your trade will put you from the game!
Forex margin trading enables you to minimise your financial risk, but the flip side of the coin is that when the value of your trade dropped by the $1000 you put forward it might be automatically closed out by the broker. That is called a ‘margin call’.
As you can see, a small movement in the incorrect direction could easily get rid of your trade, and see your $1000 gone in a couple of seconds. If the trade moved enough in the right direction to cover the spread then you might make a good profit, but you would need to be sure in your prediction to create such a risky trade.
Forex margin trading on a 1% margin is risky business, but by getting the balance right between your level of risk and how heavily leveraged you account is it is possible to gain an edge. This advantage may be the difference between success and failure.
Important: Gaining An Advantage in Forex Margin Trading is key to Your Sucess!
Learn more about forex trading strategies [http://forexmentalist.com/forextrading/forex-trading-strategies-leveraged-trading/] and margins, and know the pitfalls the brokers make an effort to hide!