What is leverage can I trade without it? Leverage means “borrowing” money to invest or purchase something, simply put giving you a higher buying power. In this article, I will explain why forex leverage is important and how we can make a better use of it. Let’s say you want to buy a house but don’t have enough money. Common sense is to go to the bank and ask for a loan. Bank will give you the loan to buy the house but you’ll be required to have 25% of the total value. Assuming the house costs $350,000 you need to have $87,500 what means is that the bank is leveraging your buying power of 3:1. Leverage in forex is similar, to trade on a standard lot you need $100,000 so brokers are loaning you money to open that volume.
We will walk thru a simple example of how to calculate leverage and making it your useful tool. Using this example can make you achieve a proper risk management. You will understand how much money you need to open certain trades. Not only that the risk achieved is the proper risk but in some cases, traders tend to go beyond that. If you’re one of those traders I’m sure you know what I’m talking about: higher risk – higher rewards. Whit a leverage of 30:1 or 20:1 you can still open trades and riskless. One very important aspect that 70% of traders missed out is higher balance = lesser risk.
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