Компания Форекс Aktiv Trade
Litefinance" height="" src="eunic-brussels.eu?q=75&s=aab1ab2f3ffed33dccadcfeb" width="">
As mentioned above, it is very easy to incur a big loss on your balance with a large leverage. Newbies naively believe that since the leverage is large, it is quite easy to get the account back to its previous size. But you should always remember that to compensate for losses, profitability must be many times higher. For example, if with USD on your balance, you get a loss of 50%, to return to a break-even position, you need to make % profit from the balance of 50 USD.
Below is a table for calculating the percentage of profit to return to the breakeven point in case of losses. I recommend printing it out and placing it in front of the working screen as a reminder to follow risk management rules.
% loss from the starting balance | % profit to cover loss |
10% | % |
20% | % |
30% | % |
40% | % |
50% | % |
60% | % |
70% | % |
80% | % |
90% | % |
% | Your deposit is gone &#; |
In the case of large leverage, with losses on the balance your purchasing power falls as well, available funds for collateral decrease, and therefore the risk of Stop Out increases. This is usually compensated for by a decrease in the volume of positions, which in turn reduces the potential profitability, i.e. it will be even more difficult to recover in the end.
It is important to always remember that using low, medium or maximum leverage on Forex is a commitment. You return the main value of the leverage in the form of swap regardless of whether you succeed or fail at the end of the trading day. The leverage cost must be covered by the trader's account and will be automatically deducted from their balance.
Swap is a commission for using leverage that is automatically withdrawn from the trader’s balance. Obviously, the cost of leverage directly depends on the volume of its use. The broker usually charges the commission only for the actual amount of funds used.
What is the best leverage level for a beginner?
If you are new to Forex, the ideal start would be to use leverage and 1, USD balance. So, the best leverage for a beginner is definitely not higher than the ratio from 1 to
How do you find the best leverage in Forex for you? Obviously, the answer to this question will be different for each trader.
So let's try to figure out what a good leverage ratio is.
So what leverage is the safest?
The table below shows the calculation of the required collateral and deposit change for leverages with a classic lot of , USD.
Leverage | Change in currency pairs, % | Position size in lots | Margin, USD | Balance change, % |
1% | 1 | % | ||
1% | 1 | 50% | ||
1% | 1 | 33% | ||
1% | 1 | 20% | ||
1% | 1 | 10% | ||
1% | 1 | 5% | ||
1% | 1 | 3% | ||
1% | 1 | 1% |
Suppose that we are ready to start trading with a deposit of USD, with an acceptable risk per trade of 1% to the balance and an acceptable position drawdown of 1% with maximum portfolio diversification.
Leverage | Position drawdown, % | Maximum number of positions | Balance, USD | Risk for account per position, % |
1% | % | |||
1% | 50 | % | ||
1% | 33 | % | ||
1% | 20 | % | ||
1% | 10 | % | ||
1% | 5 | % | ||
1% | 3 | % | ||
1% | 1 | % |
Now we will calculate the maximum size of positions that we can open and the risk per trade, subject to the above rules.
In the table above, we see that with such risk management requirements, the optimal leverage on Forex is , since in this case we will be able to open positions at once that meet our risk management rule, or several positions with a minimum risk.
From this example, it is obvious that for trading with a lower leverage, you need to increase your deposit so that you can actively trade with the required level of diversification.
You may say that this is a contradiction. How does trading with a large leverage reduce risks? In fact, there is no contradiction. Liquidation risks do go down with higher leverage, provided that trading volumes remain the same.
All the disadvantages high leverage I told of above relate to the psychology of a trader and violation of money management rules, which is why it is so important to work on your trading strategy and discipline in trading. Then the high leverage will not be a problem and will not lead to losing the deposit.
Get access to a demo account on an easy-to-use Forex platform without registration
From the examples above we concluded that high leverage is okay. If you follow the rules of risk management and have proper trading discipline, high leverage is more of an advantage.
However, do you need to find a broker with a leverage of , or more?
The answer is NO.
There is simply no liquidity provider on the foreign exchange market that would cover leverage of more than So any Forex broker with leverage like , should immediately raise suspicion. Most likely, this broker’s leverage is either created by overlapping trades of other participants in the opposite direction or virtually, which means this is a bucket shop and you are being conned.
Another sign of an unreliable broker is that you cannot trade directly with a liquidity provider using a raw market spread. Bucket shops usually don’t provide such a service.
Pay attention to customer service as well. Brokers who take care of their clients have a service that works around the clock and answers any requests quickly. Such brokers also provide a personal manager service for large clients and a wide tariff range for each client.
If you analyze the broker market, you will surely notice Litefinance. It has many advantages over other brokers:
more than 15 years of experience on the Forex market;
a wide range of trading instruments (currencies, CFDs, stocks, indices, metals, hydrocarbons, and cryptocurrencies);
direct access to the market with minimum spread;
low swaps on classic Forex or no swaps on Islamic accounts;
protection against negative balance;
customizable leverage from up to ;
24/7 customer support;
own free educational programs and training materials;
powerful analytical support;
large community, a platform for communication and exchange of experience;
access to social trading.
As you may have noticed, LiteFinance can offer the best leverage ratio you need.
How does high leverage ratio work?
Let's take a popular currency pair - GBP/USD.
Without leverage, opening a trade with a contract size of , per lot will require the trader to invest about $,
Using leverage, one can drastically reduce the amount of capital required. $, / (leverage used) = $
The balance of USD would be enough to enter the trade in full!
However, remember that the Stop Out level with LiteFinance is 20%. With dollars on your balance, it’s 26 dollars.
So for the trade to be closed by Stop Out, the drawdown will have to be USD.
Considering that you entered with a full lot, the price has to go only points (in 5-digit representation) from the point of entry in the "wrong" direction for your trade to be closed by Stop Out. As you understand, this is a colossal risk.