Forex Leverage Trading -What You Must Know?

Forex leverage trading is sometime enamored as well as disdained.

I enamor it because I can draw huge wind fall profits with small amount of my own money.

I some time disdain it because when I make bad trading decisions it takes away huge chunk of my equity out of my cash register.

Understand though leverage is just a tool. It depends how traders use it -for profit or for losses?

Let's walk through a practical exercise. Consider the following scenario...

Forex Leverage Trading Forex Leverage Trading

As one can see that Trader A has lost 50% of his equity while Trader B has lost only 5%.

Yes, had the trade been positive, Trader A would have made huge $5000 profit as compared to mere $500 profit for Trader B.

Forex brokers are notorious for preaching risky high leverage trading while not teaching about it. I have come to realize the secret to survival in leverage trading business is not to use high leverage even though it does not cost me a penny to implement leverage in forex trading.

Yes, just because I can have leverage of 400:1 does not mean I have to use it all at once. I can be disciplined like Trader B in our example. So I can withstand any draw-down periods.

I have seen lots of beginners trade with 400:1 leverage.

This just reminds me of story of a boy hunter...

Once a boy hunter and an old hunter went hunting together. As soon as they were in the forest, the boy hunter started shooting whatever creatures he sighted at first. Pretty soon he was out of ammunition.

Then a huge tiger appeared in front of them. The boy hunter had no choice but to pray for his life.

An old, experienced hunter was waiting just for this time. He pulled his gun, aimed at the target and fired it. And with single bullet he had his full claim on his subject.

The moral of this story is use the leverage wisely. Use small leverage 5-10% to begin with.

When you have enough experience, and have built up buffer, then you will be ready to pull the full trigger.

Save your ammunition (equity) until that perfect timing.

So what do you love or hate about forex leverage trading?

Have your say about what you just read! Leave me a comment in the box below.