One of the features of forex markets that differentiate it from other financial markets is the astronomical level of leverage that is commonplace in the forex world. Whats so special about Forex Leverage?

Leverage is used to amplify or magnify the equity in your trading account. The usual level of leverage offered by forex brokers is 100:1. Some Forex brokers can offer up to 400:1 leverage on the average retail trading account. The implications of this are mind boggling. No other financial market offers even close to this level of leverage. This means that $1 in a traders forex account can control up to $400 in a currency trade.

Leverage is type of financial magnification by definition. Forex leverage can both be a very positive feature as well as a very negative one. Forex leverage is a double edged sword. It is true that high leverage magnifies profits. However, it also magnifies losses equally.

High leverage of the magnitude found in forex trading can offer tremendous possibilities to the upside as well as the downside. However, you need to use it with a great deal of caution. This high level of leverage summarily wipes out otherwise healthy trading accounts often.

Stock brokers only offer leverage ratio of 2:1 on margin account. FCMs offer leverage of 10:1 to futures traders. But in case of forex trading, common leverage ratios offered by forex brokers range from 50:1 on the low side all the way up to 400:1 on the high side. The sheer magnitude of this leverage, even on the lows side, far eclipses, the amount of leverage available in other financial markets.

400:1 leverage is too much. Some forex brokers use it to entice new people who have never traded before. Never use this high leverage even if someone offers it to you on a silver platter. Suppose that 400:1 leverage is utilized by you. In practical terms, what this means to you as a forex trader is that a standard lot of $100,000 for example can be traded in EUR/USD currency pair with only $250 in trading account margin.

In other words, for every $1, you as a forex trader are in fact controlling a whopping $400. In this particular example, $250 in your forex trading account can control a trade of $100,000 using 400:1 leverage.

The fact that a small amount of money can control a large amount of money in forex trading can certainly serve to magnify potential profits. But on the flip side of the coin, the amount of risk involved in using this high level of leverage is also equally magnified.

Therefore, it is advisable to use caution when trading with the substantial leverage common in forex trading. High leverage trading is aggressive trading that is both characterized by high risk and high reward potential.

Why too much leverage is dangerous? When the market moves in your favor, even a small movement in the market can be magnified many times by using leverage making large profits for you. But the dark side of using too much leverage is that when the market moves even a small amount against your position, your whole trading account can get wiped out.

In the beginning, dont use more than 5:1 leverage in your trading. With experience, you can increase that level to 10:1 or 20:1 but this much leverage would always be sufficient for you.

Mr. Ahmad Hassam has done Masters from Harvard University. He is interested in day trading stocks and currencies. Try 1500 Pips a day Forex Signals. Discover a revolutionary Forex Robot Trading System!

Choosing a medical school can be a challenging task. There are a large number of considerations that should be made prior to deciding on an educational facility for your professional training.

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