2 Pro Tips to Manage Risk When Using Leverage In Forex Trading

Forex Leverage For Beginners

The Forex market is one of the largest in the world. Every day more than 5 trillion dollars worth of exchanges take place. The Forex market is built on traders buying and selling exchange rates of currencies. After thorough technical and fundamental analysis, forex traders can predict changes in forex rates. Following analysis, traders will buy orders if the analysis predicts a rate increase, and sell if it predicts a forex rate decrease. If the market moves in the predicted direction, traders profit.

Apex Markets gives traders a chance to significantly multiply their profits by allowing them to access and utilize leverage. Using leverage increases the amount of foreign currency traders can access with a small capital investment.

What Is Leverage In Forex Trading?

Accessing leverage in Forex trading is simply brokers like Apex Markets supporting your trading investment to boost your purchasing power. When you request leverage, Apex Markets will lend you capital allowing you to trade larger positions in a currency. That means you will be able to purchase more of the currency you’re interested in than you would be able to afford from just your own funding.

Prior to accessing leverage, you will be required to fund your trading account with a relatively small amount of capital. That amount is usually a small percentage of the trade’s value. Following your funding, your broker will allow you access to up to 500 times your initial capital to trade larger position sizes (lots). For this reason, leverage allows traders to enter different Forex markets with relative ease, which is excellent.

Accessing leverage is particularly appealing to Forex traders because Forex has the lowest margin rates in the financial markets. That is, you will only need to pay a very small percentage of the total cost of the trading position in order to open a leveraged trade (i.e. fund your trade using borrowed money from your broker).

Accessing leverage in Forex has margins as low as 3.3% which means you can open a position worth up to 30 times the trade because there’s a 30:1 leverage ratio. In fact, Apex Markets is known for having one of the highest leverage ratios in the forex market. Apex Markets offers a 1:500 leverage ratio and up to 100% welcome bonus. Pairing Apex Markets’ trader support offer with a $100 forex trade investment, within a few minutes, you could scale your profits to $1000 USD or more. Comparably, trading stocks have a leverage ratio of 5:1. So accessing leverage in Forex trading means your gains are poised to be much bigger. With amplified gains, leverage in Forex already sounds incredible.

However, amplified gains also mean amplified losses when you’ve decided to use leverage in Forex trading. If a currency doesn’t perform as predicted then there will be little or no gain from the trade. At the same time, the money borrowed from the broker is still outstanding to be repaid. This can be devastating because the Forex market may plummet dramatically without prior indication. For this reason, leverage in Forex is a double-edged sword. Here are two effective methods you can use to properly manage leverage and mitigate the risk.

# 1 Maintain A Stop Loss

Your stop loss is your safety net. A stop loss is the predetermined price you set to tell your broker to close your trading position if the market moves against you. Here’s an example for a bit more clarity. If your analysis predicts that the market will go up to a specific price but changes in the market cause it to fall below your expected price, then your broker will automatically close your position. This protects your investment so you don’t lose more money than you are prepared to lose.

A stop loss is usually set for the highest price you are willing to wait for the market to afford you and the lowest point at which you are willing to sell at a loss. When using leverage in Forex stop losses are heaven-sent because they allow you to control when you exit the market.

In the volatile Forex market, the markets are changing rapidly and as a result, the market may ‘gap’. That is, the market prices may change so quickly that your positions may close a bit above or below your stop loss price. When you’ve accessed leverage in Forex trading you want to avoid buying or selling too far above or below the price point you’re willing to risk.

# 2 Follow the 1- 5% Rule

While it may be much easier to simply grab a number each time you trade or use the same number for each trade, that approach to trading is a big mistake. It is an even bigger mistake if you’re using leverage in Forex Trading. Without properly calculating your risk, you’ve begun to treat trading as if it’s a gamble, and only 13.5% of gamblers walk away winners.

When using leverage in Forex trading, you need properly calculated risks. At any time during your trade, your stake should be determined by the size of your account, the perceived risk, and the percentage of your account you’re already risking. At this point, you may be thinking that the answer is to risk only 1-5% of your capital. You’re correct, but there’s more.

To further that notation, here are a few additional recommendations to help you mitigate your risk when you’ve taken leverage in Forex:

• 1. It’s best to have a daily profit target of 3x your risk. For example 5% risk to make 15% gain or 1% risk to make 3% gain,
• 2.Ensure your beginning trade risk is no more than 5% of capital.
• 3. Ensure you don't overtrade. Following these three rules are also great for guiding your stop-order decisions.

Following these three rules are also great for guiding your stop-order decisions.

Summary

Though there is some risk involved, making use of leverage in Forex is no doubt a great way to amplify your profits. However, using leverage in Forex trading without properly calculating and balancing for potential loss, is a recipe for disaster. The Forex market is always changing, and so it is imperative that you calculate that change in your bids. Making wise use of stop losses and prudently maintaining the 1-5% rule are two of the strongest ways to protect your trades.

Conclusion

Though taking leverage in Forex comes with the double-edged sword of big losses and big gains, the barrier to entry into leverage in Forex is very low. Brokers are willing to lend traders capital while only asking for a deposit of 3.3% of the possible profits. Apex Markets’ That is the lowest leverage ask in the financial market. The fact that brokers are willing to accept such a big risk speaks volumes about the Forex trading market. The approach to granting leverage suggests that the benefits outweigh the losses for the brokers. That suggests that, if approached with proper risk calculation, there are great gains to be had from taking leverage in Forex for traders.

Ready To Become A Leverage Trader?

Apex Markets pride ourselves on being one of the highest-leverage broker firms around the world. We help both beginning and seasoned traders access the leverage they need to win big. Visit our website to learn more about how you win with Apex Markets, and create your account to claim your 100% welcome bonus today!