Why is gaining an excessive amount of leverage through forex margin trading a dangerous thing?
If you have already find out about the concept of leverage in forex by trading on the margin, you’ll no doubt understand that it’s rather a powerful tool. A typical margined account will offer you a 1% margin, which means you simply deposit 1% of the total value of one’s trades (with your broker lending you another 99%).
Lets say your account deals in a large amount $100,000 each, as a way to buy a lot you now only need to invest $1000 of your profit that trade (1%). Now this deal may seem like an amazing offer, and it does allow the ‘average joe’ to get a piece of the action without needing a few hundred thousand dollars to spare. However, there is one big caveat you mustn’t overlook:
Trading on a margin of 1% means a fall of 1% of your trade will put you from the game!
Forex margin trading enables you to minimise your financial risk, however the flip side of the coin is that if the value of one’s trade dropped by the $1000 you submit it could be automatically closed out by the broker. That is called a ‘margin call’.
As you can see, a small movement in the incorrect direction could easily wipe out your trade, and see your $1000 gone in a couple of seconds. If the trade moved enough in the proper direction to cover the spread then you could make a good profit, nevertheless, you would need to be absolutely certain in your prediction to make such a risky trade.
Forex margin trading on a 1% margin is risky business, but by getting the balance right between your degree of risk and how heavily leveraged you account is you can gain an edge. This advantage may be the difference between success and failure.
Important: Gaining An Advantage in Forex Margin Trading is key to Your Sucess!
Learn more about forex trading strategies [http://forexmentalist.com/forextrading/forex-trading-strategies-leveraged-trading/] and margins, and know the pitfalls the brokers try to hide!