Page 54 - Module1_Introduction_to_the_Forex_Environment

Module 1 – Lesson 11 – Leverage & Margin closeout

This way, if 500:1 leverage is used, a trader would be making 500
USD instead of 1 USD. It is of course important to state that a
leverage ratio trader can lose the funds as quickly as it is possible to gain them.

Leverage is expressed as a ratio 3. what leverage to use in forex?
and is based on the margin It is hard to determine the best level one should use, as it mainly
requirements imposed by your depends on the individual trader's trading strategy and the
broker. actual vision of upcoming market moves. As a rule of thumb, the
For example, if your broker requires longer you expect to keep your position open, the smaller the
you to maintain a minimum 2% leverage should be. This would be logical, as long positions are
margin in your account, this means usually opened when large market moves are expected.
that you must have at least 2% of However, when you are looking for a long-lasting position, you
the total value of an intended trade want to avoid being Stopped Out due to market fluctuations. In
available as cash in your account, contrast, when a trader opens a position that is expected to last
before you can proceed with the for a few minutes or even seconds, he is mainly looking to extract
order. the maximum amount of profit within a limited time. What is the
Expressed as a ratio, 2% margin is best leverage for Forex in this case? Usually such a person would
equivalent to a 50:1 leverage ratio be looking to employ high, or in some cases, the highest possible
(1 divided by 50 = 0.02 or 2%). leverage to assure the largest profit while trading small market
fluctuations.

From this we can see that the Forex leverage ratio strongly
depends on the strategy that is going to be used. To give you a better overview, scalpers and breakout traders
try to use as high a leverage as possible, as they usually look for quick trades. Positional traders often trade
with no or low leverage. A desired leverage for a positional trader usually starts at 5:1 and goes up to about
20:1. When scalping, usually traders tend to employ a leverage that starts at 50:1 and may go as high as 500:1.
Knowing the optimal leverage Forex trading ratio is vital for a successful trading strategy, as you never want
to overtrade, but you always want to be able to squeeze the maximum out of profitable trades. Usually a
trader is advised to experiment with leverage for his strategy for a while to find the most suitable one.

4. fx broker offers
Unlike futures and stock brokers that offer no or tiny leverage, the offers from FX brokers are much more
attractive for traders that are looking to enjoy the maximum gearing size. It is hard to indicate the size of the
leverage one should look for, yet most of the Forex broker leverages available would start at 100:1 and
average at 200:1. There are many brokers that can supply 500:1 leverage. Also, in very rare cases it is possible
to open an account with a broker that supplies 1,000:1 - however, there aren't many traders who would
actually want to use gearing at this level.

5. how to change forex leverage?
Once you begin trading with a certain FX broker, you may want to modify the level of leverage available to
you. This depends on the broker and we cannot answer this question for every market participant. With IFX
Brokers you can use an industry standardised procedure that includes authenticating to the Trader's Room,
selecting your account and changing the leverage there. This takes instant effect, so be careful if you have
open positions and try to reduce the leverage.

Another important aspect to remember is that leverage is tied to the account deposit level, so sometimes
when depositing extra funds to your account, currency trading leverage can be reduced. For example, a
broker may supply a leverage 500:1 on the deposits below 1,000 USD and the leverage of 200:1 on the
deposits between 1,000 and 5,000 USD. Once a trader has 950 USD and opens a 3-lot position on EUR/USD,

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