Advantages and Disadvantages of Leverage

iStock_000011633639XSmall-300x199The foreign exchange market provides individuals with a unique opportunity to make a great profit by depositing small amount known as the initial margin. This Forex peculiarity is called leverage.

The usual ratio of exchange market leverage is 100:1. In this case in order to buy for example $10,000, you have to pay $100 to start the trade, as you effectively borrow the remaining $9,900.

Even the most trivial movements in the value of a currency can become a reason of incredible gains and unpleasant losses.

In order to escape losses you should study the main rules of risk management, learn how to set stop-loss and stop-limit orders.

You should devote most of your time on learning about trading plans, money management, position sizing, technical and fundamental analysis, as well as develop a good trading strategy before  starting your trade.

One of the utmost important factors that you should bear in mind is that foreign exchange trading contains a high level of risk, and hence, is not suitable for all investors.

The high degree of leverage contains high level of risk, as if you earn relatively huge amount, in the same way you can lose more than your initial deposit.

From the above mentioned features it follows that before trading you should carefully think over risks and inherent costs as well as ask for advice if necessary.

Ani Stepanyan

Ani is the one responsible mostly for finance related articles. Despite it she will never hesitate to spice up the article or write about more general topics to entertain. Ani is very friendly and outgoing, she is always ready to cheer up and lighten the atmosphere.

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