After knowing what leverage is in Forex trading, let’s continue our discussion on Forex leverage.
Types of Forex Leverage
There are lots of leverage options for you. If you calculate mathematically, each forex leverage will vary. It is based on the effect of the margin that will be used.
It is better not to choose a leverage type that is too low. For example, if you choose 1: 1, the capital is certainly very large. However, too high leverage such as 1: 1000 and 1: 3000 will also be very dangerous if you won’t use it properly. The higher the leverage, the greater the risk.
This is because the use of lots that exceed the normal strength ratio of capital has the potential to obscure objective considerations when making trading decisions.
Dangers of Forex Leverage
Forex leverage actually does not really affect the number of profits or losses that we experience. However, there are still many traders who call leverage as a double-edged sword. Truly dangerous leverage, in the context of a double-edged sword, is that traders do not understand the concept of good money management.
Professional Traders Point of View
When we speak in the context of professional traders, they usually choose a maximum leverage of 1:100. As previously explained, it does not only give us a large transaction advantage but also turn against us as traders.
Besides limiting the use of good money management, professional traders will also limit their behavior by limiting the use of forex margins. With a small amount, you need the margin to open a position will be large enough. This will not provoke them to overlap, because the amount of available forex margin is already limited.
According to The Balance, the risk of using leverage is the same as using cash. Trading using leverage is an efficient use of trading capital that is no riskier than trading using cash.
Generally, leverage has nothing to do with the amount of loss or profit you get in one position. However, leverage can affect the number of lots and positions that you can open.
Read more: Why Do You Experience A Warning Margin Call?
