Why Use Leverage in Forex Trading?

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http://www.forexconspiracyreport.com/why-use-leverage-in-forex-trading/ Why Use Leverage in Forex Trading? By www.ForexConspiracyReport.com If you are new to currency trading you have heard of leverage but are not quite sure what it means. What is the point of leverage in Forex trading and why use it? Investopedia discusses how leverage is used in Forex trading. "Leverage" in general terms simply means borrowed funds. Leverage is widely used not just to acquire physical assets like real estate or automobiles, but also to trade financial assets such as equities and foreign exchange ("forex"). Forex trading by retail investors has grown by leaps and bounds in recent years, thanks to the proliferation of online trading platforms and the availability of cheap credit. The use of leverage in trading is often likened to a double-edged sword, since it magnifies gains and losses. This is more so in the case of forex trading, where high degrees of leverage are the norm. If your company buys products from other countries you will often pay in foreign currencies. Here the common practice is to use Forex options and leverage is not an issue. Currency speculators, however, use leverage in Forex trading to enhance profits. And, of course, they run the risk of enhanced losses as well. All about the Pips A pip is what measures the amount of change in exchange rates in a Forex trade. For the majority of currencies a pip is equal to 0.0001 or a hundred of a percent of the currency unit. The fact of the matter is that often times the exchange rate of one currency to the next only changes by a few pips or so at a time and by maybe a few dozen pips a day. A trader could have a profitable Forex strategy and come out on the winning side of virtually every trade and still make very little money. Why use leverage in Forex trading? Traders do this to make a profit on all of their hard work. With 100 to 1 leverage a trader can trade $100,000 using only $1,000 of his own money. The downside risk is a margin call if a trade goes badly. This is where trading stops come into play. Trading Stops DailyFX discusses how to set stops. Stops are critical for a multitude of reasons but it can really be boiled down to one simplistic cause: You will never be able to tell the future. Regardless of how strong the setup might be, or how much information might be pointing in the same direction - future prices are unknown to the market, and each trade is a risk. Money management can be the key to successful Forex trading, more so than picking trades or use of leverage. A basic and safe rule of thumb is to set stops 50 pips above and below the trade. This limits losses to $5 on a USD trade. As a trade progresses the trader can raise his stops, both buy and sell, as the trade becomes more profitable and he can always exit before hitting the sell stop. The aim is to have a risk to reward ratio that leaves you at the worst with no profit or loss and on good days provides a profit. Of course if you pick the right trade on the dollar and it goes up a tenth of a percent you will see a profit of $10,000 on that $1,000 you are trading at 100 to 1. That is why you use leverage in Forex trading. https://youtu.be/aOUgOFGN3hI