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Forex Leverage Explained, and How Much to Use

A common question is how much leverage to accept from a broker, with some offering up to 500:1. That means you can initiate a position valued at 500 times your capital. That could be profitable, or it could wipe out your capital if the price moves 0.2% against you.

A common question is how much leverage to accept from a broker, with some offering up to 500:1. That means you can initiate a position valued at 500 times your capital. That could be profitable, or it could wipe out your capital if the price moves 0.2% against you. 

We aren’t going to use that much leverage, we are going to find a balance where we can still make money, but we aren’t as exposed to catastrophe.

Here’s how to figure it all out. 

Forex leverage is when a broker provides you with more capital to trade with than what you deposited. This increases your “buying power” and allows you to make trades using this larger amount of capital. 

Leverage means you amass profits more quickly than if you just used your own capital.  Losses also happen more quickly. 

In this article, we will look at how leverage works, why forex brokers offer such higher leverage amounts, and how much to take and use.

How Forex Leverage Works

When you check out forex brokers, or open a forex account, you will be asked (or see) how much leverage you are being offered. 

How much leverage you have available to you doesn’t really matter. You decide how much you actually use via your actual trading. 

Leverage is how large of a position(s) you can take in relation to your capital.

Assume a broker offers you 100:1 leverage. You have $1,000 in your account. Multiply your capital by your leverage to get your “buying power”. You can take $100,000 worth of positions (100 x $1,000).

If you have 50:1 leverage, you have $50,000 in buying power. 

Just because you have this much buying power/leverage doesn’t mean you need to use it. 

Assuming you have a $500 deposit and 200:1 leverage. This gives you $100,000 in buying power. That’s a lot on a $500 account. So even though you are able to trade up to 100K of currency, maybe you decide to cap yourself at $15,000, or about 30:1 leverage. You do this by taking position sizes that don’t total more than 15,000 (in your account currency).

Leverage and Margin

You may see leverage listed or advertised another way, as margin. 

Some brokers may say they offer leverage up to 50:1. Others may say 2% margin. This is the same thing. The latter means you only need to put up 2% of your own capital against a trade. 

If you have $1,000 and 50:1 leverage, you have $50,000 in buying power.

If you have $1,000 and 2% margin, you only need to put 2% for a $10,000 trade (for example), which is $200. That means you take up to 5 such positions in order to “spend” your whole $1,000 account. In this case, you are also taking positions up to $50,000.

Remember, you don’t need to actually use all the leverage or margin available to you! regardless of how much leverage you are offered or choose to take, you can opt to use less leverage based on how you trade. And you should!

Leveraged Profits and Losses

So leverage gives you buying power. By extension, that leverage can increase your profits and losses. 

Let’s look at a couple of examples. 

Assume you deposit $100 into an account and have 100:1 leverage. You can have positions totaling up to $10,000 worth of currency. That’s maximum; you can have positions totaling less if you want.

Say you like a trade in the EURUSD. You are going to buy at 1.1320 and place a stop loss at 1.13. Your risk is 20 pips. Assuming you have a US dollar account, each pip of movement is worth $0.10 on 1,000 worth of currency (a micro lot). A micro lot is the smallest amount of currency you can trade with most brokers. 

Note that you have $100, yet the smallest position you can take is 1,000. This means you are already using 10:1 leverage just by trading the smallest positions size. 

You buy one micro lot, which means you are risking 20 pips x $0.10 = $2 of your $100. 

That is good. You are using 10:1 leverage, but your risk is controlled with a stop loss order. Your risk is $2, or 2% of your $100 account. 1% or less is better, but 2% is manageable.

Assume you take a profit at 1.3270, which is a 50 pip gain. That means you made $5 (50 pips x $0.10) on your $100 account, or 5%.

That’s amazing, considering that without leverage this trader would not have been able to place a currency trade because they didn’t have enough capital to buy even the smallest amount of currency available.

Let’s consider a reckless trader. They just want to use their leverage to make some quick money. 

They deposit $1,000 and have 100:1 leverage. They buy the EURUSD at 1.1320, but they don’t place a stop loss. They think the EURUSD is going up, so they are willing to hold the trade until that happens (scary!). 

They buy 100,000 worth of currency. With that much currency, a pip of movement is worth $10. If the price drops to 1.1220, which is 100 pips away, this trader’s $1,000 will be entirely lost (100 pips x $10 a pip). At the time of writing, the EURUSD is moving a bit less 100 pips a day, and most of that movement occurs within about a 10 hour period. So in about 10 hours, this trader could lose their entire account most days, if trading this way. 

On this flip side, if the price rises 100 pips, they make $1,000 (100 pips x $10). They doubled their account.

Brokers Offer Huge Leverage To Entice You

Currencies don’t move like stocks. You will often hear stock swing traders talk about prices moving 20%, 40%, 100% within a few days or weeks of a cup and handle breakout, for example.

Currencies tend to move 1% or less a day, and a 30% move over the course of a year would be a large move. 

That is one of the reasons that forex brokers offer high leverage. The high leverage allows traders to capitalize on smaller price moves using larger amounts of capital. 

There is also another reason. Forex brokers often target clients with small amounts of capital. They do this by offering high leverage and giving traders with less than several thousand dollars the ability to trade. You can’t trade $100 in any other market effectively, but with leverage in the forex market, you can.

Forex brokers know these small accounts will use the leverage. The small accounts will then pay commissions and spreads on the bigger amounts being traded. The broker makes money off all these small accounts.

Most of these small traders won’t last very long, but there is always someone else with $500 or $100 (or maybe even less) willing to give forex trading a try. Small accounts, enticed in by leverage and the chance for profits, are a steady steady stream of revenue for the brokers. Such clients are easily replaceable since there is an endless supply.

Without leverage, those small accounts couldn’t even place a single trade, and the broker’s revenue stream dries up.

How Much Forex Leverage Should You Use

As mentioned, it doesn’t really matter how much leverage you have available to you, because you can always use less.

If you plan to have multiple trades at one time, or you want to day trade, I would opt to take 50:1 leverage.

50:1 should serve most traders just fine.

If you are a day trader, you will likely use quite a bit of leverage for each trade. Assume you have a 5 pip stop loss and risk 1% of your capital on each trade. On a $1,000 account, that means you can lose up to $10. That means you can take a 2 mini lot position (20,000). If you lose 5 pips on 2 mini lots, you will have lost $10, which is the maximum you have allocated for that trade. 

Buying two mini lots means you are leveraged 20:1 on that one trade. 

That still leaves lots of room for another day trade, at the same time, or for a few swing trades. 

Swing trades typically require less leverage because the stop loss is often bigger. 

Assume you deposit $1000, risk 1% ($10 per trade), and take a trade in the EURUSD with a 30 pips stop loss. You can buy 3 micro lots (3 x $0.10 x 30 pips), which will mean you will lose $9 if your stop loss is hit. On this trade, you are using 3:1 leverage. You could have many trades like this using 50:1 leverage. 

Or, you could have a day trade as well as multiple swing trades. 

The smaller your stop loss is, and the higher amount you are willing to risk on each trade, the more leverage you will be using. 

Forex Leverage Final Word

If the position sizes and the pip values didn’t make sense to you, read the position sizing article. 

I would cap leverage at 50:1. That is the legal limit in the US, and there is little reason to take more. You can make a lot of money using a little bit of leverage in the forex market. 50:1 gives you more than enough leverage to swing trade and have a day trade or two at the same time. I rarely, if ever use that much leverage even with multiple trades on at the same time.

As you consider leverage and opening an account, I would also advise NOT to take the deposit bonus that many brokers offer. This can seriously complicate withdrawals down the road. 

In this article, I used pip values for a US account and only used the EURUSD for simplicity. If you have another account currency, or you have a US account but trade currency pairs that don’t have the USD listed second (USD/JPY, for example) then the pips values will be different. Be sure to understand position sizing and pip values for all the different pairs that you opt to trade.

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Why You Need to Get Onboard With Blockchain!

Why You Need to Get Onboard With Blockchain!

Blockchain tech – so revolutionary in nature that some are calling it the “new internet.” It has applications in just about every industry, and has completely altered the way we think about internet security, the processing of information, and the speed of transactions.

Blockchain is the technology that supports the digital currency  or cryptocurrency called Bitcoin –

however this is not what it is really about as it has a far wider scope of applications and is being commercialized in a growing number of areas.

It has generated much interest in technology circles and beyond, because of the new possibilities it opens up in financial services, the public sector and other areas.

According to sites like BitFortune.net, blockchain tech is definitely worth keeping an eye on due to the myriad of benefits it provides.

Blockchain and Bitcoin are not the same thing – Bitcoin is implemented using blockchain technology, but blockchain technology can be used in contexts much wider than Bitcoin or other cryptocurrencies. so when we are talking about the blockchain we are talking about a combination of a number of technologies, these including:

  • Distributed ledgers.
  • The blockchain data structure.
  • Public key cryptography.
  • Consensus mechanisms.

Part of what makes it so exciting is that it is completely open source. As a result, there are already a number of interesting blockchain apps, and the number is growing daily.

The technology is so secure that it is already being used by DARPA to secure military data. Various governments around the world are working on ways to use the tech to protect their own data.
The tech is tamper-proof, and the data stored within it is permanent. It cannot be erased or altered, and this is what makes it so enticing to those needing more secure networks.

But there is more, folks. (Okay, so that sounds a bit like an infomercial, but the benefits are real nonetheless.) Transactions can speed across the network – taking only as much time as it takes for them to be authorized.

The blockchain cannot be described just as a revolution. It is a tsunami-like phenomenon, slowly advancing and gradually enveloping everything along its way by the force of its progression.

William Mougayar

The system runs without the need for an intermediary, and this reduces the time it takes to execute transactions. This, and the unique way that the tech works, means that costs are significantly reduced as well.

What makes it so revolutionary is that the information is spread across every computer within the network. With Bitcoin, that means the data is securely “backed up” over thousands of computers.

Now, it is unlikely that banks will entrust their data to a public network in the same way, but they have been working on creating networks of their own instead.

The potential savings in terms of cost and time are extensive. If you want to learn more about these savings, check out the infographic below.

 

Why You Need to Get Onboard With Blockchain!


Why You Need to Get Onboard With Blockchain!


Visit bitfortune.net . for more interesting Infographics

Guys did an amazing job and was allowed to share.


 

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Statements about Cryptocurrency

Statements about Cryptocurrency

Cryptocurrencies are in a bubble and regulators could burst this at a whim.

  • Eight years after the introduction of Bitcoin, there are now over 900 cryptocurrencies and their prices are at all-time highs.
  • Richard Schiller categorizes bubbles as an underlying story driving the market forward, as opposed to the fundamentals of the assets. Cryptocurrencies are riding on a narrative of economic empowerment and freedom.
  • Despite the widespread attention that cryptocurrency receive, many of the actors involved in the market are not fully informed. Debate tends to turn to hype and naive investors are buying crypto-assets without fully understanding what they are.
  • Banks spend 73% of the market capitalization of Bitcoin each year on regulatory compliance. Crypto-assets are currently unregulated and free of these restrictions. As such, the market has thrived but also developed some bad habits.
  • Regulators cannot necessarily shut down cryptocurrencies, but they can restrict liquidity into them from fiat currencies and hamper their growth. The global derivatives market, for example, is worth $1.2 quadrillion, dwarfing Bitcoin’s $100 billion market cap.

Statements about Cryptocurrency

Market manipulations in crypto markets are undermining their credibility.

  • Due to low liquidity, no regulation, and a lack of clear understanding of the markets, pump and dumps are widespread in crypto markets. This is where a speculator can artificially sell while concurrently buying their own currency, wait for the market to rise, and then dump their holdings.
  • Frontrunning is also a common occurrence in ICOs, where early investors—who are used to show initial faith in the enterprise—buy discounted tokens before immediately selling them on.

As with historic bubbles, scams are exploiting naive investors.

ICOs can have the characteristics of vaporware. Entrepreneurs are raising hundred of millions of dollars purely on concepts. Money is being raised from investors who do not truly understand the technical concepts being proposed to them, let alone whether they are feasible.

  • The actual asset structures of ICOs are not only complex but also new forms of assets in their own right. This further confuses investors, which is compounded by the “FOMO” mentality of rushing into investments and following the crowd.
  • The use of celebrities to promote ICOs further demonstrates the use of manipulative marketing techniques used to cajole immature investors into participating in ICOs.
  • The current ICO craze is reminiscent of the South Sea Bubble of the 18th century, a speculatory period that involved crazed investment into enterprises in the New World. Once one of the highest valued companies of all time, the South Sea Company’s bubble burst and the company disappeared almost as quickly as it appeared.

Blockchains are still not proven technology, and more work is required.

  • Blockchains are still new concepts and their technology has not yet been proven on a consumer-wide scale. Attention should be focused on developing this, not speculating on short-termist projects.
  • The security of blockchains is a concept that most investors in crypto-assets do not understand. The onus is on them to protect their assets, which, on the basis of the amount of thefts and frauds in the space, is not being done properly.

There are some solutions to these issues.

  • A less polarized mentality of “us against the world” is needed; this could be enforced by the promotion of self-regulatory standards. These could also help to highlight the bad actors in the ecosystem.
  • More development is required into the underlying technology of blockchains. In the long run, this would be far more valuable than ICO moon-shot projects.
  • Awareness and discussion needs to be promoted. Conferences should present balanced debates from both sides of the crypto-view and more emphasis should be placed on educating investors instead of soliciting their investments.

Originally Published here at https://www.toptal.com

Statements about Cryptocurrency

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CMStrader Signals provider, the number 1 signal provider 4 years in a row

CMStrader Signals provider, the number 1 signal provider 4 years in a row.

CMStrader, the number 1 signal provider 4 years in a row, is now offering free signals to new clients!  Reliable trading tools are fundamental part of successful trading.

cmstrader for the Best Trading Signals

cmstrader for the Best Trading Signals

 

CMStrader’s signals success rate is estimated in 91% this should be enough to take a look and decide for yourself. since this is their biggest feature and drives this broker towards success, it is opretty afe to say that they do their utmost to provide you with quality forex signals.

This broker also entered the cryptocurrency market and offers several cryptocurrencies.  in short they act on the market and engage their clients directly.

when you start trading at CMSTrader, you can choose from a extended list of currencies, indices, commodities, gold and oil.

CMStrader Signals for better Trading

CMSTrader sends trading signals to traders’ accounts when there is an opportunity to buy or sell orders at specific points; an overview of the speculated price or loss ratio is included.

CMStrader Signals the number 1 signal provider among brokers

CMStrader Signals the number 1 signal provider among brokers

The signals are sent directly via SMS to a cellphone for major currencies traded on the stock exchange, foreign goods and precious metals.

In addition, signals can be sent to an e-mail address and or traders can be notified directly over the phone.  This service is available 24/5.

Like with Most proper signal services don’t expect 50 signals a day as simply there are not that many. you will get maybe a few good ones a day on which you could and most of the time should act.

Earn profits with CMStrader Signals in the forex market – the biggest trading scene in the world. Enjoy our unique benefits, trading education, minimum margin and best leverage! Start with a demo account and enter the amazing world of forex with CMStrader.

More about CMStrader Signals & Forex Broker

  • Name :CMSTrader
  • Website :cmstrader.com
  • Established :2013
  • Regulation :FSP
  • Country :United Kingdom
  • U.S. Clients Allowed ?  :No

CMSTrader is a leading investment advisor specializing in personal wealth management and growth and is a somewhat a newcomer to the Forex market.

they started in 2013 and since then have won several awards 2 including one for having best customer service in 2013.

CMSTrader “CMStrader Signals” is authorized under the name of CMS Ventures Limited which is a New Zealand Registered Financial Service Provider (FSP).

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