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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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Neteller Launches Cryptocurrency Exchange Service

Neteller Launches Cryptocurrency Exchange Service

Neteller  one of the most known Digital fiat currency wallet provider , has started allowing its users to buy, sell, and hold cryptocurrencies including BTC, BCH, ETH, ETC, and LTC.

They do this on the large scale with a pilot in 10 countries and soon another 50 countries to join . They understand that if you do this effort it will only succeed if you can do this on a global scale.

Neteller and Cryptocurrencies

Neteller is a service which is operated by Paysafe Financial Services Ltd.,

paysafe

paysafe

founded in 1999, Paysafe Financial Services entered the market with the mission to provide an online alternative to the known traditional payment methods.

Most of the traders aiming us now neteller as one of the companies through which we made our deposits and if we had any profits also our withdrawals. A couple of years ago they left the Forex and Binary industry behind since the charge-back issue became just too expensive.

But as any companies knows, if you do not adept you die. The binary option market is all but dead and the Forex industry has moved also into the directions of the cryptocurrencies. thus, neteller understands that this is where the future is.

So Lasts week they announced that they are now offering a wallet with buy and sell cryptocurrency options.

As of today, Neteller users can buy, hold and sell cryptocurrencies via a recognized cryptocurrency exchange including bitcoin, bitcoin cash, ethereum, ethereum classic and litecoin, purchased using any one of 28 fiat currencies available in the Neteller wallet.

It may not seem so exciting but for many users that love this service it actually is. More and more currencies will be added making them an true exchange in the near future.

Now one is able to fund their neteller account through many different means (Mobile, Epay, Paysafecard, local bank deposits, and bitcoin)

We think that will make the threshold for many people, who would want to buy or sell cryptocurrencies, lower. This in return is a good thing for the overall acceptance of the cryptocurrencies in the mainstream of every day life.

Conditions for buying and selling cryptocurrencies through Neteller

The rates offered are somewhat in the lower middle of the current market making them go for the save route. The average market rates on the major cryptocurrency exchanges differ all in all not that much anyways, as this is not the main reason to choose to buy Bitcoin through Neteller

The minimum cryptocurrency purchase or sale amount is “approximately equal to 10 EUR,” the firm clarified, adding that the maximum amount depends on the transaction limits associated with each account.

When You open an account with Neteller you have to choose your default currency. This is of course for most people in accordance on their geographical locations, people in Britain will go for the pound most Europeans go for the euro and pretty much the rest of the work goes for the US Dollar, thou other currencies are available

The fee is 1.5 percent for purchasing and selling cryptocurrencies from wallets with EUR or USD as the default currency.

The fee rises to 3 percent for wallets with other default currencies.

Neteller  | Why is this a good move for neteller and one that we should expect from other online Payment providers as well ?

At this moment till last week Neteller users can pay, get paid on thousands of sites, and send money around the world through their system.

The company claims to have “millions of point-of-sale, ATM and online locations” for users to withdraw or spend their cash.

Last July 25, Paysafe ( which as you remember is the company that owns Neteller and Skrill)  announced that another digital wallet provider in its group, Skrill ( formerly known as moneybookers), started allowing customers to “instantly buy and sell cryptocurrencies, including bitcoin, bitcoin cash, ether and litecoin, using any one of the 40+ fiat currencies available in the Skrill wallet.”

We could now see that this was like their test run on this concept.

We do not know the numbers that Skrill produced since they offered this service but it must have been encouraging enough for Paysafe to include their flagship brand in this endevour.

We will see where this leads but we are hopeful that this is the next step in global acceptance to the cryptocurrency revolution. Let me know what you think

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The basics of trading that one should know

The basics of trading that one should know

Things you should be aware of before you start

The currency trading industry and now also the cryptocurrency trading industry have gone through enormous volatile times the last couple of years. Now with trump and its trade wars. The fast rise and somewhat recline of the cryptocurrencies and the fast pace of international politics and economies that create high rises and steep fall of the currencies.

So what does it all mean and what can you do before start to trade on these news headlines.

Good brokers like LegacyFX and UBCFX provide the traders with the latest market news and updates on a continuous basis but if you are new to trading you still have no idea what to do with this.

You start by understanding that the involves a high degree of risk, including the risk of losing you hard earned money. Besides the ones that were lucky enough to have bought Bitcoin a couple of years back and cashed in in the end of 2017, most people don’t get rich overnight.

You have to understand that you only trade with money that you are able to lose, going hungry because you want to open a trade is not the right wy to go about it.

So, What is Forex?

You should by now understand that the value of currencies goes up and down every day.

This in general becomes apparent the moment you go on vacation and what you bought last year with your money now is not the same amount you get today at the exchange.

This is on a large scale, what a lot of people do not know is that there is a foreign exchange market – or ‘Forex’ for short – or “FX” for even shorter, where you can potentially make a profit from the movement of these currencies.

The most known Trader is George Soros who made a billion dollars in a day by trading currencies. This is of course on a scale that we are not able to reach and you need a huge amount of money to begin with. Still he made a billion in one day!!

The internet has played a huge part in making trading in currencies accessible for the masses. You also do not need huge amounts of money to actually do this. Now keep in mind that if you make 10% profit on your investment but the investment was just $50 you basically just end up with $55. still no bank will give you 10% interest on your money.

Many people and I am talking millions are now trading every day, most do this on the side and don’t do this as a full-time job, but there are today enough people that are full time traders and making enough money to live comfortably.

Retail forex market needed Brokers

The Forex market for the retail market was born, it started around 15 years ago to become more serious as technologies advanced and the stream of information became almost instant, this is important for trading as one second can make the difference between profit or loss.

So, the moment the technology was there the people that wanted to trade were there all that was needed were the Forex brokers that offered the platform for trading.

There are latterly hundreds of companies of not thousands that offer this service and there are good ones like LegacyFX and there are scams (these tend to not last long)

Forex explained in short

The Forex market is the largest financial market on the planet and has been for many years now.

Its average daily trading volume is more than $4 trillion. (just let that number sink in for a second). Of this total amount around 5% is the retail market meaning traders like you and me. Still 5% of 4 Trillion is still a number with a lot of zeros behind it.

If you compare that with the New York Stock Exchange, which only has an average daily trading volume of $55 billion. You truly see the size.

To give you another example:

if you were to put ALL of the world’s equity and futures markets together, their combined trading volume would still only equal a 25% of the daily Forex market. Insane right?

Why does this even matter?

It matters because there are so many buyers and sellers that transaction prices are kept low. To explain how trading the Forex market is different than trading stocks, here are a few major benefits.

  1. Most Brokers don’t charge commissions – you pay only the bid/ask spreads.
  2. There’s 24hour trading – you decide when to trade and how to trade.
  3. You can focus on your currencies and become experts in only those pairs that you follow instead of following and selecting out of 5000 stocks
  4. You can trade on leverage, (something to be very aware of as it can magnify potential gains but also your losses).
  5. Forex is accessible for almost everyone– you don’t need a lot of money to get started
  6. In the Forex market you can trade on Demo accounts to learn before you commit your money

How is Forex traded?

The mechanics of a trade are virtually identical to those in other markets. The only difference is that you’re buying one currency and selling another at the same time.

This is also the reason as to why the currencies are quoted in pairs, like EUR/USD or USD/GBP.

The exchange rate represents the purchase price between the two currencies.

Example:

The EUR/GBP rate represents the number of GBP one EUR can buy (relevant now with all the Brexit issues going on) . If you think the Euro will increase in value against the British Pound, you buy Euros with British Pounds. If the exchange rate rises, you sell the Euros back, and you cash in your profit.

Now the same works for strading Bitcoin, ethereum, Litecoin or other cryptocurrencies. this has become an entire new market and has introduced many people to Forex . you should here be also aware that trading cryptocurrencies is like regular trading so you will be able to lose great sums of money.

the Best thing i found about trading cryptocurrencies is that the Leverage by default tends to be very low which makes the risk of losing it all much smaller.

Sounds simply enough?

Why does not everyone Trade.

The same could be asked as to why not everyone plays poker, you can make money. The comparison between the 2 is actually closer than you might think.

All traders that are successful will tell you that 80% of successful trading is psychology and the other 20% is research. It takes time to get the research down, but it can take a lifetime to master the psychology.

People tend to do things differently when real money is on the line and are accepting losses in the hope that the trend will reverse or taking out profit too early because they don’t want to lose what they just have gained. In short, the psychology is the hard part.

One should be aware that you can loose real money and a lot of it very fast if you don’t know what you are doing.

Now most Good Forex brokers offer some educational tools, some more than others that will teach you how to trade. There is also something that is called social trading that will allow you to follow other traders and see what they are doing in order for you to learn and make money at the same time.

So here are some ground rules for those that look to start trading

  1. Get involved in the market, watch read and listen to the news to understand what is happening
  2. Go through a trading course ( a good one is here)
  3. Open a demo account and trade at least a month (my advice to do this even longer)only on this before you even think about trading with real money.
  4. Check out social trading, there are some options for this, this broker offers this also.
  5. Try with an amount that you are able to afford losing. See this as your tuition money.
  6. Take it slow, don’t become greedy and follow the basic rules

Basic Rules (there are many more but start with these)

  1. The trend is your friend
  2. Don’t add money to a losing position
  3. Don’t trade on too many different currency pairs
  4. Trade only with a good broker
  5. Don’t open to many positions (no one needs 100 positions a day)
  6. Develop your strategy and stick to it.
  7. Know that NO ONE is 100% of the times right, everyone loses some.
  8. Last but not least, don’t trade with money you cannot afford to lose.

Now all that I want to say is good luck.  😊

 

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Wanted Cryptography Experts in China

 Wanted Cryptography Experts in China

The sooner we get to the official launch of China Digital Money. the more Cryptography Experts are needed.

it almost is surreal as they pushed against this from the beginning but now S China digital money may soon be a reality.

The Bank of China (PBOC) is hiring cryptography experts by the masses as reported by the South China Morning Post (SCMP)

this is the latest in the Chinese efforts to have a state controlled cryptocurrency for its own means.

The institution is one which worries a lot about the effect of investor activity in the cryptocurrency market. this in great contrasted to the directive issues in 2014 by the PBOC  that Bans any activity related to the cryptocurrency market.

Yet the Central bank of china started to build their own work force for building and developing their crypto in 2017.

something like if you can beat them , copy them.

in 2017 the Yicai Global reported that this targeted workforce would work from central Beijing as was to be names the  digital currency research institute

This research institute would primarily focus on the latest in digital currency technologies and all the different applications that would benefit from cryptocurrencies.

the former deputy director of the PBOC’s science department, Mr Yao Qiann would be in charge of the overall project

since then they are expending with opening a new research institute expanded in Nanjing . the idea for this center is to create more interest n the technologies and its possible applications.

the pilot programs are to be implemented by state controlled banks and academic institutions which should result in blockchain hubs that would attract new developing talent and additional capital to further develop the cryptocurrencies.

“Beijing’s ideal digital currency must ensure the smooth running of monetary and financial stability policies and at the same time protect consumers.”

Apparently, the ultimate goal for the Digital Currency Research Institute (DCRI) was to clear the path for a national cryptocurrency. Reports indicate that the fintech hubs will serve a purpose higher than initially believed. Reportedly, the hubs will serve as testing ground for China digital money. Here, the currency will undergo tests from prototype phase to future mass production.

and thus we get to the point that they are looking aggressively for new talent in the cryptographers and computer scientists sectors. now that more and more student have said good bey to the united states in the last couple of months after feeling they were less welcome this drive for finding new employment has only intensified and is answered by the large amount of brilliant young people coming back to live in chine after their education abroad.

The salaries are even higher then what they would have earned if they would stayed in the US and gone of to work in some of the companies in the Silicon Valley.

So we could expect that China is now also looking to become a world player in this industry as they have become the leaders in so many other fields.

 

 

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