The paradoxical role of leverage in the trading industry

The leverage is an option in the Forex trading platform that allows the trader to go for the big amount of money even with a small account. The role...

The leverage is an option in the Forex trading platform that allows the trader to go for the big amount of money even with a small account. The role of leverage is often considered as both a blessing and a curse. It is a blessing because it gave equal chance to the small traders. People do not have the luxury to invest a huge amount of money in a market that has a very low success rate. You are most likely to find yourself in losing position when you invest your money for the first time. This market is very easy and also hard at the same time. This is why people always invest a small amount of money and this leverage gives them the opportunity to place their dream trades.

There is another group of traders who think leverage should not be used. It is a curse as you start trading with leverage; you expose your capital to high dangers. Imagine if you are trading for 100 dollar profit with your 10 dollar account in leverage trading. The trends change and you forget to close the trades. What happens if you are stranded on an island with no money? If you had not used this leverage, maybe you could have sustained the loss only with few dollars. The traders could not come to a conclusion regarding this leverage and this article will try to explore the paradoxical role of this option in the industry.

Risking too much in single trade

Some of you might often blow your account on a single trade. In fact, the majority of the professional traders have faced the same issues in the early stage of their career. There are a few things you need to know trade the market professionally. First of all, know how much you can risk per trade. If you think you can risk more than5% of your account capital you still have a lot to learn. The experienced traders barely risk 2% of their account. You need to limit the risk exposure in every possible way.

Though you will have access to leverage trading account yet you should never trade with a big lot. Just as expert traders in the options trading industry, you have to assess the risk-reward ratio in each trade. If you follow your gut instinct it won’t take much time to lose your investment. Follow the logic and trade the market with proper discipline. Educate yourself to fine tune your trading strategy in every possible way.

Leverage as a blessing

Investors are suggested to stay positive with their trading and leverage should be seen as an opportunity. Everything has two sides and you should set your eyes for the best part only. Imagine you have been making money consistently for a long time in your mini account. You think the time has come to test your skill with bigger investment but you do not have the money to invest. The leverage can save you from the trouble and let you place a big trade on that small account. This way you can cope with different amounts of capital and place your trades. If you do not want to use this leverage in your live account, you can use the demo account to test the results.

Leverage trading outcomes when the trades are lost

If your trades did not turn out successfully, you will lose all your money.  You will not only lose a small amount but depending on the leverage, it can sweep away your account clean. Wise traders see the perils of using the leverage also and this is why they think it is a trap. The role of leverage can be both productive and destructive depending on the talent of traders. If it goes to the wrong hand, it can bring havoc on their investment. If used wisely, it can benefit the traders in many ways.

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Investing
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