The Beauty Of Leverage In Forex Trading

When was the last time someone handed you a bundle of cash? If you’re like me, that hasn’t happened in a long time, if ever. This is why Foreign Exchange Trading is such and exciting opportunity. Forex brokers are literally giving you money to trade with, up to $200 for every $1 in your account!

If you’ve traded stocks, you know that you can get up to a 2:1 margin on your account value through most brokers. Put a different way, most stock brokers will let you buy $2000 worth of stock for every $1000 in your account…loaning you $1000 in the process. That sounds like a pretty good deal, right? Buy $2000 of stock, let the stock rise 10% to $2200, sell the stock and pay your broker back the $1000 (plus a bit of interest) and pocket your $200, 20% gain. Not a bad way for things to turn out, a rise of 10% in the stock value gives you a gain of 20%.

Imagine a different scenario. You sign up with a Forex broker and commit $1000 of your account value in a $100,000 trade on the EUR/USD (Euro to US Dollar). You’re using 100:1 leverage in this case. When the EUR/USD exchange rate moves 1% in your favor, you exit your trade for $101,000. After paying the $99,000 (plus a bit of interest) back to your broker, you’re left with about $2000. Starting with $1000 and ending with $2000 is a 100% profit, triggered by a 1% move during your trade!

Think about the effects of leverage for a minute. This is the reason why it’s no joke when I say trading Forex can turn $300 into $10,000 in less than a month.

Now that I’ve got you excited, let’s throw a bit of water on the fire. If you’re using 100:1 leverage, a trade that moves 1% against you can be devastating. This is why you absolutely must get educated about trading Forex before you commit money. With the proper strategies to set up your trades, you minimize the risk of having losing trades. Even more importantly, with the proper money management and trade exit strategies, you eliminate the possibility that a couple of bad trades can wipe out your account.

A good Forex trading system EXPECTS TO LOSE some of the time. Anybody can make money when they’re winning all their trades. Only someone with the proper education and discipline can make money when they only win half their trades…everyone else gets wiped out.

Don’t get wiped out. Forex is an amazing money making opportunity. Get educated, do it right, and build your wealth safely.