One reason why Forex trading is a great way to invest, is that you can apply leverage to your trades in order to control a greater amount of capital than you actually hold yourself. This essentially increases the risk of your trades, which allows you to potentially reap greater rewards. This is how a lot of people make a lot of money quickly in the Forex market and many Forex brokers nowadays will offer quite extreme amounts of leverage to the average Forex trader.
The problem with leverage is of course the fact that with greater risk comes greater losses. If you apply a lot of leverage to a particular trade and it goes against you, you will lose out more than if you had avoided using leverage altogether.
What many Forex traders forget, is that you don’t actually have to use leverage. Leverage is simply a tactic that you may use in order to make more money, but there’s no real reason to use it if you aren’t experienced already and don’t truly know what you’re doing. The reason why many beginners end up blowing their accounts away and giving up early on, is the fact that they start off with loads of leverage, so even their first trade is capable of destroying all of their capital. Then you will get some of these beginners describing Forex trading as a scam on the internet and giving it a bad name, when it was really just down to them being irresponsible with their money.
Before you start using leverage, remember that taking a professional approach to Forex trading is important. If you genuinely think it is time to start using leverage, then by all means use it, but if you haven’t been consistently profitable without using leverage then don’t expect that things will get any better when using it. In fact, things will get a lot worse if you add a huge amount of risk to your Forex trading system, provided that it just isn’t working for you.
Forex trading is described as risky by many. The Forex market is often described as a place only for the banks and big investors with years of experience. It is described by many as a place where you can blow all of your savings in one night. Some of this is false and some if it can be true, but none of it has to be true for you if you take the necessary precautions.
If you don’t want to make your trades risky, or at least not in the beginning, use between 2-5% of your total account balance per trade and apply zero leverage to your trades. If you like, you could start with a demo account in order to build up some experience before you hit the live markets, so that you can feel more confident trading currencies for real. The average person can trade Forex profitably nowadays, so don’t think you are at any disadvantage. As long as you take a professional approach to your Forex trading career and make sure that you have a clear Forex trading plan, you should be able to hold onto your money for much longer and you should really be able to grow your money, which is the whole idea of investing.
In conclusion, while leverage is available to everyday Forex traders nowadays, using leverage might not be in your best interests as an individual Forex trader. It is a much better idea to open an account with a Forex broker of your choice if you haven’t already, get started with a demo account if you like and once you get to trading live currencies, never lay a finger on any leverage until you are consistently profiting with trades that are small in size relative to your total account balance. Take one step at a time and once you are more experienced, making regular profits, you might then want to start applying leverage to your trades so that you can make much more money than you could without. Until you have some experience and are consistently profiting, it might be a good idea to avoid the use of leverage in the beginning, in order to ensure that you last in the long run.