When traders first think of how to trade forex, and how to trade forex effectively, the first thought that leaps out is… leverage! Experienced traders will happily tell you that the higher leverage available – the better.
High leverage is an efficient and effective way to trade higher positions with less initial investment. Experienced traders like to benefit from high leverage, particularly in Forex trading as it gives the opportunity to make higher gains with less capital. Leverage is, in essence, a loan within a trading account.
One of the many attractive features of high leverage is that it frees up additional capital enabling a trader to get involved in more trades, simultaneously. This is particularly useful when there is a busy schedule showing on the global economic calendar.
To give an insight on the maths behind leverage: a leverage setting of 1:100 allows a trader the opportunity to trade with $5,000 from a $50 investment. Trading with high leverage can boost your earning potential without having to invest larger amounts of capital whilst enabling greater control of trades one may be involved in.
Whilst there is a common misconception that the higher leverage carries a higher level of risk, although somewhat true, this is the way a ‘lesser’ experienced trader may view high leverage. A higher leverage can, in fact, protect a more speculative trader from greater losses as one does not have to lay down the full investment amount.
Furthermore, many users do not fully grasp that the higher leverage options available to you – the stronger position you can potentially put yourself in. Thus meaning less risk and higher earning potential.
Without leverage, a trader that wanted to trade on their favorite pair e.g EUR/USD
Entering a trade on the forex market without using leverage a contract size of 100,000 per lot one would need around $130,000.00. Thanks to leverage and high leverage options available, one would only need around $260.00 to enter that trade.
To work out how much margin is required to open a position one can use the following formula.
Buy trade: Bid price x contract size / leverage
Sell trade: Ask price x contract size / leverage
1 lot = 100,000 contracts
Many platforms in the Forex trading space, commonly start offering leverage from around 1:50 to as high as 1:1000 however these trading platforms often come with certain set parameters for new and existing users.
It is not uncommon to see such high leverage options come attached with some sort of sign up fees, or initial hidden costs. We often see brokers advertise high leverage options in tiered accounts, frequently offering 3 account types such as:
Bronze account: deposit $100 for leverage up to 1:100.
Silver account: deposit $500 for leverage up to 1:300.
Gold account: deposit $1,000 for leverage up to 1:1000
A recent Eagle FX review showed that they like to keep things simple in only offering one account type – dispelling any potentialconfusion surrounding different account types, leverage options and cost. When we traditionally think of many other brokers in the market place if high leverage is available and seems too good to be true, it often is. High leverage is often linked to sign up tariffs which can often outprice traders looking for a ‘good deal’ on high leverage.
At Eagle FX this is certainly not the case where it’s users can deposit as little as $10.00 and gain access to leverage as high as 1:500 for Forex currency pairs and metals.
Other instruments available include Indices and Energies which carry leverage options as high as 1:200. Not forgetting the fresh and increasingly popular emerging market of CryptoCurrency trading with leverage up to 1:100. Within an Eagle FX trading account, all leverage can be adjusted from 1:1 up to the maximum of 1:500 for Forex – a refreshing feature when trading your favourite currency pairs.
To summarise, high leverage is a favoured feature, especially when trading Forex and particularly when taking advantage of options up to 1:500. Users can maximise their earning potential whilst keeping their investments low. EagleFX has shown they provide the ideal environment to trade high leverage on a range of assets including 55 Forex currency pairs. Good luck!
To start trading with EagleFX click on this link