Best High Leverage Forex Brokers 2021
Online trading has become more accessible for the average person since the rise of the internet. Brokerage houses quickly spotted the opportunity and provided retail traders access to the financial markets via leverage.
Trading financial markets, like the FX market, can be expensive and without leverage simply impossible for the retail trader. Leverage, however, is a double-edged sword – while it enables traders to multiply their position sizes, it also increases the risk involved.
Top High Leverage Forex Brokers
What Is Leverage?
Simply put, leverage acts as a multiplier of a trader’s capital. Enabled by the broker, this allows the trader access to markets they would not be able to otherwise trade.
Leverage determines the amount traders move on the actual market. For instance, on a trading account having a leverage of 400:1, traders move on to the real market 400 times more than the actual position in their retail account.
How Does Leverage Work?
The leverage level of a broker is usually expressed as a ratio. It demonstrates a particular percentage of the total available capital that a trader is required to have in their account (e.g. leverage 1:100 requires 1% margin).
Trading with leverage is common and simple as the only requirement is for a margin minimum held by the trader. It establishes the amount of money a broker requires a trader to open a position and is expressed in percentages.
So let’s look at how leverage trading works:
A trader wants to open a trade with a contract size of 100,000 per lot but does not have the $130,000 to put down.
Using the leverage of 1:500, he or she can dramatically reduce the amount of capital required.
$130,000/500 (leverage used) = $260.00 required capital
Using this leverage size, we can use a simple formula to work out the amount of investment needed:
Buy trade: Ask price x contract size/leverage
Sell trade: Bid price x contract size/leverage
1 lot = 100,000 contracts (contracts worth is based on the underlying instrument which in this case is GBP)
GBP/USD, 100,000 Contracts are worth 100 000 units of GBP.
What Is Leverage Trading?
Leverage trading increases the accessibility to financial markets by enabling retail traders to trade more significant volumes than otherwise possible. For instance, in a 1:1 leverage trading account, one can move on the market $1 for every $1 in the trading account. That’s not enough to trade multiple positions, and the volume moved would be so small that it won’t impact the value of a trading account.
Without leverage, the margin needed for a trade would often exceed the size of the account, making it impossible for retail traders to participate. In other words, to move $200,000 on the market you’ll need to come up with a deposit of $200,000, whereas only $1000 in a 200:1 leveraged account.
How to Use Leverage Correctly
Money management is key when trading with high leverage. First, it is important to know how much a pip movement affects the trading account. That helps to establish the risk for each trade. Second, make sure that the target exceeds the risk involved.
For instance, if the risk per each trade is 1%, the reward should exceed 1%. For some, the minimum risk-reward ratio for each trade is 1:2, meaning the trading account stands to make $2 for every $1 risked on any given trade. This way, traders avoid the negative effects of leverage and benefit from it.
Guide to Find a High Leverage Broker?
There are many Forex brokers in the marketplace that offer high leverage trading. To make an informed choice, it’s best to consider several factors:
- Do they offer a demo account?
- What trading platform are they using (MT4/MT5)?
- Where are they regulated?
- What platforms do they offer?
- How much leverage do they offer?
- What are the fees and on-going costs?
Which Brokers Offer High Leverage?
Some Forex brokers limit the maximum leverage on currency pairs to 1:25, 1:50, or a similar ratio. Obviously, these brokers are acting outside of jurisdictions imposing such restrictions. Current maximums on Forex instruments that regulated Forex brokers in the US may offer only leverage of 1:50, while the European broker under ESMA allowed using only 1:30.
It is not uncommon for some high leverage Forex brokers to offer accounts in their offshore subdivisions with much higher leverage under the same company management.
It is recommended to look into the average leverage offered across different asset classes to get a feel for what’s reasonable. For example, the maximum leverage for various financial instruments and commodities may look as follows:
Forex – 1:500
Metals – 1:500
Indices – 1:200
Energy – 1:200
Crypto – 1:100
Pros and Cons of High Leverage
Forex trading and high leverage pair well together as the number of people interested in entering into the speculative financial markets increases. As with every other financial instrument, there are inherent risks, but when handled with caution – high leverage trading on the Forex market carries certain advantages.
- It opens opportunities to trade a larger volume of currency pairs with an initially small balance.
- Traders can use “borrowed” capital as a funding source for Forex trading.
- Multiple respected authorities like US FMA and CFTC, Australian ASIC and European ESMA oversee and issue regulatory guidance on high leverage trading.
- Free demo accounts to learn before trading with real money.
- It opens access to many new markets, previously unaffordable for small traders and investors.
- Minimal margin requirements.
- There is a high potential to lose funds more easily.
- Some Forex brokers offer unreasonably high leverage ratios (alike 1:1000).
- Many offshore brokers circumvent industry and regulatory standards.
- Traders are prone to taking higher risks to ‘win big’.
Calculating Profits in High-Leverage Trading
Leveraged Forex trading extends certain margin privileges to traders in good faith as a way to facilitate more efficient trading of currencies. This means it is essential that traders maintain at least the minimum margin requirements for all open positions at all times in order to avoid any unexpected liquidation of trading positions.
While high-leverage Forex trading carries certain risks – it also opens greater possibilities to accessing bigger lots and making greater profits.
If you wanted to open a position size of $10,000 (0.1 lots) and trade without leverage, you’d have to have at least that amount in your account. While the risk depends on your stop-loss, let’s assume a 20 pip stop loss of 0.1 EURUSD is a risk of about $30, which is roughly 0.3% of the $10,000 position size.
If you’re trading with a leverage of 100:1 and have entered a $100,000 position, the broker will set aside $1,000 from your account. The 100:1 leverage means you are now controlling $100,000 with $1,000.
Let’s say the $100,000 investment rises in value to $101,000 or $1,000. That means your ROI is 100% ($1,000 gain/$1,000 initial investment).
Can all traders use High Leverage?
While all Forex broker clients can use some form of leverage, not all can use high leverage to trade. Following the 2018 measures to protect retail clients, ESMA does not consider highly leveraged trading to be suitable for all investor types.
Retail clients are those who enjoy lower leverage and higher protections while professional clients have access to higher leverage and fewer regulatory restrictions but are confident they can manage the risks that go along.
ESMA has put in place various intervention measures on CFDs, including establishing the maximum leverage limits available to the different client classifications, based on the trading instrument.
For Retail client leverage limits are:
1:30 (3.33% margin) for Forex majors
1:20 (5% margin) for main index CFDs, forex small caps and gold CFDs
1:10 (10% margin) for other commodity CFDs except gold
1: 5 (20% margin) for individual stocks (equity CFDs) and other underlying
1:2 (50% margin) for CFDs on cryptocurrencies
For Professional client leverage limits are:
Up to 1:500 (0.2% margin) for forex majors, forex minors, some indices (ASX200, DAX30, DJI30, FTSE100, NQ100, SP500), and some commodities (gold, silver, XAUAUD, WTI and BRENT)
Up to 1:200 (0.5% margin) for remaining indices and bonds
Up to 1:100 (1% margin) for remaining commodities
Up to 1:25 (4% margin) for forex exotics
UP to 1:20 (5% margin) for individual stocks (equity CFDs) and CFDs on cryptocurrencies
What Are the Main Leverage Ratios?
There are various levels of leverage and their use depends on the types of broker accounts and capital owned by the traders. Generally, the top most popular leverage ratios are:
Can Us Traders Use High Leverage?
US Forex brokers are very restrictive in the leverage they offer, especially following the financial collapse in 2008. As per the Commodity Futures Commission (CFTC) rule from October 2010, the maximum leverage available to US residents is 50:1.
The Dodd-Frank Act further prohibits US clients from trading Forex with a counterparty that is not regulated in the US.
Risk Management With Forex Leverage
There are widely accepted rules that investors should review when selecting a leverage level. The three basic rules of leverage are:
Maintain low levels of leverage.
Use trailing stops to reduce downside and protect capital.
Keep positions small and limit capital to 1% to 2% of the total trading capital on each position taken.
When you follow these rules, you can better manage leverage. New traders should be cautious about the Forex leverage level they select and make a choice based on their trading experience, risk tolerance and comfort when operating in the global currency markets. Remaining conservative and trading only with the best high leverage brokers in 2020, is a good start to start building experience.
Is Trading With Leverage Dangerous?
No, if a trader understands the simple basics of leveraged trading.
Yes, if a trader has no clues about what he is doing.
High leverage enables Forex traders to trade larger capitals with multiple types of trades. Without leverage, the majority of individual investors won’t be able to operate in the Forex environment today.
Trading with high leverage is riskier than with low leverage. However, this is dependant on your risk management.
Recently regulators stepped in and tightened the conditions for trading with leverage. Of course, the idea is to protect the retail trader, but brokers hope to lower risks by closing the opening positions when there isn’t sufficient capital in the trading account before losses exceed deposits.
Moreover, high leverage accounts leave more free margin available to trade with. This way, traders can find more trading opportunities from a range of markets.
Leverage is one of the reasons why online trading is so popular. Without leverage, many retail traders couldn’t afford to trade.
Moreover, high leverage means less margin is required. This leaves more funds available in the trading account for new trades and potential drawdown.
Tight money management rules coupled with high leverage is the perfect combination for ambitious traders in search of ways to beat the financial markets. One without the other makes it difficult to reach financial independence.
Is low leverage bad?
No. But trading with a broker that offers low leverage decreases the chances to profit the most from the market swings. Put it simply, it takes longer to make a consistent profit.
What skills should I master when using high leverage?
To combine the available margin with the proper risk. High leverage accounts need less margin for a trade, so focus on finding the best money management system that increases the available margin while controlling the risk.
How is the broker protecting my interests against high leverage risk?
By automatically closing positions when the trading capital is insufficient and by offering negative balance protection.
What is the biggest advantage when trading with high leverage brokers?
Increase your ability to trade more markets.
The most important thing to understand about leverage:
Leverage increases trader’s buying and selling ability in Forex by providing VIRTUAL NONEXISTENT capital.
While operating with nonexistent capital is possible, losing it is absolutely impossible. Instead, a trader always loses HIS OWN MONEY.
Why traders opt for higher leverage?
With little investment and high leverage a trader can trade, for example, not just 1000 unit lot and earn $0.10 for each pip, but go for 10 000 unit lot, where he will earn $1 dollar per pip. High leverage provides the opportunity to earn higher profits.
BUT, only those trades who seriously takes the subject of FINANCIAL RISKS and MONEY MANAGEMENT are able to benefit from highly leveraged trading. They can confidently take the highest possible leverage of 500:1 and be successful in their everyday trading.
Other, less careful Forex adventurers, blinded by the opportunity to earn high profits in Forex with reasonably small investments can easily get themselves into their own trap of uncontrolled large lot size trading, which will lead to quick account blow up.
What is a “Stop Out level”?
Stop Out level is a certain required margin level in %, at which a trading platform will start to automatically close trading positions (starting from the least profitable position and until the margin level requirement is met) in order to prevent further account losses into the negative territory – below 0 USD.
Some Forex brokers use only with Margin Calls, where a Margin Call = Stop Out level at the same time,
others define separate Margin Call and Stop Out levels.
More details at: Margin Calls vs Stop Out levels in Forex
For more brokers of different trading conditions, we’ve pulled together the best brokers for each: