Forex Education Center/ Part 30 / FOREX FOR BEGINNERS COURSE / Lesson 11. Currency Leverage and Margin
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As a reminder the course is aimed for complete beginners.
I tried to keep the lessons short and to the point giving out clear examples
and videos where required.
Lesson 11. Currency Leverage and Margin
Brokers offers high leverage even to beginners.
You will see leverage advertised in every broker’s adverts.
What is leverage?
How does it effect you?
Is it good to have high leverage?
COUTION: Leverage is dangerous, very dangerous, extremely dangerous. So keep reading.
COUTION: Leverage is dangerous, very dangerous, extremely dangerous.
No it is not a mistake of copy and paste, but it is just a way to get your attention.
Leverage is the most confusing thing that newbie’s do not understand,
and some will never understand.
The culprits are basically the brokers, it is their fault that there is this confusion going around leverage.
They market leverage as an advantage, as a must have for newbie’s,
in reality again it is very dangerous.
Let me explain carefully since probably right now you are going bananas since I am contradicting what marketers have been bombarding you for many years now.
Just to make it clear straight away, margin and leverage is the same thing.
They are just used interchangeably to confuse people.
So it is very possible that with just 1 pip movement, you may earn $10.
What? 1 pip movement is worth $10? If you are excited then read this.
With just 1 pip movement you may earn even $40! Pause.
What are you thinking? I know what are you thinking.
You are thinking that all you need is 3 – 5 pips a day.
Meaning $30 – $50 if 1 pip is worth is $10, or $120 – $200 if a pip is worth $40.
Correct? Yes my life is sorted now. 3 – 5 pips a day is easy to get.
Right? Wrong! Very wrong! This is exactly the marketing tactic brokers use every single day.
Ah yes not only brokers, but also Internet Marketers with their crap products / robots.
If you think that I am talking nonsense just leave now, just press X on your browser, but if you want to know the dirty tricks of brokers / marketers whatever, then keep reading.
Market Perils:
First, who said you are going to win every trade?
Who said that when you enter a buy trade, the price will go up?
Who has given you the guarantee that once you enter a trade, the market will always go in your favour?
No one can give you that guarantee. Remember that there is the spread to cover first!
So your trade starts always with -$20 or -$80 assuming a 2 pip spread.
Brokers Leverage:
When you open an account with your broker you are offered a leverage level to use.
A leverage is basically a temporary ‘loan’ given to you by your broker when you enter every single trade.
Normally the leverage is written is 1:50, 1:100, 1:200, 1: 300, 1: 400.
These are common leverages levels offered by many brokers.
What this means is basically that
For a leverage of 1:100, for every $1 in your account you are in fact controlling $100.
For a leverage of 1:400, for every $1 in your account you are in fact controlling $400.
So if you have an account of $250, and a leverage set to 1:400, in reality you are trading with $100,000! $1 is worth $400, so $250 x $400 = $100,000.
Similarly, if you have an account of $250, and a leverage set to 1:100, in reality you are trading with $25,000! $1 is worth $100, so $250 x $100 = $25,000.
So where is the problem?
This is cool that the broken is lending me money.
First and foremost, the broker’s money lended to you are never at risk.
The broker will never lose money.
You will lose money.
But this kind of leverage is what makes Forex trading enticing to many people since you can make money fast if you know what are you doing.
A slight 1 pip move is worth $10 or $40 depending on the leverage, so intraday traders that go for 30 – 50 pips trade means that they profit $300 -$500 per trade.
Of course if the trade goes against you, and your stop loss is 30 pips, you lose $300. You can make money fast, but you lose money faster, trust me on this.
If your account is running out of money, the broker will close the trade for you automatically, to protect his lended money.
This is called margin call.
This is why brokers will never lose their money.
This is software controlled so do not think that this is manually being monitored.
So do not take risks thinking that someone will oversight your trade.
Once your account is in danger zone, the trade is closed automatically to protect their assets.
Default Leverage:
For some strange reason, leverage in most brokers is set to 1:400 the most risky!
You should immediately set it to 1:100 or less.
Do not join brokers that do not offer leverage less than 1:100.
Final Words:
To conclude, leverage is two double edge sword.
It can cut from both sides.
You can make money fast but you will lose money faster.
Just mark my words, start demo trading, be profitable in demo trading, then switch to live account with low leverage, 1:100 or 1:50.
When you are also profitable in the live account with small leverage you may then decide to increase the leverage.
Every comment, every upvote, every support is really appreciated.
Thanks For Reading,
@lordoftruth
Samer
Below you can find the list with all the series of articles:
Thank you great writes, don't give up on writing good material. You've done great and thank you for the information, the summation and the personal opinion.
I'm a newb trader, wanted to cash out some Steem a month ago and I ended up on an exchange trading some crypto, sadly I made some returns, but I missed the huge spike we got yesterday, hopefully I can buy back in. But such synergy like the bitcoin rise coupled with the steem rise giving a huge increase in value didn't happen much before, it seems like it's going to be a weekly occurrence nowadays :D
I will be linking your post in a future one of mine where I will go over my last week of trading, my mistakes and some ideas. As well as how hard it is to stay true and stick to your guns only firing when necessary :)
Thanks for visit and comment
Followed
If you like you can resteem it
well I read like 20 of your posts and I'm very stingy on resteems since I do it when I like to hold a conversation or the piece holds some meaning to me, normally I link link link, since I would swamp my blog even more if I was resteeming everything.
:D a few months ago I was doing some curation challenges I held myself up to, the deal was reading 50 posts a day sorting them then resteeming the favorite one. That hasn't changed much apart from the fact that I can't sort or time what I read anymore :D
Understood , I agree with you , it is not easy to resteem somehing that you can not hold conversation
Thanks for reading 20 of my posts and thanks for your time
Really you make me happy spending your time in my blog.
As you see I am new here and my contribution:
_ Forex Education Center ( Series of articles for beginners )
_ Bitcoin Trend ( News & daily price predictions )
_ Cryptocurrency Funnies ( The way I promote Steemit in social media )
Hopping to be good steemer in future
I’m really grateful for your support
Have a great day
Thank you very much, it's nice to meet a welcoming person here and so open too :) If you have questions I can help you with formatting, since I've been learning a lot while on here and I've been here for about half a year, It will be one with the coming of the fall. Anyways, I'm into health, agriculture, technology, philosophy, poetry and like most people I like photography :D
The markets were a sidetrack as I've said but it' also pretty interesting, it's funny how I'm making the mistakes I shouldn't be making. Just a few days ago I had ~20 steem and the possibility to hold 30 which would have netted me ~0.025 BTC instead of holding I shorted it, went chasing some other market, and now I'm a bit behind on a potential hit I could have made.
I think I just overthought everything and left emotions to get the better of me, instinctively getting pressured to cash out and make a profit, when I could have made a "fortune" welll :||| the way of the world I suppose :D
I'm going to leave you with two of my posts you might find interesting one is my highest grossing so far https://steemit.com/health/@j3dy/what-is-brain-plasticity-how-does-it-work-and-what-you-can-do-to-enhance-the-plasticity-of-your-brain
and actually you can find the other one in there too :) normally I blog abut the happenings here, and I wanted to have a series on playing training and working, with various tips, tricks, philosophies, patterns such and such, so far I've fallen short of making 120 posts and am somewhere around 20 :D
Also I wanted to start some initiatives, but I never made a splash and I never committed I suppose. So far there is still time and I'm leaving it towards the future since I have life issues to solve as well.
Will check your post later and will be back to you with my comment a.s.a.p
https://steemit.com/health/@j3dy/what-is-brain-plasticity-how-does-it-work-and-what-you-can-do-to-enhance-the-plasticity-of-your-brain
Nice post. Bookmarked!