Forex Leverage – Advantages and Disadvantages

In forex, leverage is often a critical factor to your trading strategy and your choice of broker. In this article, we’ll talk about leverage choice and how it can work for or against you.

Leverage, can be used to reduce the capital investment need to trade forex, this is referred to as margin in the MetaTrader 4 forex trading platform. If the ratio of chosen is 1:500, you can enter the markets with a capital investment of $1,000 but enter trades with the value of $500,000. As the market moves for or against your forex trade (order), your account equity will grow or will reduce according to the ration of leverage chosen on your account (risk level).

Many traders tend to only see the positive side to trading forex using high levels of leverage, however, at Yadix we believe that it is important for clients to fully understand how leverage choice is critical to how your account can be affected in a positive or negative way.  This is because the potential rewards and risks of trading forex and multiplied by the leverage you choose to trade with.

Leverage is a loan from the forex broker that you are trading with and is used to multiply your account equity using your deposited funds as collateral.  When your account reaches a pre-set level of equity, the MT4 platform triggers a Margin Call, a warning to you that your account equity is at a low level.  The next step is a Stop Out, this is also a pre-set level set in the MT4 forex platform that will close orders starting from the least profitable first. These actions are to primarily protect your account from going into a negative balance, and also to protect the broker from making any losses on the loan (leverage) on which you are trading.

At Yadix Forex Broker, we offer our clients a flexible choice of leverage from 1:1 to 1:500 for our clients to choose from. However, we always encourage the education and correct use of this forex trading facility.