Financial leverage attracts a lot of traders to the Forex market. In the simplest terms, leverage is a type of loan issued by a broker secured by the deposit that allows traders to open orders for amounts significantly exceeding the real amount of funds. As a result of this increasing trade volume, a trader could earn or lose more.
The biggest advantage of leverage is that it allows traders to boost their trade sizes. Even leverage as low as 1:10 allows traders with a 100 USD deposit to open a 0.01 lot position. But this also exposes you to higher risk. Keep in mind that forex is characterized by its volatility.
The currency market moves every day by a tiny percentage. As a result of this, the outcome is also in tiny percentages. It will, therefore, be necessary to use more capital to obtain the same returns. That’s why most traders prefer using leverage for their trades. Whatever the case is, the same as a trader could increase his profit using leverage, when the market shows a downward trend the chances of higher loss also exist. Thereby increasing the risk factor associated with the trades.
The main downside of trading Forex without leverage is that it is simply not accessible for most traders. Forex trading without leverage means that changes in the price of an asset directly influence the trader’s bottom line. However, this doesn’t mean that there are no risks involved in trading without leverage.
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