Trading forex is a very complex process. You need to know a lot about politics and the economy, especially when it comes to various countries. The market is often volatile, and you need to pay attention to how it moves when making trades whether you’re a new trader or a more experienced one. Regardless of how much time you spend in the trading field, you must know about leverage as a concept. In trading, some people use high-leverage brokers, while others go for options where leverage is significantly lower.
But how much leverage do you need when trading forex? If you want to learn more about leverage before starting your foreign exchange journey, you’re in the right place. Let’s find out how much leverage is right for you when doing forex trades.
The Benefits of Leverage
When people first get into forex trading, they don’t really know what leverage does and why it’s so important in trades. Well, here are some benefits of leverage for traders:
- Leverage is extremely convenient because brokers offer you the chance to select leverage on favorable terms while keeping interest rates low, as well as keeping commissions small and tariff schedules flexible in a competitive environment.
- Before leverage was offered by traders, people could only borrow small amounts of money from the Bank with very high collaterals, interest rates, and guarantees in order to trade with leverage. Nowadays, leverage is larger and can attract clients who have smaller amounts of money to spend.
- With leverage, you have the chance to make higher profits, especially when you boost your initial investment.
What Is the Best Leverage for Beginners?
If you just got started with forex trading, you should always figure out what the best leverage is for you. Fresh forex traders usually look forward to making more money in a shorter time period, therefore they look for a leverage-based earning strategy. But the best leverage for beginners depends on what amount you are starting with. Ideally, you should start with a 1:10 leverage, but a 1:1 leverage is also great if you want to be on the safer side. Micro lots are the best for beginners to start with, so you need at least 1,000 units. In the event that you cannot spend $1,000 for your account, you can use $100 and go for a 1:10 leverage.
What Is the Best Leverage for Traders in General?
You should choose a broker with the right leverage level based on how much capital you own. So, on average, 1:100 and 1:200 are the best leverage ratio options. If you have a 1:100 leverage with your broker and $500 in your account, the broker will give you $50,000 of credit funds so you can start opening trades. Also, most professional traders go for the 1:100 leverage as well.
Final Thoughts
How much leverage you need in your forex trades depends on your experience. 1:100 is the best for traders in general, but if you’re a beginner, you may want to consider a 1:10 or 1:1 leverage instead. Choose your broker carefully.