Risks Related To Forex Live Trading
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The levels of leverage offered in the forex live trading market are the highest offered to individuals who trade in the financial markets. The risks of leverage should be considered prior to making use of it.
Forex Live Pros and Cons
The volume of transactions, the volatility and the global structure of this financial market have all attributed to its rapid growth and success. This is an extremely liquid market which means it is possible for traders to place large trades without an effect on the rate of exchange. The low margins that are determined by forex brokers allow the placement of these large trades. An added attraction to the market, beside the low margins, is the leverage ratio that is offered to traders.
The trading times that are offered in the forex market is a major attraction as it allows those with limited available hours to trade whenever possible. The liquidity does not waiver during the 24 hour period of trading. This gives part-time traders the opportunity to make effective trades whenever they are available to trade. It is not necessary, unlike in the stock market, to sit and wait for the opening bell and rush your trades before closing time.
This market may sound attractive, but the risks involved in trading are much higher than those in the stock market. The level of leverage is one of the main attractions for traders as it increases the level of potential profit, but it can also increase the level of potential losses. Traders have to bear this in mind before they start using leverage. The amounts being traded in this market makes for a fast-paced environment and as soon as there are news releases or economic announcements, the market starts to move again. This often causes more movement in the value of currencies and this often prompts traders to use high leverage in the hope of making bigger profits, but it also increases their risk level considerably.
Leverage Ratios
The leverage ratios in forex live trading range from 20:1 to over 400:1. This means that your forex broker will allow you to trade up to 400 and above times what the trade actually costs. The levels available to you will be set by your broker and often depends on your lot sizes. A standard lot is equivalent to 100000 currency units. On lots of this size, forex brokers generally avail of leverage ratios between 50:1 and 100:1. The higher leverage ratios are normally offered to those with trades to the value of $50000 or under.
In the event that you wish to trade a lot of $100000 and you require an investment of 1%, you need to deposit $1000 into your trading account. This means that you will be working with leverage of 100:1. This may appear to be an extreme, but when you consider the size of movements in this trading market, it will not appear to be that big.
Before you decide to make use of all the available leverage offered, you should look at the risks that are involved in that action. Leverage allows you to make bigger profits, but if your trade turns against you, your losses could be as big. To avoid being usurped by leverage risk, you should set strict limit and stop orders on all your trades.
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