What is the new forex leverage after the ESMA regulation? Read this article to discover how to continue trading with a leverage of 1:400.
Leverage is basically a loan given to you by your broker to enable you to hold more positions in the markets and increase your profits. Lots of people new to trading get confused by this concept in Forex, the way it calculated and how it should be used.
Take an instance, for you to have a $ 100,000, the broker you are using sets aside $1,000 in your live trading account. Hence making your leverage ratio be 1:100. You’re now controlling $100,000 with $1,000. In Forex leverage trading is a necessary evil in, it is very important as it can help traders of the Forex market to greatly magnify their gains, buy enabling them to control large positions in the market.
A standard trading account with a regular broker will usually deal in lots of $100,000. To make a single trade with your account, you need $100,000 to place on it. This figure is beyond the reach of most of us, and so this is why brokers offer a leverage. To allow people to trade these large lot sizes, brokers will effectively loan you money to place the trade provided you give them some of the trade as a security against it. If the trade falls by more than you put up as collateral then the broker will close your trade and that money will be lost, but if the trade moves in your direction then you stand to make a good profit.
It is very important to point out that leverage works both ways. Whilst you can earn a lot of money very quickly by making winning trades, you can also lose money very quickly by using leverage, hence making leverage trading in Forex a double-edged sword. This is not uncommon either. There are lots of Forex traders who have blown their account completely just through one single losing position, and all because they over-leveraged themselves. It is always advisable to understand all the risks involved when trading leveraged products such as Forex and metals and always remember not to trade with what you cannot afford to lose.
For this reason ESMA decided to reduce the new forex leverage to 1:30 for European clients.
New Forex Leverage – ESMA Regulation
Leverage also comes with greater risk, so be responsible and mature when making use of it. Also, do not forget that it is not a necessity in Forex trading, so do not pressure yourself into making use of it if you feel that you are not ready for what leverage entails. every traders’ aim is to make money so to do this you should use strict money management rules. This means employing a tight stop loss and only risking a very small percentage, ie 2% or 3%, of your trading capital on any one trade. This will mean that any losses you may incur are kept small in relation to your total bankroll which means you can stay in the game and live to fight another day.
The main thing to remember is that you will make substantial profits from Forex trading when you use a good leverage like 1:400, and shine your way to financial freedom. With the new forex leverage some positions should be reserved for traders who want to change their lives and are willing trade responsibly and we all know that a trader will be successful if he sticks to his trading rules, his strategy and proper risk management. Leverage plays a major role in the journey of a successful trader, making it very vital for every trader.
Read here where you can keep trading with the new forex leverage 1:400.