Leverage and Volatility - The Deadly Duo

One of the main reasons why Forex trading has become so popular these days is the availability of Margin Accounts which allow investors to access loans that are multiple times bigger than their original deposits.

Without such facilities, Forex trading would be out of reach for most small players as the amounts required to realise a reasonable profit would be too great.

However, the combination of high leverage and volatile currencies( see chart) can be extremely dangerous. This is because when trading under such conditions, one bad trade can completely reverse the profits from many good ones.

You need to realise quickly that there is big difference between risking 2% and 10% of your total account per trade. Ten trades, risking 2% of the balance per trade, would lose only about 18% of your total account if all were losses. Under the same conditions, 10% risked would result in losses of about 66%.

An important point to remember is that successful Forex Traders are first good survivors and second big earners.

For more details, please click the ‘Your Forex Library’ link located towards the top left of this webpage.