High Leverage is a concept that is used by almost all forex brokers that operated in jurisdictions with less regulatory requirements. Leverage is a form of loan, that is used by investors to increase their returns on their investment significantly. They use many tools to leverage investments such as futures, margin accounts and options.
Using Leverage in Forex Trading
In Forex Trading, leverage is used by investors to earn profit from the exchange rate fluctuation in different countries. The leverage works through obtaining a loan from the broker handling the trader’s account. This capital works as a source of funding that can expand the asset base, potentially leading to bigger returns. However, it does magnify the risk of loss too. Using leverage is very popular and even corporates and big companies use it to generate increased wealth.
High Leverage Forex Brokers List
MAS, JFSA, DIFC
Leverage in Numbers
When a trader opens a margin account, the usual amount of leverage is around 50:1, 100:1 or even 200:1. But, what do these numbers mean? Let’s start with a 50:1 ratio. This means that lowest margin requirement is 1/50, or 2%, of available trade as cash in the account, whereas a 100:1 ratio means that the trader needs to have a minimum of 1%.
To trade $50,000 currency with a 1% margin, investors will only need to deposit $500 into the account. This is a leverage of 100:1. This is much better than other leverage ratios such as the 2:1 equities ratio or the 15:1 futures market ratio. The Forex leverage may appear very risky but if you consider that prices of currencies usually only change by a maximum of 1% over the course of trading within a day, it is not as risky as it may first appear. If currencies were to fluctuate on a similar level as equities, the Forex brokers wouldn’t be able to offer such high leverage ratios.
Can Leverage Backfire?
High leverages can backfire, yes. If one of your currencies moves in the ‘wrong’ direction to what you predicted, the leverage amplifies the loss. In order to avoid such catastrophes, Forex traders usually follow a trading style that includes stop orders or limit orders, which are put in place to control potential loss.
The Forex market is famous for having high leverage. The highest leverages are in excess of even 1:3000. This presents the opportunity to open positions with small amounts of funds and can allow traders to open up more trades at the same time. Some Forex regulators have limits on the leverages that are permitted with currency pairs to 1:50 or 1:25. Those with higher leverages may not be available to residents of different territories or countries, depending on the regulators of that country. European brokers complying with the restrictions imposed by the ESMA restrict leverages to a maximum of 1:30 on the major pairs. However, these brokers often have offshore divisions where traders can open accounts that have higher leverages but are essentially a part of the same company. Despite this, traders need to be aware of the double-edged sword of high leverages. They can offer great profit potential, but this is held against the risk of greater potential losses.