The concept of leverage is very Profitable in Forex trading, but also can be dangerous if you are not careful in using it, especially if you use very high leverage (over leveraged). High leverage will lead to the minimum margin or minimum guarantees that you pay each time fewer and fewer transactions. It will psychologically affect your trading
One of the character of successful forex traders are those who can eliminate the influence of emotions when trading. When people talk about the advantages of forex trading, the first time they put forward are usually high leverage facilities, or even very high. With certain leverage, you can open dozens or even hundreds of positions with relatively small capital. This can be done only by a relatively small margin collateral, and this is what makes one of the attraction of forex trading. Today many brokers that offer leverage of 1: 100, 1: 200, 1: 400 and even 1: 1000.
If you are trading on a broker with leverage facility 1: 1000, then for a contract value of USD 10,000 (commonly called a mini lot) You only pay a margin of (USD 10,000 / 1000) = USD 10 for each transaction (0.1 lot for mini lots ), the value per pip (pip value) calculation of the value of the contract in accordance mini lots (eg for EUR / USD with a contract value of USD 10,000, its value per pip is $ 1). Thus if your capital USD 500 and you open 30 positions (each 0.1 lot) with a leverage of 1: 1000, the total margin that you need is $ 10 x 30 = $ 300.
If for any position you to profit 10 pips, then your total profit is $ 10 x 30 = $ 300, or 60% of your capital. Conversely, if you experience an average loss 10 pips, then your loss is also 60% of your capital, and in such an event the forex market can take place in a matter of minutes, even if your broker spreads given is zero (no spread).
