FxBrokerReviews.org – Trading with leverage has become quite common these days. While visiting any forex broker’s site you might have seen a small disclaimer regarding leverage. But what is leverage in trading? To put it simply, leverage trading refers to trading that involves borrowing money or increasing the number of assets involved in trade beyond the number of assets you can afford when paying in cash.
Leverage trading is a loan that you take from your forex broker, against the margin value. While it is not a bad thing, it comes with many risks. With that being said, leverage does offer the ability to amplify investment gains, it can do the same with losses. Therefore, beginners should tread carefully when applying leverage for the first time.
This guide will explore some of the best forex brokers with high leverage in the market, in terms of limit, asset offerings, fees, the platforms available, and more!
Also read: Best Leverage for Forex Trading
What is leverage in trading?
Financial leverage in the forex market refers to borrowing a sum to trade on or invest in an asset or market in the hopes of getting higher returns. To simplify it further, it is the use of borrowed funds to increase a trading position beyond what would be available from the cash balance. Forex trading offers high leverage to all traders for an initial margin requirement. Here margin refers to the sum of money kept with the forex broker to cover up in case of losses.
Therefore, forex brokers allow the use of leverage through margin trading. Forex traders often use leverage trading to earn higher profits from small price changes in currency pairs.
How does leverage trading work in the forex market?
Trading in the forex market depends on the price movements of the currency pairs. And the movement of the currency pairs is monitored in pips, which is the smallest percentage change in the currency price. For example, when a currency pair like the GBP/USD moves 100 pips from 1.9500 to 1.960, it is considered to be a 1 cent move of the exchange rate.
Based on this concept, leverage is used in trading. In the forex market, leverage is as high as 100:1. This means that for every $1,000 in your account, you can trade up to $100,000 in value. Such high leverage also gives rise to a risk of incurring great losses. This is the reason why it is advised to carry currency trade in sizable amounts while using leverage.
If the trade size is small then, price fluctuations in the currency pairs will be minute and hence can be translated into larger profits when magnified through the use of leverage. But when you deal with higher amounts using leverage, small changes in the price of the currency can result in significant profits or losses.
What are the advantages of leverage trading?
Now that you have understood leverage meaning in trading, let us take a look at some of its advantages :
1. Good for markets with low volatility
Trading with leverage is highly suitable for low volatility markets. As major forex pairs like EUR/USD rarely have price fluctuations in the forex market and move by more than 1-2 in a single day of trading. While it can be difficult to make great profits from low-volatility markets. But, when leverage is used a small turn or gain can convert into a highly sizable profit.
2. Provides traders a budget
Leverage is good for traders who have a budget and have limited money to trade further. Leverage allows them to trade in higher markets and assets, which otherwise would not be affordable for them. Trading with higher capital also increases the chances of getting higher profits than usual.
3. Access to more markets
As a new trader, if you want to explore higher assets and markets in terms of value and trade size, it can be quite difficult due to a lack of resources. Trading with leverage will allow you to open bigger positions which are again good for your portfolio and overall market strategy.
What are the risks of leverage trading?
As appealing as magnified profits’s sounds it also comes with a great chance of losing more than you have invested. Before you start trading with leverage take a look at some of the possible risks of leverage trading.
1. Margin Risks and Margin Call
Leverage possesses the risk of your margin. If you use margin to double your purchasing power, you double all of your gains and losses. This means that if you incur a loss, it will be more than the cash you have invested with your forex broker. This gives rise to another risk- margin call
If your account’s value falls below the value of the money you have borrowed, your broker may demand you deposit additional funds. As your broker might worry about your ability to repay your debt if your investments continue to lose value.
2. Losing money
This is the most obvious risk that comes with leverage trading, as some leverage trading strategies, can have potentially infinite risk. A trader incurs losses when they use high leverage with high trading values, without studying the volatility of the market. As soon as price value or position declines in value by a certain amount, the risk of incurring losses increases.
For example, the leverage of 1:20 is set for the trade value of $100. This means that with a value of just $100, the trader can place a position worth $2,000.
Therefore, if the trade declines by 5%, the broker will be forced to close the position and lose all the money invested and more, depending on the market situation.
Things to consider before trading with leverage
When trading forex or any kind of asset with high leverage there are a few important points to consider:
The risk of volatility
As mentioned, a even small change in the price value of the asset can multiply very quickly when you are trading with high leverage. Therefore, when there is a chance of excessive volatility in the market, avoid leverage as it has the potential to drain your account very quickly. So try to invest in assets that are more stable and make sure to set regular stop losses.
You don’t need to always use high leverage to trade in the forex market. Always consider your margin, before you use leverage. The higher the leverage, the more vulnerable you are to price changes
You also need to be careful about margin calls, as they can lead to closing your trade position. Even if you are trading with lesser amounts, even a small change in the price of your asset could trigger a margin call. So, if you do not have sufficient funds deposited to cover the loss caused by leveraged trading the broker may request you to make an additional deposit or even close your trade.
Trading with high leverage involves risk, which increases as the leverage increases. Even professional funds and traders can bear significant losses by using excessive leverage in the forex market. Therefore, it is advised to use leverage along with certain risk management tools like setting a stop loss, using a demo account to learn more about trading, and more. This will minimize the chances of incurring significant losses in forex trading.
What is the best leverage in forex for beginners?
Leverage is valued in ratio, so if you use a leverage of 100:1, it means that it is possible to enter into a trade for up to $100 for every $1 in your account.
In forex trading, many traders are attracted to trade with high leverage to gain easy returns, however, it comes with a lot of risks. The most common leverage rate used in forex is 100:1, but it is advisable, to begin with, a ratio of 50:1.
This is a lower risk level and requires a full 2% price movement to empty your initial investment. However, you can always increase your leverage with experience and understanding of the forex market.
Is leverage safe in the forex market?
Leverage is not that bad after all. It helps to magnify profits if used wisely. It can be risky only if you use too much leverage without understanding leverage meaning in trading and how the market works.
A trader, should not use all of their margins and only use leverage when the advantage is clearly on their side. Once the amount of risk in terms of pips is known, it is possible to determine the potential loss of capital.
Best high leverage forex broker in 2022
Using various criteria, forex broker reviews have identified forex brokers with high leverage in 2022, take a look:
FBS – best forex broker high leverage
FBS offers the highest leverage in the forex trading market. It is a suitable platform for traders who are willing to take the risks that come along with leverage trading. FBS offers leverage of up to 1:3000, this means that for every $100 staked, a trading position of up to $300,000 can be entered.
The trading platform has a wide range of assets to trade from, including stocks, cryptocurrency, metals, indices, and more, and is inclusive of the MT4 and MT5 trading platforms. Furthermore, the broker also offers ECN accounts, that offers a maximum leverage limit of 1:500.
Capital.com – overall best forex broker with leverage
The forex broker is very popular for the leverage it provides to all traders. Capital.com is regulated by the European Union and Australian regulations. The platform also has a large trading suite and involves trading of over 5,400 shares, 491 cryptocurrency markets, and nearly 140 forex pairs.
The forex broker allows maximum leverage of 1:30 on major forex pairs, and 1:20 on minors/exotics. It is the best high-leverage forex broker as it is also commission-free and has low trading fees. It also supports an app to trade forex and other assets for both Android as well as iOS.
OctaFX – best forex broker with high leverage and regulation
OctaFX easily comes in the way of one of the best forex broker high leverage. The forex broker offers maximum leverage of 1:500 which is under the SV regulation. Traders that fall under the regulation of FCA and CySEC have a leverage limit of 1:30.
The forex broker has low trading fees and charges only $100 as a minimum deposit. It offers a wide range of asset selections to all traders.
Furthermore, the broker also includes third-party trading platforms like MT4 and MT5, which also offer high leverage.
AVATrade – high leverage forex broker depending on location
Traders while looking for the best high-leverage broker often consider AvaTrade as a suitable option. The forex broker offers leverage of up to 1:400. This is, dependent on the location of the trader and the asset class they are trading.
For traders in the UK, Europe, or Australia leverage is set to the standard 1:30 limit.
The trading platform is a CFD broker and offers over 1200 instruments to trade from, including stocks, indices, cryptocurrencies, commodities, and more. Also, the forex broker is considered to be quite affordable as it has tight spreads, is commission free, and supports free demo accounts for all traders.
Leverage supports the possibility of significantly magnifying your profits, but you also need to be careful while trading with leverage. There have been various instances where traders’ accounts were emptied due to excessive and irrational use of leverage. To avoid this, you need to make sure that you choose only the best forex broker. So that you can make use of risk management tools and the educational content available.
Q1. Should I trade with leverage?
Ans: leverage trading has the potential to increase your profits in a short period, but it can also be risky, So to use leverage you need to have great experience in the forex market.
Q2. Can I lose money with leverage?
Ans: if there is extreme volatility in the market, then even a slight price movement in the opposite direction can cause you to lose a significant amount.
Q3. Which is the best high-leverage forex broker?
Ans: FBS offers the highest leverage as compared to other forex brokers in the market.