In today's lesson, we will discuss the issue of choosing the right leverage in forex trading. Many people believe that the higher the leverage, the greater the risk. However, we will analyze this issue through the content of this course.
First, we need to understand the relationship between leverage and risk. In the case of a forex contract, for example, a standard contract is usually worth $100,000. If we use leverage of 1:100, the margin required is $1,000, and for every little movement, our profit or loss is $10. If you use a leverage of 1:200, the margin is reduced to $500, but the profit and loss per one point of movement is still $10. Even with a leverage of 1:500, the margin is only $200, and the value of the profit and loss points remains the same. This shows that as long as the lot size is the same, the risk is the same under different leverage ratios.
However, the reality is that forex trading tends to be more complex and has a higher rate of loss than the market. This is mainly due to the fact that after using leverage, we can operate larger trade sizes. For example, when there is no leverage, we need $100,000 to buy one contract. However, with a leverage of 1:100, the same amount can control 100 contracts. This increase in ** naturally carries a higher risk.
Therefore, while there is no direct proportional relationship between leverage and risk, high leverage can indeed lead to heavy trades, increasing the potential risk of the trade. With this understood, we can better answer what leverage ratio a beginner should use.
In the domestic trading environment, the leverage ratio of many platforms is usually between 1:100 and 1:400, and some are even as high as 1:800. Personally, I believe that as long as the leverage is more than 100 times, no matter what the specific number is, the risk and trading logic are the same. Therefore, it is more important for beginners to learn to control** and trading risks, rather than focusing too much on leverage.
Through the study of this course, we should realize that once the leverage reaches a certain level, further increasing the leverage will not significantly increase the risk. This helps us to recognize the importance of control. If you have any questions or ideas, please feel free to leave a message to discuss. In the next lecture, we will discuss the relationship between leverage and long-term trading strategies.