Margins and Leverages... A perception that a company offering a high leverage is good for the investor, is wrong.. Its a double-sided SWORD !!

Margins and Leverages

In forex markets huge profits can be earned in a single week, maybe a single day or even in an hour. The forex market allows you to use one very special feature that is not as common in the stock market: leverage. The leverage of the forex market is not as simple as 1:2 leverage, but 1:100, and sometimes even 1:500. This means that for every dollar you have in your account, you can trade one hundred dollars and profit from those hundred dollars.

Leverage can prove to be helpful when your strategy is right and the trade is going in your favour. In view of the fact that the leverage makes the transaction volume a hundred times bigger, your profits are also a hundred times bigger. This means if the currency pair moves 1% in your favour, you made a profit of 100%, or your account is doubled. If the currency pair moved 3%, your multiplied the investment by four. With higher leverages, even a change of 0.5% can make your account four times.

Like every coin has two sides Leverage also has the other side. The last paragraph talked about the profits but there was a condition “if your strategy is right”. Now imagine if the strategy goes wrong (the chances are very fair) and the market turns against you. Just as your profits, your losses are also multiplied by the leverage. If a trade is going 0.2% against you, you are losing 20% and if the pair you are trading goes 1% against you, your entire investment is gone. If you invested all your money in that transaction, your broker will give you a margin call and you will need to fund your account again.

Many investors get attracted to brokers who use this great tool to lure traders and make huge profits. Leverage is a kind of loan, so the broker is earning interest on the money it lends you for leverage. Also, brokers use leverage to attract traders, but they hide the risks behind shiny presentation of profits. Honest brokers mention that leveraging your positions can bring big losses with them as well as huge profits. Handling leverage is very easy, and should be exercised by any trader. When opening a trade, make sure to select the proper amount of leverage. Most good trading systems automatically adjust the leverage for optimal results and minimal risks. This way you can enjoy both worlds - profit from leverage, but not be harmed too much from leveraging a losing trade. I trade with 1:100 leverage. To trade safely with leverage, get yourself an honest forex broker and a good forex trading system.

Here are 7 tips that I found on the internet to achieve success with forex trading: (very relevant)

1. Do not trade without stop loss point.

2. Do not focus too hard on achieving a certain target. Nobody knows which way the price is going.

3. Always use 3% of money management at most.

4. Try one strategy at a time and strict to that rule for at least 6 months. If you are really strict to the rule and the number of win is less than the number of loss, don’t use that strategy anymore.

5. Do not trade on news. It’s really unpredictable.

6. Do not quit after a few losses or a low profit margin.

7. Don’t trade when you are not in a good condition. Your physical, mental and emotional state will have a direct impact on your Forex trading result.

The last tip has a significant influence on forex trading leverage but is frequently overlooked and underestimated.

!!! NFP !!!

“Trading is hard work, laborious and boring, just like any other jobs. If you are excited about it, you are gambling”

NFP

As all of you know , the importance of NFP news which makes the trading very volatile, here is some points about NFP which I learned during my experience in Forex Trading. I hope it would be useful for all of you.

• New traders – stay away: Trading during this volatile period is very risky. Take a break and enjoy the weekend.
• Action before the release: Strange moves begin in the markets well before the release at 13:30 GMT. This usually reflects the expectations – expectations which aren’t necessarily met, and they can lead to a counter reaction afterwards. Jittery trading intensifies with the release of the Canadian employment figures, an hour and a half before the American ones.
• Friday effect: Strong moves in a certain direction – either dollar strength or dollar weakness can be seen hours after the release, usually in the last hour of the London session – between 16:00 to 17:00 GMT. This is the move that will determine the close of the week, and thus have a real long term effect. This is the full reaction.
• Technical barriers can be broken – support and resistance lines, uptrend support or downtrend resistance lines can be breached around the release of the NFP. This is usually only temporary – the graph returns to normal after a while, and these lines are respected again.
• Initial reaction is wrong: the initial reaction to the release is in the wrong direction: the knee jerk reaction is usually “normal”: good data yields dollar strength and bad data yields dollar weakness. This is very temporary! We are still in the global crisis, and the risk factor rules. So, minutes after the “normal” reaction, the risk factor kicks in and eventually the opposite happens: good data yields dollar weakness (risk appetite), while bad data yields dollar strength (risk aversion).