There is a relationship between leverage and its impact on your forex trading account. The greater the amount of effective leverage used, the greater the swings (up and down) in your account equity. The smaller the amount of leverage used, the smaller the swings (up or down) in your account equity. As tempting the ability to generate big profits without putting at stake too much of your hard-earned money may be, you should never forget that an excessively high degree of leverage could drain your entire starting capital in a blink of an eye.
There are three primary types of trading accounts - standard, mini and managed - and each has its own pros and cons. The type of account that is right for you depends on a number of factors, including your tolerance for risk, the size of your initial investment and the amount of time you have to trade the forex market on a day-to-day basis. With all the different options available for forex trading accounts, the difference between being profitable and losing your shirt can be as simple as choosing the right account type.
In forex, investors use leverage to profit from the fluctuations in exchange rates between two different countries. The leverage that is achievable in the forex market is one of the highest that investors can obtain. Leverage is a loan that is provided to an investor by the broker that is handling the investor's or trader's forex account. When traders decide to trade in the forex market, they must first open a margin account with a forex broker. Usually, the amount of leverage provided is either 50:1, 100:1 or 200:1, depending on the broker and the size of the position that the investor is trading.
Traders can choose accounts based on their level of experience in forex trading whether they have just started to trade, or they have plenty of experience in trading forex there are different types of accounts. Traders can choose accounts from depending upon their level of understanding and other factors such as tolerance for risk, size of initial investment and amount of time traders have for currency trading on a daily basis.
It is important for inexperienced traders and clients who are new to trading forex, or indeed new to trading on any financial markets, to completely understand the concepts of leverage and margin. Too often new traders are impatient to begin trading and fail to grasp the importance and impact these two critical success factors will have on the outcome of their potential success. Leverage, as the term suggests, offers up the opportunity for traders to lever up the use of the actual money they have in their account and risk in the market, in order to potentially maximize any profit.