Most beginners underestimate the potentially devastating damage leverage can wreak on their accounts. Understanding leverage enough to know when to use it and when NOT to use it is critical to your success!
Leverage is a very powerful tool but both old and new traders use it to destroy their trading capital simply because they take its destructive force too lightly or ignore it altogether. It’s a pity, but the more of them there are, the easier it is for us smart traders to make money. Sad but true.
Always keep in mind these words from a famous superhero: With great power comes great responsibility. Or something to that effect. Come on, we know you’ve seen that movie. Here’s a clue:
Anyway, high leverage is a favorite selling point for most forex brokers. Yes they pitch that you can make a huge killing using huge leverage, but also know that you could easily be killed by huge leverage as well.
Brokers want you to trade with a short-term mindset. They want you to trade as much as possible as often as possible. It’s the only way they make money. One or two pips are important to them. The more you trade the more they make on the spread. It’s not in their best interest to tell you to let your trades run longer than the same day.
If you want to give yourself the best chance to succeed, first learn to trade profitably without leverage.
Play it safe. Protect your capital.
When you can consistently make more pips more than you lose then, and only then, should you use unleash this weapon of mass destruction called leverage.
Destroy traders (or your broker) taking the opposite side of your trade. Don’t destroy yourself.
Forex trading should be treated as a job or business. Don’t think that just because brokers allow you to use high leverage with a low minimum deposit that you can “make a quick ” or “get rich quick”. Approach the currency markets with respect.
Be realistic in your expectations and be willing to properly educate yourself.
If you don’t, you will die.
Okay, not really, but your account will die.