One of the most common questions I get from beginner traders is: What leverage should I use?
And every time, my answer is the same: The leverage offered by the broker is irrelevant. What truly matters is the position size you control in the market.
Understanding Leverage in Trading
Leverage is a tool that allows you to control a larger amount of money in the market than you actually have in your account. Brokers regulated in the U.S., EU, or Australia limit leverage to 1:30, but in other jurisdictions, these restrictions do not apply, and brokers may offer leverage of 1:200 or even higher.
What does this mean? Let’s take a concrete example:
• You have an account with $1,000.
• Your broker offers 1:200 leverage.
• This means you can control $200,000 in the market.
Although this may sound tempting, you must understand that your profit and loss are calculated based on the amount controlled, not your initial capital.
The Real Risk of High Leverage
Let’s assume you open a position using the full leverage available and control $200,000 in the market.
• If the market moves 100 pips against you, your loss is $2,000.
• Your $1,000 account is completely wiped out in just 50 pips of adverse movement.
In other words, high leverage can quickly take you out of the game if you do not manage your risk properly.
How to Trade Safely
If you have an account of $1,000, it is recommended to control much smaller amounts in the market to reduce risk.
A safer approach would be:
• To control $5,000, meaning you open a position of 0.05 lots.
• If you have a higher risk appetite, a maximum of 0.1 lots, which means you control $10,000 in the market.
This way, a 100-pip movement against you will not completely wipe out your account, giving you a better chance to manage risk and learn from experience.
Conclusion
The leverage offered by the broker does not matter; what matters is the position size you open. Set an appropriate risk level for your account and do not be tempted by high leverage offered by brokers. Survival in trading depends on proper risk management, not on how big you can bet on each trade.
And every time, my answer is the same: The leverage offered by the broker is irrelevant. What truly matters is the position size you control in the market.
Understanding Leverage in Trading
Leverage is a tool that allows you to control a larger amount of money in the market than you actually have in your account. Brokers regulated in the U.S., EU, or Australia limit leverage to 1:30, but in other jurisdictions, these restrictions do not apply, and brokers may offer leverage of 1:200 or even higher.
What does this mean? Let’s take a concrete example:
• You have an account with $1,000.
• Your broker offers 1:200 leverage.
• This means you can control $200,000 in the market.
Although this may sound tempting, you must understand that your profit and loss are calculated based on the amount controlled, not your initial capital.
The Real Risk of High Leverage
Let’s assume you open a position using the full leverage available and control $200,000 in the market.
• If the market moves 100 pips against you, your loss is $2,000.
• Your $1,000 account is completely wiped out in just 50 pips of adverse movement.
In other words, high leverage can quickly take you out of the game if you do not manage your risk properly.
How to Trade Safely
If you have an account of $1,000, it is recommended to control much smaller amounts in the market to reduce risk.
A safer approach would be:
• To control $5,000, meaning you open a position of 0.05 lots.
• If you have a higher risk appetite, a maximum of 0.1 lots, which means you control $10,000 in the market.
This way, a 100-pip movement against you will not completely wipe out your account, giving you a better chance to manage risk and learn from experience.
Conclusion
The leverage offered by the broker does not matter; what matters is the position size you open. Set an appropriate risk level for your account and do not be tempted by high leverage offered by brokers. Survival in trading depends on proper risk management, not on how big you can bet on each trade.
📈 Forex & XAU/USD Channel:
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Related publications
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.
📈 Forex & XAU/USD Channel:
t.me/intradaytradingsignals
💎 Crypto Channel:
t.me/FanCryptocurrency
Related publications
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.