Capital and Leverage in Forex Trade

Capital and Leverage in Forex Trade

There are two main concepts of Forex trade that are often neglected by the traders i.e Capital and leverage.

Capital for Forex trading

There is a well-known myth about Forex trade is that it can make you millionaire overnight with just a little capital. Well frankly, it is definitely not true. Forex is not betting. You can conduct profitable trade once or twice by luck but in order to be a successful ace of Forex, you have to grasp the mechanics of Forex.

All the businesses and investments are based on capital. The amount of capital affects trade as well. Of course, you can open a forex trading trade with a minor amount yet you should trade with a slight value such as $25.

In the beginning, you should check the waters thoroughly before investing a huge amount. Forex is actually a game of temptations. You are faced with different temptations at every step which can make you take the wrong turn. You should overcome your temptation to double your capital overnight. However, the amount of capital differs from trader to trader according to the volume of the investment.

Leverage in Forex Trading

Leverage is a facility offered by the broker. With the help of leverage, you can trade with an amount far greater than your own capital in your account. For example, if you have leverage with the ratio of 30:1, then you can trade with $30 with just $1 in your account. Similarly, it means that you can trade at $30000 with just $1000 in your account.

Traders view leverage as a golden opportunity. However, it has more risk associated with it. Even with leverage, you should not risk more than 1% of your capital for a single trade but traders often get excited with leverage and risk more on single trades. Obviously such a reckless attitude makes them suffer in the long run.

Thus forex teaches you to handle your emotions. Do not go crazy or overexcited in case of a profitable trade. Be patient and decide wisely.

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