Why is gaining too much leverage through forex margin trading a dangerous thing?
If you have already read about the concept of leverage in forex by trading on the margin, you will no doubt understand that it can be a powerful tool. A typical margined account will offer a 1% margin, which means you only have to deposit 1% of the total value of your trades (with your broker lending you the other 99%).
Lets say your account deals in lots of $100,000 each, in order to buy a lot you now only need to invest $1000 of your own money in that trade (1%). Now this deal may seem 마진거래 like an amazing offer, and it does allow the ‘average joe’ to get a piece of the action without needing a few hundred thousand dollars to spare. However, there is one big caveat you shouldn’t overlook:
Trading on a margin of 1% means a fall of 1% of your trade will put you out of the game!
Forex margin trading allows you to minimise your financial risk, but the flip side of the coin is that if the value of your trade dropped by the $1000 you put forward it would be automatically closed out by the broker. This is called a ‘margin call’.
As you can see, a small movement in the wrong direction could easily wipe out your trade, and see your $1000 gone in a few seconds. If the trade moved enough in the right direction to cover the spread then you could make a good profit, but you would need to be absolutely certain in your prediction to make such a risky trade.
Forex margin trading on a 1% margin is risky business, but by getting the balance right between your level of risk and how heavily leveraged you account is you can gain an advantage. This advantage could be the difference between success and failure.