How to mange forex trading leverage risks

There are two things that a trader needs to know about what is the forex leverage and margin and how to manage the forex trading leverage risk. In the previous post we have deeply discussed what is leverage is and how it works, You can find this article here. In this post we will discuss how to manage the leverage risks. So let's start. 

 Manage leverage risk

 After reading the previous article you will know a higher leverage ratio means that the profit will also be higher if the trade goes accordingly your thoughts. If the asset moves in the opposite direction, a trader with more leverage will suffer more losses than one with less forex leverage. 

 New traders pay a lot of attention to the positive side of this feature and use a lot of leverage all the time. this isn't always usually the nice practice. On the other hand experienced professionals understand the dangers/risks of using excessive leverage. To reduce exposure/risk, they usually use low leverage and earn small profits that add up later. 

 For example, in Jan 2015, the Swiss National Bank surprised the market when it decoupled the Swiss franc from the euro currency. This led to massive market volatility, which resulted in the near extinction of many highly leveraged companies. Many traders who were short trading the Swiss franc--and had not hedged their trades with a stop loss--lost their entire trading accounts balance within seconds. 

 To reduce risk, brokers reduce leverage ratios when the market is likely to be highly volatile. Some of these events are during major elections, major referendums, and major releases of economic data.etc. 

Negative balance protections. 

 Many broker's like octafx , FBS, Exness protect traders from these extreme market events by offering negative/below zero balance protection. By this you will lose more of your investment in the trade. 

 Forex margin 

 The forex margin requirement will depend on the leverage ratio that the trader chooses such as lot size and trading instruments. let's give you examples of using fbs leverage and margin: your trading platform additionally suggests you free margin (or usable margin) and margin degree figures. 

 What is the Free margin

 Free margin is the amount of money you have in your account that you can use to maintain an open position or open a new one. the margin stage is the share that suggests the trader how lots of your finances are not getting used at the moment. 

if your open trade is at a loss, your margin level will decrease, and to avoid losing all your money, brokers use so-called margin calls. A margin call is a certain margin level (in FBS it is equal to 40% and octafx 25%) which, once reached by the trader, triggers an alert to ensure that the trader closes the loss order or adds more money to the account. Make a deposit. 

 Once the margin level reaches the minimum allowable level, or stop-out level (in FBS it is 20% and in the octafx it's 30%) to prevent negative balance of traders, some trades, which would have been the most loss-making are automatically closed. 

margin levels, equity, and free margin change in real time, so you should pay close attention to these numbers, especially if you're using high leverage ratios. Leverage can lead to large returns from small investments. but, the same formula will apply to losses, so be careful when deciding on leverage: Your earnings will multiply, however in case of losses, it'll also multiply. 

 Suitable leverage

 The best leverage for a $100 forex account is 1:100. 

Many forex professional traders also recommend this leverage ratio. if your leverage is 1:100, that means for every On $1, your broker will give you $100. so if your trading balance is $100, you can trade with $10,000 ($100*100). 

 For the 500$ leverage should be 1:500 or less. They are different broker provide different size of leverage. 

 Leverage limits

FBS	FBS broker minimum leverage is 1:1 and maximum leverage is 1:3000
Octafx	leverage starts from 1:1 minimum to 1:500 maximum
XM Broker	1:1 to 1000:1
hotfx	1:3 to 1:200 leverage.
ICMarket:	ranging from 1:1 to 1:500

  Bottom line

Leverage is a double-edged sword. When the trade goes well, a trader with a lot of leverage gets more profit. When they go in the opposite direction, losses can often exceed the total capital of the account. Since all traders make mistakes, finding a good balance of leverage will be beneficial. For new traders, it is recommended that they first understand the meaning of leverage and margin. Then, they should start trading with the least available leverage. As they become more experienced, they can then increase the leverage to a level where they don't have to face a lot of risks. 

If you still have any question regaring Leverage , please feel free to ask us in the comment sections. Thank you!