Leverage - friend or foe?
- by Anna K.
Leverage. It is a possibility to trade without really spending a lot of your money due to the ability to loan this amount from your broker. With this you can buy a lot of securities. Like shares or contracts without having to have big trading capital.
But a lot of us are brought up into trading life with the notion that leverage is a bad thing and a very risky as well. Well, let’s look closed at leverage and at its real purpose.
Why is leverage considered so bad? Well because it is thought that if you do not have more than $2000 you should not be able to lose more than that. And of course that is correct. Losing more than you have is a right way to having a lot of debt. And with every broker the conditions of leverage trading are very different.
But if you ever looked closer at the professional traders’ lives you would of course see that a lot of them are trading with a very high – the highest in fact – leverage. What is that all about?
Well, the thing here is that high leverage although bears more risks can also be of more use to you by giving you the possibility to earn more in trades. Well of course, the more you put down, the more you can get back when a certain trade grows.
Some traders actually consider leverage to be a good and very efficient thing for those who want to become rich through trading and they want to do it fast too. A lot of traders prefers to look at leverage not as the way to increase your risk but rather lower it. Look at it this way. The more leverage you get the less your own capital is at risk. So it can actually reduce losses that we as traders may pare.
1. Are you ready to risk more in an already risky environment?
2. Are you ready to study even more?
3. Are you ready to pay more time and attention to the trades?
4. Are you ready to use your trading signals even more often?
5. Are you ready to be more careful with assets’ choosing process?
If you answer YES to all the question than congratulations! You are ready to go on with leverage trading!
As I already said, some traders prefer to trade the highest leverage possible so that to have a chance to win much more much faster. Of course the more experience you have the more risks you see and the more prepared you are to deal with the difficulties of leverage trading.
In the end decision to trade with leverage us yours as your money and your trading reputation are on the line here.