The stereotype is still strong that a substantial deposit is needed to get a noticeable profit from trading at the foreign exchange market. For the mutual benefit of a broker and a trader there is a leverage, the correct use of which must be mastered by anyone who has seriously decided to engage in trading at the financial markets. Bytrend.com (bytrend.com) analyst Ivan Hasek told how this tool functions and what it is worth paying attention to for beginners.
The practice of Bytrend is, first of all, to explain to clients the essence of leverage. The market is not an exchange office so just taking and exchanging a certain amount for an equivalent in another currency will not work. All trading is organized in lots; one lot is 100,000 units of one or another currency; accordingly for active trading with more or less tangible profit you need to have a solid capital that not all traders can afford. To lower the threshold for entering the market a broker provides leverage, in other words, borrowed money. With their help the financial capabilities of a trader can increase hundreds or even thousands of times.
Simple mathematics demonstrates the principle of work. Let’s suppose that a trader has $ 1000 in his account that is equivalent to the volume of 0.01 lots. If the leverage is 1: 100, then it becomes possible to operate with an amount of $ 100,000 or a full lot. If the broker provides a leverage of 1: 1000, we can already talk about 10 lots.
The motivation of a broker providing such a loan is simple: on the one hand, more customers are attracted seeing a potential opportunity to increase profits from trading, on the other hand, a broker increases his income from commissions. At the same time there is practically no risk, since a trader, working with borrowed funds, can lose only personal capital.
Such a system is also beneficial for a trader. With minimal capital it becomes possible to work with significant volumes and receive more serious income. Bytrend clients’r reviews demonstrate that with the right approach and prudent management, margin trading can bring in tens and hundreds of percent per annum.
At the same time do not forget about the risks. It is logical that with the growth of the possibility of profit, the risk of losses also increases. Mathematics helps again. At the same deposit of $ 1000 when opening an order with a volume of 0.01 lot without leverage, the cost of one point of change in the currency quote will be 1000 times lower than in the case of trading with the leverage of 1: 1000. This means that when moving in an unfavorable direction trader’s losses will be much more noticeable and will significantly reduce the deposit.
Bytrend customers are advised not to be afraid of leverage, but to correctly use the full potential of this useful tool. Few people will be attracted by the prospect of earning a few dollars a day so the use of borrowed funds from a broker is a completely normal practice. First of all, you need to adequately assess current risks and understand the prospects of an asset in the market. In addition you should always remember that no one forces you to use all the leverage at once (although sometimes the temptation is great enough). There are some particularly successful traders among the Bytrend client who demonstrate consistently profitable trading, showing an impressive profit-to-loss ratio. Until this level is reached, the leverage potential must be used very carefully.
And, of course, do not forget about stop loss. Correct placement of them minimizes losses and saves the deposit from instant disappearance when using leverage “in full”.
It must be understood that the cause of losses in the market is not the size of leverage or the “wrong” broker, but excessive self-confidence and lack of qualification of the trader himself. One and the same tool can become a path to enrichment or it can turn out to be a source of disappointment.