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Risks

Limit Your Use of Leverage

Leverage offers you the opportunity to magnify your profits made from your trading account, but it can similarly magnify your losses, increasing the potential for risk. For example, an account with leverage of 1:30 means that on an account with $1,000, you can place a trade worth up to $30,000.

This means that if the market moves in your favour, you would experience the full benefit of that $30,000 trade, even though you only invested $1,000. However, the opposite is true if the market moves against you.

Your level of exposure to Forex risk is therefore higher with a higher leverage. If you are a beginner, a sensible approach with regards to forex risk management, is to limit your exposure by not using high leverage. Consider only using leverage when you have a clear understanding of the potential losses. If you do, you will not suffer major losses to your portfolio – and you can avoid being on the wrong side of the market.

Admiral Markets offers different leverages according to trader status. Traders come under two categories: retail traders and professional traders. Admiral Markets offers leverage of 1:30 for retail traders and leverage of 1:500 for professional traders.There are benefits and trade offs to both, and you can find out what is available to you by reading our retail and professional terms.

Forex risk management is not hard to understand. The tricky part is having enough self-discipline to abide by these risk management rules when the market moves against a position.

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