Disadvantages of leverage in forex are increased when you underestimate how much loss leverage can bring to your account.
Leverage does not guarantee, a way to make big profits. Leverage is double edged sword. It gives you money today and tomorrow takes it all.
However, when you use it right, it can double your account on a single trade. But, the reverse happens when a trade goes against you. You lose all you have.
It is so unfortunate that most traders don’t look at that. They only get excited thinking of how much they could make just on a single trade but forget about what they could lose.
Therefore, as you look forward to making high profits using leverage, you should bare this in mind that anything can happen.
And remember disadvantages of leverage in forex exist!!
There is no guarantee in the Forex market that you will make only profits. What do I mean?
In case a trade goes against you, high leverage can also lead to very big losses. And when that happens, the broker will still correct his payment on spreads.
Disadvantages of Trading with high Leverage
When a trade goes to your favor, you make a big profit. Similarly if it goes against your favor, you make a huge loss.
In a long run, you are likely to have a larger loss than the profit. When not careful you can even lose your whole capital from your account.
2. Margin Call Risk
Trading with high leverage may lead to a marginal call. This happens when your when your equity falls below the margin or is equal to the margin.
It simply means you no longer have enough capital to sustain your open trades. Once it goes below the brokers threshold level, your trades will automatically close out.
The accumulated loss on your account plus the spreads increase more risk to your account balance and it may end up being wiped away.
3. loss of your trading career.
There is nothing as frustrating as losing all your hard earned money. Most Forex traders give up on Forex trading after losing all their money to the market.
The most common cause for their loss is trading with high leverage.
You should not be too greed because you just learnt that with leverage, you can double your capital on a single trade. You may not last for even a day.
Forex trading is not a get rich scheme. You need patience and discipline to profit from trading Forex
Yes, leverage gives you great opportunities to trade any size you want.
Never the less, you must be careful and aware of what may happen in case things don’t work out as expected.
If you choose to trade using leverage, choose currencies with low spreads.
Don’t use a big leverage on long-term trades. Also stick to your trading rules and risk management.
How long you can hold an open position in forex, is a personal thing for all traders. The decision is all yours. You know what your goals are as a trader, the kind of strategy you use to trade. All this starts from what you are? and What you want? If I am to answer,...
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