How to choose forex leverage
The correct answer to the question of how to choose leverage in Forex allows you not only to significantly reduce the amount of funds required for trading, but also to reduce risks.
Typically, the size of the leverage is set when registering a new account, so you need to immediately decide on its size, so that you don’t have to do all the steps a second time.
In order to choose the right Forex leverage, you should take into account several main indicators of your upcoming trading, these are the duration of transactions (time frame), the amount of funds at your disposal and the level of risk.
The main task of any trader is to obtain maximum profit, and the amount of profit directly depends on the volume of transactions. Based on this, we will try to determine the maximum allowable amount of leverage depending on the trading parameters.
Duration of trades - if you trade over short time periods, the profit from one trade rarely exceeds a few pips, so the higher the cost of one pip, the more you will earn.
How to choose the best leverage taking into account the holding time of open positions?
On short time frames, the maximum size of Forex leverage is acceptable, for example, with a deposit of $30 and a leverage of 1:500, you can open a trade with a volume of 0.1 lot, as a result, you will receive about one US dollar from a movement of one point.
At the same time, you do not need high deposit stability to exchange rate fluctuations; when scalping, transactions are usually closed with losses of only a few points.
At long trading intervals, there is the possibility of large rollbacks, even if the trend direction is maintained, so in this case you need to choose a leverage of no more than 1:50 or 1:100.
Deposit size - if you have a limited amount of funds at your disposal, it is clear that you should increase them in all possible ways, for this reason you will simply be forced to choose the maximum possible leverage size. And this will be the most correct step in the current situation.
How to choose the optimal leverage taking into account the amount of funds in your trading account?
But if your funds allow it and you don’t want to take risks, then the right decision would be the smallest leverage; this approach will allow you to wait out any storm without terminating the deal at the slightest correction in the trend movement
You can assess the level of risk for your broker using a demo account with a planned deposit amount. Again, the cost of one point and the volume of the transaction play a role; if you opened a deal of 1 lot, having only $1000 in your account and using a large leverage, then with a fluctuation of 70 points against you you will lose $700 and most likely the automatic closing the deal.
Therefore, balance the level of risk and the size of the transactions you open.
How to choose Forex leverage is a rather difficult question, since when making a choice, first of all, you should decide how risky your trading will be, and also be sure to take into account the duration of the transactions and the amount of correction for this trading instrument. The higher these two indicators, the smaller the size of the lever used.