Leverage risk.

Recently, brokers have been increasing their maximum leverage, with some companies already reaching 1:2000.

This would seem to be a boon for traders: deposit $100 and trade $200,000, only to be able to cash in on their profits. But in practice, the situation isn't quite as expected.

Trends rarely move in one direction for more than 15-20 pips, and even on short timeframes, there are constant countervailing swings. What are the benefits to a trader using high leverage?

The risk of leverage is clearly illustrated by an example. Let's not use the maximum leverage, but rather 1:1000.

With $100 in your account and 1:1000 leverage, you can open a trade of approximately 1 lot, meaning a price movement of just one pip will result in a $10 profit or loss. This equates to 10% of your deposit.

Trading with such leverage is not only difficult, but also unrealistic, as you also need to consider the spread. This means that when you open a trade, you immediately lose 10 to 30 percent of your deposit. A couple more pips, and half your capital is gone.

And that's not even taking into account the sharp price surges that occur during news releases. In such cases, you might not be able to close your deposit in time, and your stop-loss will be triggered due to slippage.

If everything is so risky, then why do brokers offer their clients the opportunity to trade such large volumes?

It's all about the spread.

Rather than brokers' desire to quickly drain a client's deposit, Forex brokerage firms have recently been preferring to profit from spreads rather than from deposit drains.

Take our example: with $100 and opening trades of 0.1 lots, you earn the brokerage $1-3 per trade. If the volume increases to one lot, the spread will range from $10 to $30, depending on the currency pair. Moreover, the number of trades will increase dramatically, as you'll exit the market at the slightest hint of a loss.

What about scalping?

Scalping has long been considered one of the riskiest trading strategies, but even scalpers rarely use leverage greater than 1:300, which is sufficient for aggressive trading.

So, what is the optimal leverage?

You'll find the answer to this question in the article " How to Choose Leverage ."