How should leverage be used in trading? How much leverage is appropriate?

​Many traders and friends consulted the captain about this question, and the captain responded in a unified way:

Friends who do foreign exchange trading know that the foreign exchange trading market is a highly leveraged trading market.

In recent years, with the increasingly stringent international regulation, deleveraging has become the general trend.

Many traders and friends left messages to the captain to inquire about leverage. It is very interesting that the consulting partners are clearly divided into two factions.

One of the traders friends is wondering how to trade with such low leverage. . .

And another group of traders will say: foreign exchange trading leverage is so high, it is too dangerous to touch. . .

So, how do you think about leverage in the trading market?

First of all, let's understand what is leverage?

The captain explained in the most straightforward words that you don’t have enough money to speculate in foreign exchange, and the foreign exchange broker will lend you money. The more you borrow, the greater the leverage.

Hearing this, if you are smart, you may immediately think of taking out a loan to buy a house. That's right, buying a house with a loan is a form of leverage in life.

You want to buy a house, but you can’t pay the full amount for a 2 million house, so you can only pay a 30% down payment, and then take a loan of 1.4 million from the bank. At this time, you have used 3.33 times leverage.

Similarly, the stock market itself does not have leverage, but what does it mean when there is a capital allocation, you pay 100,000, and you are allocated 900,000?

The market itself is not leveraged? It doesn't matter, artificial leverage!

Therefore, leverage does not exist in the foreign exchange market, but it still exists in the stock market, and it is involved in all aspects of our lives. This is not a rare thing.

OK, now that we know what leverage is, let's go back to the foreign exchange trading market.

In the foreign exchange market, there are actually two levers: the leverage set by the platform and the actual leverage.

What is the leverage set?

The leverage set is the highest leverage provided to you by the platform broker, such as 100 times, 500 times, and even 1000 times. The captain has also seen it.

And what we usually call high leverage is the leverage of this setting.

So what is the actual leverage used?

The actual leverage used is the leverage you really use when making transactions.

We know that the actual contract of 1 standard lot of currency pairs in foreign exchange trading is 100,000 US dollars. That is to say, if there is no leverage, I can place 1 lot of 100,000 US dollars. If calculated according to 10,000 US dollars, it is 10,000 US dollars USD 0.1 lot. Then, this 0.1 lot is the order volume without leverage.

In other words, the standard allocation of 10,000 US dollars should be 0.1 lot, instead of the standard allocation of 1 lot for 10,000 US dollars as we often say.

But because of the existence of leverage, your order volume can be more flexible, for example, you place 0.5 lots for 10,000 US dollars. At this time, the leverage of 5 times is used.

That is to say, no matter whether your platform gives you 100 times or 1000 times of leverage, the actual leverage you use in the process of making transactions is 5 times.

Then if you place a lot of 10,000 US dollars, the leverage you actually use is 10 times. If you place 10 lots for $10,000, the leverage you actually use is 100 times.

OK, speaking of this, the captain believes that most of the friends should have understood the truth.

For the vast majority of small partners who do foreign exchange transactions, the actual leverage you use in the transaction process is actually not that high. Most traders are almost ready to place a lot of 10,000 US dollars. At this time, the actual leverage is only 10 times. After all, there are still a small number of traders who can make 10 lots with 10,000 US dollars, which is an overweight position.

The large leverage set by the platform does not mean that the risk is high. The size of the risk is determined by the actual leverage used!

The actual leverage used is determined by the trader himself!

So, high leverage is high risk? Not necessarily, it's all up to you as a trader!

How much leverage is actually used is decided by the trader himself, not by the platform, which is also part of the capital management in the trading process.

On the contrary, under the premise that leverage can be used reasonably (this premise is very important), high leverage is actually a good thing.

Why do you say that? Because the higher the theoretical leverage set, the smaller the margin occupied, and the higher our capital utilization rate.

This is especially advantageous for users with small funds.

OK, the simple answer to this question is here, I am the captain, I have love in my heart, and the deal is undefeated!