Leverage is an invisible killer.
You can choose to trade at 20-400 times leverage, which is usually 50-100 times as much as the stock trades. You can bet on a small amount of money, so it is popular with many investors.
But when they fantasize that they can become rich, they often ignore that high leverage is also a double-edged sword, and high returns mean high risk.
Many ordinary investors are “killed” by leverage!
Therefore, you should have a new and comprehensive understanding of leverage.
1. Understand that leveraged trading is the use of small amounts of money to invest many times the original capital.
Trading is a leveraged transaction.
Leverage can double the principal of an investment, allowing investors to make high investments with only a small margin.
Leverage is the inverse of the margin ratio.
If you have to put down a 5% margin, you have 20 times the leverage;
If you have to put down a margin of 0.5%, you have 200 times leverage.
In general, the vast majority of dealers offer leverage ratios of 20-400.
2, what is the role of leverage leverage is a double-edged sword, can multiply the profits and losses!
Choosing a large lever requires taking a certain amount of risk.
Another point that most investors may miss is that as actual leverage increases, so do transaction costs (i.e., fees).
3, choose what kind of lever novice.
Don’t use too much leverage.
In general, you are likely to lose money when you start out, so choose a smaller leverage and would rather make less than take a huge loss.
Certainly not too small.
If the leverage ratio is too small, it will lose the sense of investment.
It’s easier to deposit your money directly in the bank.
Even sophisticated investors are not easily leveraged.
The 30 times leverage used by global hedge funds is very high!
In addition, good fund management is needed to avoid exploding positions during leveraged trading.
Generally, the risk of a single trade is no more than 2 percent of the amount in the account.
Of course, sometimes you don’t have as much leverage as you want, that’s what the bank or the dealer decides.
Leverage ratios can vary between dealer platforms.
The same dealer also has different leverage ratios for different trades and contract values.
In general, to avoid risk, particularly high contract values will be matched by smaller leverage ratios.
Some regulators and countries also have limits on leverage.
The US NFA, for example, limits the maximum leverage for transactions within the US to 50 times;
The FCA rules limit the maximum leverage to 400 times;
Japan’s FSA limits the leverage ratio of foreign exchange margin to 25 times.
The largest leverage ratio in Hong Kong is 20 times.
In Australia and New Zealand, where leverage is managed relatively loosely, it can be 500 times or greater.
In short, leverage and the number of contracts in your account should be relatively manageable.
If the leverage ratio is slightly higher, the number of contracts placed should be relatively small so that the risk of a single trade does not exceed 2% of the amount in the account.