whats the implication of increasing my leverage in forex?

when you increase the leverage on your forex trading account it means the margin requirement to open a trade becomes lesser.

So, if trader A is using a 1:30 account leverage, he will need to have at least a $10,000 account balance to open a trade valued at $300,000.

If trader B is using a 1:3000 account leverage, he will need to have at least a $100 account balance to open a trade valued at $300,000. See the difference????

I notice that new traders always love to use high leverage because their account balance is usually small and yet they want to make big profits.

High leverage exposes beginners to high risk because in as much as a higher leverage means you put down less in order to open a trade thus enabling you to open several positions at once, the risk is dire because any loss you make will be mutiplied by the leverage value.

A loss of $5 on a 1:30 leverage account automatically becomes $50 on a 1:3000 leverage account. This means your account balance could vanish in the twinkle of an eye when the market begins to move against you, thus leaving you angry, frustrated and discouraged.

High leverage in itself is not bad in the hands of professional traders but it is very dangerous in the hands of beginners.

Using high leverage cuases you to lose more every time the price moves against you by 1 pip. This causes your free margin to get depleted quicker than someone using lower leverage.

The person using higher leverage will get a margin call quicker than someone using lower leverage.

High leverage may work when there is no high volatility in the market but the moment volatility starts rocking the market boat back and forth, the high leverage trader has a higher chance of being thrown overboard.

I would say using high leverage is like driving without a seatbelt, it may seem okay at low speeds but is deadly at high speeds.

If you are using high leverage (above 100x) your losses roll in so fast that it does not give you time to think, sometimes traders just freeze out of shock of how much they have lost. This momentary freezing prevents them from cutting the losing position quickly because they start hoping it is not happening and that it will reverse.

Low leverage however makes any losses roll in at a slow pace giving you time to process whats happening. When i was using high leverage i used to freeze at the sudden losses i saw because they came so fast; a $10 account can drop to $0 is just a matter of 5 seconds.

High leverage is not even good for your blood pressure and overall health. If you keep going into shock & having blood pressure spikes every time you make losses, it could be bad for you,

when discussing leverage, i think it is proper to relate it to your trading account balance or trading capital.

Using high leverage on an account with a small balance is very risky because you can quickly make losses that exceed your account balance and you get stopped out.

High leverage gives a false sense of security because it is one thing to open a trade and it is another thing to remain in the trade till the market moves in your favor.

As they say, the market can remain irrational longer than you can remain solvent, so trading with high leverage on a small account balance you cannot remain solvent for long.

When your account balance is small it is better not to trade, but if you must trade then lower the leverage and possibly use a micro account.

For a $10 account i suggest a 1:100 leverage if you are a beginner.

I agree on using leverage that is according to your account balance.

But on your point "one thing to open a trade and it is another thing to remain in the trade till the market moves in your favor.", I don't agree. The best of trades, they move in your direction immediately. You know it almost immediately, atleast on intraday.

For example, when you enter a trade, you have some sort of picture in your mind of what that trade should look like. If it is not moving immediately, it is best to cut it for a small loss.

On leverage, I think as much as possible, a trader should aim for a steadily rising equity curve. The so-called 'account flipping', it leads to boom bust cycles, and in the end, you are net net losing, not winning.

It does fees good to make that big winner on high leverage, but if you are not able to keep that, what is even the point of it? It just leads to bad behavior.

When I mean high leverage, I mean extreme, like 1:1000 or 1:2000 etc. I use 1:100 or 1:200 leverage many times on my account by adding to the position when there is a really good trade working in my direction.

But using flat out 1:1000 leverage on let's say $100 account, you are trading 1 Standard lot, you will lose it all in 10 pips. So, it is all or nothing. I don't consider that trading.

And what happens after that if you are somehow not able to accept that loss? What will you do?

Thanks Karbin, you just said something important that I have always wantd to hear. You said once you open a good trade it should move to profitability almost immediately if not cut for a small loss. This makes so much sense to me thanks!

oh so this is why they say cut losses early @karbin but what then is the use of a stop loss?

Whenever you enter a trade, you have a fixed point that you have already decided that if the price goes past that level, then you are out. That is your SL.

But when you are in a trade, most often, you will know within 15-20 minutes if the trade is working or not. It is up to you at that point to take the loss & kill the trade early.

So, in that case rather than let's say your initial 10 pips SL, you will be out early with a smaller loss.

To give you an example, yesterday, I was pre-emptively short on Franky after the first opposite bar, even though it did not break the last bar's low. I thought that it would fall back into the Asian range, give a false break of the 1252 level. My stop was at 62, entry was at 54.

But for the next 30 minutes, the price was not breaking the low, and still holding above 52. And my entry was always hovering around BE or a minor loss.

And the London was opening. In such cases, you know that the initial reason for your entry is invalidated. Because if it was a fake, you want a quick reversal. But it was just holding above, not able to break the lows.

In this case, you would not wait for it to hit your 8 pips SL, you get out as soon as you know that the trade is not working out as anticipated. In this case my loss was around 5 pips.

There is always a possibility that by cutting it early you are intervening too much. But it comes from experience.

For a new trader, my suggestion is to place your SL at a point where you know definitely that reason for your trade is invalidated, and then let it hit.