If your trading requires nerves of steel, then it’s possible you’re risking more money than you should. You should only trade with risk capital. That is money you can afford to lose, so your trading does not cause you so much stress it leads to emotional decisions.
Forex trading involves significant risk of loss and is not suitable for all investors. The good news is forex traders have tremendous freedom to choose the level of risk that is suitable for them. For example, with FOREX.com you can open a trading account with as little as $50. Some smaller brokers let you open a trading account with even less money. Also, micro lot trading is offered by most retail brokers which lets you risk as little as 10 cent per pip on a trade.
Increasing leverage increases risk. The good news is you don’t have to use all the leverage that’s available to you. It’s important to understand the difference between the maximum leverage available to you, and the actual amount of leverage you are using. Maximum leverage is like the top speed your car can reach, while your effective leverage is like the speed you actually drive your car. And just as you would never drive your car at its top speed, you should never look to open trading positions so large that your effective leverage reaches the maximum leverage available to you.
That’s because leverage magnifies both your gains and your losses. Beginner traders tend to think only about how much money they can make and don’t pay enough attention to how much they could lose. You may find this article helpful in understanding the rationale behind risking only 1% of your account balance per trade: The Most Important Math in Trading | New Trader U | Page 4
It would be very hard to limit your risk to 1% of your account balance if you are using more than 10:1 effective leverage. That’s why studies have shown that traders who use 10:1 leverage or less tend to perform better than traders who use more than 10:1 leverage.
Regardless of the maximum leverage available to you through your broker (30:1, 50:1, 100:1 or 400:1, and you should be concerned about the risk management of brokers offering extremely high leverage to clients), you can choose to use 10:1 effective leverage (just as you can choose to drive 45 mph, whether your car has a top speed of 155 mph or 255 mph) which would equate to one micro lot (or 1000 currency units risking 10 cents per pip) for every $100 in your account balance.