Leverage advantage and disadvantage

Beginner Questions
#1

Is there any danger in using leverages?

#2

Yes, if you do not control your risk exposure. Protect your account always. Without it, you cannot trade live.

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#3

While leverage may improve an investment’s profits, there is a disadvantage: if the investment does not work out, it may raise the investment’s potential risk and loss.

The use of borrowed funds (debt) to support an investment or endeavor is referred to as leverage. As a result, a project’s potential profits are doubled.

#4

Yes, there is danger in using leverage in trading. Leverage is a tool that allows traders to open positions with a much larger value than the amount of capital they have in their trading account. So more profit, more loss.

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#5

If you’re asking this question, you’re not ready to trade live. I highly recommend reading the lessons under " The Number 1 Cause of Death of Forex Traders".

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#6
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#7

“Thank you for your response. I agree that controlling risk exposure is important for protecting one’s account. Do you have any specific strategies or tips for managing risk in live trading? I’d love to hear your thoughts.”

#8

Thank you for your response. I appreciate your insight on the potential risks and downsides of leverage. Do you have any suggestions for balancing the benefits of leverage with the need to manage risk and potential loss? I’d be interested in hearing your thoughts on this

#9

thanks dude. i appreciate your help

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#10

I aim to keep my risk exposure to 1% of my account for most every trade, and also keep a maximum 5% exposure for live trades.

I never add to losing positions, as that’s a fast track to blowing accounts. Accept the pain, close the trade as there is always another waiting. I hate losing, but I hate losing big more so.

As for winning trades, you could always scalp off 30% profit, bring up the S/L to breakeven and let the balance run with a trailing S/L.

Hope that helps.

#11

you mean it is better to use a demo account with a leverage first?

#12

do you use leverage on your trading live accounts or demo ones?coz i am eager to use leverage but i also afraid of losing money :))))

#13

You should follow the free courses on this great education site, and open a demo account from a regulated trader to practice and experiment on what you will learn. I trade a risk leverage at 200:1 on a 3K account ranging from 0.01 - 0.08 micro trade entry.

Try and distance yourself from even thinking about money, as you have only your risk exposure control to protect your account. That is what you focus on when trading, For example, I could move my S/L to my risk exposure level, which could range from a few dollars to around $20.

best of luck.

#14

Leverage involves borrowing money or using other financial instruments to increase the potential return on investment. Leverage can be advantageous or disadvantageous depending on the situation.

Advantages of leverage:

1. Amplified returns: Investors can amplify their returns with leverage, potentially earning higher profits than they would with their own money.

2. Diversification: The use of leverage allows investors to diversify their portfolios and invest in a wider range of assets, which can help reduce overall risk.

3. Flexibility: A leveraged position allows investors to enter and exit positions more easily since they do not have to have the full amount of capital to initiate a trade.

4. Access to capital: The use of leverage allows access to additional capital that might not be available otherwise, which can be used for a variety of purposes, such as investment, business operations, or debt refinancing.

Disadvantages of leverage:

1. Increased risk: Leverage can amplify both gains and losses, leading to potentially significant losses if investments perform poorly.

2. Debt servicing costs: The cost of servicing debt can increase significantly when leverage is used, which can reduce overall returns.

3. Margin calls: Investors may be required to provide additional collateral or face liquidation if the value of their investment falls below a certain level.

4. Limited upside potential: As a significant portion of the return may need to be used to repay the borrowed funds, leverage can limit the upside potential of an investment.

Overall, Leverage can be a powerful tool for investors, but it should be used with caution and only by those who are fully aware of the risks involved.