Leverage can be your friend, but respect it or
it will quickly become your enemy.
Many Forex Brokers include statements about their leverage rates
in their advertisements but what does this really mean? For many,
seeing a headline of '100:1 leverage' is confusing and doesn't
really explain what affect this has on your trading with them.
Think of it in this way; for every £100 of exposure to a currency
pair you would like to have, the forex broker will want a deposit
of £1 from you before the trade is opened.
Leverage can be your friend but if it isn't used sensibly it can
create some very nasty problems for those who don't respect it. New
traders seem to be obsessed by leverage and want to find the broker
who offers the greatest ratio. In recent times it was not uncommon
to see brokers offering leverage of 400:1 which some considered to
be irresponsible to allow relatively inexperienced retail traders
to gain such large exposure to the market with relatively small
deposits, especially given the potential volatility of some of the
currency pairs.
Tip: You'll see this in risk warning notices on
websites and in financial service provider adverts but never trade
with money you can't afford to lose and remember that it is
possible to lose more than your initial deposit.
Smaller leverage in the US and Asia but not in the UK
The American and Japanese regulators have recently acted to stop
this practice of offering increasing leverage ratios and now limit
the major currency pairs to leverage of 50:1 and the minor currency
pairs to just 20:1 (in Japan the leverage restrictions are even
tighter). At the moment these restrictions have not extended to the
UK which means that retail traders in the UK can still gain
exposure to a major currency pair of up to £200 for a deposit of
just £1.
This means you can keep the majority of your trading capital in
your bank account instead of lodged at a broker but be warned, keep
your funds in a liquid, easy access account so that you are able to
fund your trading account easily should the markets move against
you.
Trading.co.uk can help you make the right decision
Finding the right company for your style of trading is very
important and with over a dozen providers regularly advertising
their products there is plenty of choice for new and existing
clients. Much of the decision making process will be around the
trading technology on offer, the product range, charting package
and ease of account opening. Our unique comparison table gives
insight into the services on offer and provides an easy reference
guide when deciding who best to trade with.
Further resources on Forex trading
Comparing Forex brokers
Below is a table of Forex brokers with a few key account-opening
criteria that we believe should be considered when you are deciding
which broker to open an account with. It's not always about price;
finding a broker that suits your style of trading and your
technical requirements is as, if not more, important than shaving a
few pence off of your dealing costs.
Start comparingForex brokers
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