Forex trading is well known for it's hype that you can deposit $300 into an account, make a few highly leveraged trades, and make a 100 percent return on capital in just a few days. The problem is that there really isn't anyone out there doing this. It would be account suicide to even attempt it.
How do professional forex traders use leverage?
The simple answer is, sparingly. Some conservative traders out there don't use any leverage at all. Despite forex brokers offering 50:1 or 100:1, you would be hard pressed to find any professional using more than 10:1.
You might ask yourself, if they are professionals, why not use more leverage? The truth is that there is no way to predict what the market will do 100 percent, if you are trading with all that leverage and you make a mistake, it may be your last. The reduction in leverage is actually something that shows that you've learned from experience and you know that the market takes no prisoners.
Leverage is nothing more than a trading tool like any other. It should be used along with all your other trading tools. Currency trades can move quite a distance in a short time, there really isn't much need for heavy leverage. Sure you might win a couple of cowboy trades, but you could also end up laying in the street at the OK Corral.
If you want to be a forex trading professional learn to turn down the leverage. There is a saying among forex traders. There are old traders, and there are bold traders, but there are no old, bold, traders. If you live by the sword, you will surely die by the sword at one point. You can clearly be lucky for a while, but highly leveraging your trading account will eventually blow up in your face.
As a beginning trader, you might not want to believe that the fairy tale isn't true, but it just simply isn't. Think of leverage as if it were a car. Yes, it's capable of going 100 miles per hour, but how often do you actually need to do that?
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